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Distribution Dynamics of Regional GDP per Employee in Unified Germany

  • Vollmer, Sebastian
  • Holzmann, Hajo
  • Ketterer, Florian
  • Klasen, Stephan

We investigate to what extent convergence in production levels per worker has been achieved in Germany since unification. To this end, we model the distribution of GDP per employee across German districts using two-component normal mixtures. While in the first year after unification, the two component distributions were clearly separated and bimodal, corresponding to the East and West German districts, respectively, in the following years they started to merge showing only one mode. Still, using the recently developed EM-Test for homogeneity in normal mixtures, the hypothesis of just a single normal component for the whole distribution is clearly rejected for all years. A Posterior analysis shows that about half of the East German districts were assigned to the richer component in 2006, thus catching up to levels of the West. The growth rate of a mover district is about one percentage point higher than the growth rate of a non-mover district which had the same initial level of GDP per employee.

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Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-461.

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Length: 18 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:han:dpaper:dp-461
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  1. Harald Uhlig, 2006. "Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification," SFB 649 Discussion Papers SFB649DP2006-004, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Roberta Colavecchio & Declan Curran & Michael Funke, 2005. "Drifting Together or Falling Apart? The Empirics of Regional Economic Growth in Post-Unification Germany," Quantitative Macroeconomics Working Papers 20509, Hamburg University, Department of Economics.
  3. Hajo Holzmann & Sebastian Vollmer, 2008. "A likelihood ratio test for bimodality in two-component mixtures with application to regional income distribution in the EU," AStA Advances in Statistical Analysis, Springer, vol. 92(1), pages 57-69, February.
  4. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June.
  5. Vollmer, Sebastian & Holzmann, Hajo & Schwaiger, Florian, 2010. "Peaks vs. Components," Hannover Economic Papers (HEP) dp-452, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  6. Quah, Danny, 1993. "Galton's Fallacy and Tests of the Convergence Hypothesis," CEPR Discussion Papers 820, C.E.P.R. Discussion Papers.
  7. Burda, Michael C., 2008. "What kind of shock was it? Regional integration and structural change in Germany after unification," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 557-567, December.
  8. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
  9. Paapaa, Richard & van Dijk, Herman K., 1998. "Distribution and mobility of wealth of nations," European Economic Review, Elsevier, vol. 42(7), pages 1269-1293, July.
  10. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
  11. Harald Uhlig, 2008. "The Slow Decline of East Germany," NBER Working Papers 14553, National Bureau of Economic Research, Inc.
  12. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.
  13. Bianchi, Marco, 1997. "Testing for Convergence: Evidence from Non-parametric Multimodality Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(4), pages 393-409, July-Aug..
  14. Robert J. Barro & Xavier Sala-i-Martin, 1991. "Convergence across States and Regions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
  15. Andreas Schäfer & Thomas Steger, 2010. "History, Expectations, and Public Policy: Economic Development in Eastern Germany," CESifo Working Paper Series 3184, CESifo Group Munich.
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