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Transfers, non-tradable goods and a distorted economy in eastern Germany

Author

Listed:
  • Harald Simons

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

Abstract

A neoclassical 2x2 model with one tradable and one non-tradable good is used to examine some effects of the public transfers to eastern Germany. Results indicate that transfers enlarge the non-tradable sector at the expense of the tradable sector. In the case of minimum-wage-induced unemployment, transfers have a similar localisation effect. Using data from social security employment statistics, the localisation effect can clearly be shown. The paper concludes with some speculation on the effects of transfers on growth prospects and hypothesises whether the transfer itself might be one cause for the low growth rates of the eastern German economy.

Suggested Citation

  • Harald Simons, 2007. "Transfers, non-tradable goods and a distorted economy in eastern Germany," FEMM Working Papers 07002, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    • Handle: RePEc:mag:wpaper:07002
    as

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    File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2007_Dateien/2007_02.pdf
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    References listed on IDEAS

    as
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    2. Hans‐Werner Sinn, 2002. "Germany’s Economic Unification: An Assessment after Ten Years," Review of International Economics, Wiley Blackwell, vol. 10(1), pages 113-128, February.
    3. De Gregorio, Jose & Giovannini, Alberto & Wolf, Holger C., 1994. "International evidence on tradables and nontradables inflation," European Economic Review, Elsevier, vol. 38(6), pages 1225-1244, June.
    4. Lehmann, Harald & Ludwig, Udo & Ragnitz, Joachim, 2005. "Originäre Wirtschaftskraft der neuen Länder noch schwächer als bislang angenommen," Wirtschaft im Wandel, Halle Institute for Economic Research (IWH), vol. 11(5), pages 134-145.
    5. Sinn, Hans-Werner, 2002. "Germany's Economic Unification: An Assessment after Ten Years," Review of International Economics, Wiley Blackwell, vol. 10(1), pages 113-128, February.
    6. Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 98-116.
    7. Rivera-Batiz, Francisco L, 1982. "Nontraded Goods and the Pure Theory of International Trade with Equal Numbers of Goods and Factors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(2), pages 401-409, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Transfer; non-tradeable goods; eastern Germany;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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