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

  • Harald Simons

    ()

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

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    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.

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    File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2007_Dateien/2007_02.pdf
    File Function: First version, 2007
    Download Restriction: no

    Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 07002.

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    Length: 19 pages
    Date of creation: Jan 2007
    Date of revision:
    Handle: RePEc:mag:wpaper:07002
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    Web page: http://www.ww.uni-magdeburg.de

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    1. Hans-Werner Sinn, 2000. "Germany's Economic Unification. An Assessment after Ten Years," CESifo Working Paper Series 247, CESifo Group Munich.
    2. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
    3. Harald Lehmann & Udo Ludwig & Joachim Ragnitz, 2005. "Originäre Wirtschaftskraft der neuen Länder noch schwächer als bislang angenommen," Wirtschaft im Wandel, Halle Institute for Economic Research, vol. 11(5), pages 134-145.
    4. 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.
    5. Jacqueline Dwyer & Christine Groeger, 1994. "Resource Flows to the Traded Goods Sector," RBA Research Discussion Papers rdp9401, Reserve Bank of Australia.
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