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Regional trajectories of entrepreneurship: the effect of socialism and transition

Author

Listed:
  • Michael Fritsch

    (Friedrich Schiller University Jena and Halle Institute for Economic Research (IWH), Germany)

  • Maria Kristalova

    (Friedrich Schiller University Jena, Germany)

  • Michael Wyrwich

    (University of Groningen, The Netherlands, and Friedrich Schiller University Jena, Germany)

Abstract

We investigate how major historical shocks affect regional trajectories of economic activity. To this end, we conduct a comparative analysis of the development of entrepreneurship in East and West Germany after World War II. The introduction of an anti-entrepreneurial socialist economy in East Germany in 1949, and the subsequent transformation to a market economy four decades later were major historical shocks to the economy in general, and to entrepreneurship specifically. Our comparative analysis of East and West Germany assesses how these shocks affected the level of entrepreneurship at the regional level. Surprisingly, our results show that socialism does not have a long-run negative effect on the prevalence of self-employment in East Germany, despite the severe anti- entrepreneurial policies prevalent in Soviet-style socialism. Quite to the contrary, there is actually a positive treatment effect of German separation and reunification. Further analyses suggest that current structural differences in regional levels of self-employment in Germany are not pre- dominantly due to the socialist legacy of the East, but mainly a result of the shock transformation that occurred with reunification.

Suggested Citation

  • Michael Fritsch & Maria Kristalova & Michael Wyrwich, 2020. "Regional trajectories of entrepreneurship: the effect of socialism and transition," Jena Economics Research Papers 2020-010, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2020-010
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    References listed on IDEAS

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    Cited by:

    1. Michael Fritsch & Michael Wyrwich, 2022. "Initial conditions and regional performance in the aftermath of disruptive shocks: the case of East Germany after socialism [The knowledge spillover theory of entrepreneurship]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 31(6), pages 1428-1459.
    2. Sorgner, Alina & Wyrwich, Michael, 2022. "Calling Baumol: What telephones can tell us about the allocation of entrepreneurial talent in the face of radical institutional changes," Journal of Business Venturing, Elsevier, vol. 37(5).
    3. Michael Fritsch & Michael Wyrwich, 2020. "Technological Complexity and Economic Growth of Regions," Papers in Evolutionary Economic Geography (PEEG) 2050, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Oct 2020.

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    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • N94 - Economic History - - Regional and Urban History - - - Europe: 1913-
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics

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