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Germany's Economic Unification: An Assessment after Ten Years

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  • Hans-Werner Sinn

Abstract

A political miracle occurred when Germany was reunited, and at first glance an economic miracle has followed. Real incomes in the east have now reached the western level, and investment per capita has been much higher than in the west. However, every third deutschmark spent in the east has been coming from the west, investment in equipment has fallen below the west German per capita level, and convergence seems to have come to a halt at an overall labor productivity of only 55% of west Germany. Excessively high wages coupled with investment incentives that made the cost of capital negative rank high among the possible explanations. This paper describes reforms of the labor market that could help to make convergence continue.

Suggested Citation

  • Hans-Werner Sinn, 2000. "Germany's Economic Unification: An Assessment after Ten Years," NBER Working Papers 7586, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7586
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    References listed on IDEAS

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    1. Keller, Wolfgang, 2000. "From socialist showcase to Mezzogiorno? Lessons on the role of technical change from East Germany's post-World War II growth performance," Journal of Development Economics, Elsevier, vol. 63(2), pages 485-514, December.
    2. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.
    3. Wolfgang Franz & Viktor Steiner, 2000. "Wages in the East German Transition Process: Facts and Explanations," German Economic Review, Verein für Socialpolitik, vol. 1(3), pages 241-269, August.
    4. Hans-Werner Sinn, 2000. "EU Enlargement, Migration, and Lessons from German Unification," German Economic Review, Verein für Socialpolitik, vol. 1(3), pages 299-314, August.
    5. Hans-Werner Sinn, 1995. "Staggering along: wages policy and investment support in East Germany," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(4), pages 403-426, December.
    6. Wolfgang Nierhaus, 1999. "Höhere Rentenanpassung in Ostdeutschland erforderlich?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 52(19), pages 20-24, October.
    7. Andrea Boltho & Wendy Carlin & Pasquale Scaramozzino, 1999. "Will East Germany become a new Mezzogiorno?," Chapters,in: Economic Growth and Change, chapter 13 Edward Elgar Publishing.
    8. Albert Müller, 2000. "Aufholprozess der ostdeutschen Wirtschaft stagniert," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 53(3), pages 9-16, February.
    9. Karl-Heinz Paque, 1999. "Zehn Jahre Aufbau Ost: eine Zwischenbilanz," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 52(34), pages 13-19, February.
    10. Klodt, Henning, 1999. "Industrial policy and the East German productivity puzzle," Kiel Working Papers 943, Kiel Institute for the World Economy (IfW).
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    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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