IDEAS home Printed from https://ideas.repec.org/p/uam/wpaper/201403.html
   My bibliography  Save this paper

The rise or the fall of the wall? Determinants of low entrepreneurship in East Germany

Author

Listed:
  • Kuehn, Zoe

    () (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)

Abstract

Between 1949 and 1989, communism restricted private entrepreneurship in East Germany, but even after reunification in 1990 entrepreneurship remained low compared to other transition economies. To quantify the determinants of low entrepreneurship in East Germany and its impact on economic outcomes, I set up a two-region model economy with occupational and migration choices. Individuals can become workers or entrepreneurs in East or West Germany. In line with German policy after reunification, in East Germany wages are fixed above labor productivity and there are capital subsidies. Managerial knowhow is a combination of innate talent and entrepreneurial parental background which only West Germans possess. Technological growth increases with the innate talent of entrepreneurs. Counter-factual experiments show that the missing tradition of entrepreneurship, while contributing to technological growth, accounts for almost 10 percentage points of the gap between East and West German GDP per capita. On the other hand, reunification (wage setting policy, migration possibilities, and subsidies) slowed down technological growth and increased the output gap by 7 percentage points.

Suggested Citation

  • Kuehn, Zoe, 2014. "The rise or the fall of the wall? Determinants of low entrepreneurship in East Germany," Working Papers in Economic Theory 2014/03, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  • Handle: RePEc:uam:wpaper:201403
    as

    Download full text from publisher

    File URL: http://www.uam.es/departamentos/economicas/analecon/especifica/mimeo/wp20143.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Konrad B. Burchardi & Tarek A. Hassan, 2013. "The Economic Impact of Social Ties: Evidence from German Reunification," The Quarterly Journal of Economics, Oxford University Press, vol. 128(3), pages 1219-1271.
    2. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 503-530.
    3. Claustre Bajona & Luis Locay, 2009. "Entrepreneurship and Productivity: The Slow Growth of the Planned Economies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 505-522, July.
    4. Frank W. Heiland, 2004. "Trends in East-West German Migration from 1989 to 2002," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 11(7), pages 173-194, September.
    5. Francesco Caselli & Nicola Gennaioli, 2013. "Dynastic Management," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 971-996, January.
    6. Snower, Dennis J. & Merkl, Christian, 2006. "The caring hand that cripples: The East German labor market after reunification (detailed version)," Kiel Working Papers 1263, Kiel Institute for the World Economy (IfW).
    7. Fabio Canova & Morten Ravn, 2000. "The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 423-460, July.
    8. Dennis J. Snower & Christian Merkl, 2006. "The Caring Hand that Cripples: The East German Labor Market after Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 375-382, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Oliver Falck & Robert Gold & Stephan Heblich, 2017. "Lifting the iron curtain: school-age education and entrepreneurial intentions," Journal of Economic Geography, Oxford University Press, vol. 17(5), pages 1111-1148.

    More about this item

    Keywords

    Entrepreneurship; Growth; Allocation of Talent; Social Mobility; Transition;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F15 - International Economics - - Trade - - - Economic Integration
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uam:wpaper:201403. 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: (Andrés Maroto-Sánchez). General contact details of provider: http://edirc.repec.org/data/dauames.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.