Transfers and transition: The impact of government support on factor demand and production in Eastern Germany
The paper presents an error-correction model of factor demand and output, analysing the effects of a change in relative factor prices on investment, employment and output in the eastern German manufacturing sector. The principal aim is twofold: first, to examine if the large amounts of capital subsidization mainly benefitted the capital-intensive industries, thus leading to distortions in the production structure, and second, to find out if the subsidies proved to be successful in creating employment in the eastern German industries or if they rather contributed to a substitution of capital for labour and skilled labour. The model uses the concept of the user cost of capital for a representation of capital costs, integrating the main instruments of subsidization. The results confirm that all in all, capital subsidies seem to encourage capital-intensive production structures. As to employment, the positive output effect might overcompensate the substitution effect only for skilled, but not for unskilled labour and only in the capital- and surprisingly also in the labour-intensive industries. For the skilledlabour- intensive industries, the outcome is much less encouraging.
|Date of creation:||1998|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 431 8814-1
Fax: +49 431 85853
Web page: http://www.ifw-kiel.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jorgenson, Dale W, 1971. "Econometric Studies of Investment Behavior: A Survey," Journal of Economic Literature, American Economic Association, vol. 9(4), pages 1111-47, December.
- Brauer, Holger & Falk, Martin & Raiser, Martin, 1996. "Labour markets in Poland and Hungary five years from the start of transition: Evidence from monthly data," Kiel Working Papers 742, Kiel Institute for the World Economy.
- Faini, Riccardo & Schiantarelli, Fabio, 1985. "Oligopolistic models of investment and employment decisions in a regional context: Theory and empirical evidence from a putty-clay model," European Economic Review, Elsevier, vol. 27(2), pages 221-242, March.
- Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992.
"The Power of Cointegration Tests,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 54(3), pages 325-48, August.
- Hughes Hallett, A & Ma, Y & Melitz, J, 1995.
"Unification and the Policy Predicament in Gemany,"
01, American Institute for Contemporary German Studies-.
- King, M. A., 1972. "Taxation and investment incentives in a vintage investment model," Journal of Public Economics, Elsevier, vol. 1(1), pages 121-147, April.
- Gerling, Katja & Schmidt,Klaus-Dieter, 1997. "On the competitive position of Eastern German manufacturing: Why is catching-up so slow?," Kiel Working Papers 825, Kiel Institute for the World Economy.
- M. Ishaq Nadiri, 1972. "An Alternative Model of Business Investment Spending," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 3(3), pages 547-584.
- David Begg & Richard Portes, 1993.
"Eastern Germany since unification: wage subsidies remain a better way,"
The Economics of Transition,
The European Bank for Reconstruction and Development, vol. 1(4), pages 383-400, December.
- Begg, David & Portes, Richard, 1992. "Eastern Germany Since Unification: Wage Subsidies Remain a Better Way," CEPR Discussion Papers 730, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:kie:kieliw:878. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dieter Stribny)
If references are entirely missing, you can add them using this form.