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Transfers, agglomeration and German unification

  • Ross, Matthias
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    This paper analyses in the framework of a 2-region economic geography model the impact of transfers on agglomeration of economic activity. Two main results can be derived: First, subsidies to the activity of firms are more efficient to avoid agglomeration than subsidies to consumers (social policy). Second, if a less developed region starts its catch up process first increasing and afterwards decreasing transfers are necessary to avoid agglomeration. Due to these results east Germany?s slowdown of convergence may be a consequence of too less transfers and especially too less firm subsidies. Furthermore, if east Germany locates still at the first stage of convergence even increasing transfers would be necessary to guarantee convergence.

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    Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 144.

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    Date of creation: 2001
    Date of revision:
    Handle: RePEc:zbw:hwwadp:26161
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    1. Sinn, Hans-Werner, 2002. "Germany’s Economic Unification: An Assessment after Ten Years," Munich Reprints in Economics 19643, University of Munich, Department of Economics.
    2. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
    3. Richard E. Baldwin & Paul Krugman, 2002. "Agglomeration, Integration and Tax Harmonization," NBER Working Papers 9290, National Bureau of Economic Research, Inc.
    4. Fujita, Masahisa & Thisse, Jacques-François, 1996. "Economics of Agglomeration," CEPR Discussion Papers 1344, C.E.P.R. Discussion Papers.
    5. Martin, Philippe, 1998. "Public Policies, Regional Inequalities and Growth," CEPR Discussion Papers 1841, C.E.P.R. Discussion Papers.
    6. Ottaviano, G.I.P., 1999. "Ad Usum Delphini: a Primer in 'New Economic Geography'," Economics Working Papers eco99/28, European University Institute.
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