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Allocative Efficiency, Plant Dynamics and Regional Productivity: Evidence from Germany

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  • Simon Bruhn
  • Thomas Grebel

Abstract

The productivity gap between East and West Germany is a long ongoing discussion among the public and policy makers. Regional disparities still appear to be substantial. In this paper, we shed light on the role of allocative efficiency as a region’s driver of productivity disparities. We show that over 50 percent of the East-West productivity gap is associated with a less efficient labor allocation in former East Germany. Controlling for the heterogeneity among German federal states, we perform spatial regression on official firm-level data (AFiD), revealing that the regional differences in allocative efficiency are significantly associated with trade openness, competitive intensity, economies of scale and labor mobility.

Suggested Citation

  • Simon Bruhn & Thomas Grebel, 2025. "Allocative Efficiency, Plant Dynamics and Regional Productivity: Evidence from Germany," International Regional Science Review, , vol. 48(1), pages 62-91, January.
    • Handle: RePEc:sae:inrsre:v:48:y:2025:i:1:p:62-91
    DOI: 10.1177/01600176241237175
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