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Blooming Landscapes in the West? - German reunification and the price of land

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  • Raphael Schoettler
  • Nikolaus Wolf

Abstract

Abstract: German reunification was a positive market access shock for both East and West Ger- many. Regions that for 45 years had experienced a decline in population due to their loss in market access following the division of Germany after WWII were most strongly aected by this positive shock. We use an entirely new data set to analyse the eects of German reunication on the value of land in West Germany. We nd that regions in the immediate border area experienced a relative rise in land prices compared to regions outside a 100km radius from the border. At the same time we conrm the absence of a population eect (Redding and Sturm, 2008) even including rural boroughs. We nd that land values have adjusted more quickly than population and in some cases even overshot predicted long-run levels within the rst decade of reunication. We attribute this nding to the information and expectation component of land prices. Land values incorporate expectations about long- run equilibrium adjustments following reunication more swiftly, but rms and households are slower to react due to the costs of relocating. The results are consistent with empirical work on the positive eects of infrastructure projects on land values (Yiu and Wong, 2005; Lai et al., 2007; Duncan, 2011).

Suggested Citation

  • Raphael Schoettler & Nikolaus Wolf, 2016. "Blooming Landscapes in the West? - German reunification and the price of land," SFB 649 Discussion Papers SFB649DP2016-034, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  • Handle: RePEc:hum:wpaper:sfb649dp2016-034
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    References listed on IDEAS

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    1. Volker Nitsch & Nikolaus Wolf, 2013. "Tear down this wall: on the persistence of borders in trade," Canadian Journal of Economics, Canadian Economics Association, vol. 46(1), pages 154-179, February.
    2. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 105-130, Summer.
    3. Stephen J. Redding & Daniel M. Sturm, 2008. "The Costs of Remoteness: Evidence from German Division and Reunification," American Economic Review, American Economic Association, vol. 98(5), pages 1766-1797, December.
    4. Dave Donaldson & Richard Hornbeck, 2016. "Railroads and American Economic Growth: A "Market Access" Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 131(2), pages 799-858.
    5. Amiti, Mary & Smarzynska Javorcik, Beata, 2008. "Trade costs and location of foreign firms in China," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 129-149, February.
    6. H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, vol. 67(1), pages 1-24, September.
    7. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(2), pages 284-314, June.
    8. Ayuso, Juan & Restoy, Fernando, 2006. "House prices and rents: An equilibrium asset pricing approach," Journal of Empirical Finance, Elsevier, vol. 13(3), pages 371-388, June.
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    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • N94 - Economic History - - Regional and Urban History - - - Europe: 1913-
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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