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Reversing Fortunes of German Regions, 1926-2019: Boon and Bane of Early Industrialization?

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  • Berbée, Paul
  • Braun, Sebastian T.
  • Franke, Richard

Abstract

This paper shows that 19th-century industrialization is an important determinant of the significant changes in Germany’s economic geography observed in recent decades. Using novel data on economic activity in 163 labor market regions in West Germany, we establish that nearly half of them experienced a reversal of fortune between 1926 and 2019, i.e., they moved from the lower to the upper median of the income distribution or vice versa. Economic decline is concentrated in North Germany, economic ascent in the South. Exploiting plausibly exogenous variation in access to coal, we show that early industrialization turned from an advantage for economic development to a burden after World War II. The dominant position of heavy industry, supported by the local political-administrative system, limited regional adaptability when the old industries fell into crisis. Today, the early industrialized regions suffer from low innovation and deindustrialization. The (time-varying) effect of industrialization explains most of the decline in regional inequality observed in the 1960s and 1970s and about half of the current north-south gap in economic development.
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  • Berbée, Paul & Braun, Sebastian T. & Franke, Richard, 2022. "Reversing Fortunes of German Regions, 1926-2019: Boon and Bane of Early Industrialization?," VfS Annual Conference 2022 (Basel): Big Data in Economics 264032, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc22:264032
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    More about this item

    JEL classification:

    • N91 - Economic History - - Regional and Urban History - - - U.S.; Canada: Pre-1913
    • N92 - Economic History - - Regional and Urban History - - - U.S.; Canada: 1913-
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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