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The Eastern German Growth Trap: Structural Limits to Convergence?

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  • Ulrich Blum

    (Martin Luther University Halle-Wittenberg)

Abstract

After an initial take-off during the first eight years following unification, the Eastern German economy started to stall and regress to its old growth path of the 1950s and 1960s. The initial quick convergence only compensated for the dismal stagnation that the expropriation and concentration strategies of party leader and general secretary Erich Honecker had produced. Since then, Eastern Germany has followed a two-thirds growth path compared to Western Germany, which shows that the structural problems of communist rule have not been overcome. The share of small and medium-sized firms is too small, creating an extremely fragmented group structure of firms and, thus, a lack of internationally active headquarters. A 1% increase of small and medium-sized firms on average reduces growth by 0.3%. This paper argues that catching up with the West will take more than a generation and needs to address central economic woes by encouraging endogenous, as well as exogenous growth through a merger-and-acquisition strategy and through the establishment of headquarters.

Suggested Citation

  • Ulrich Blum, 2019. "The Eastern German Growth Trap: Structural Limits to Convergence?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 54(6), pages 359-368, November.
    • Handle: RePEc:spr:intere:v:54:y:2019:i:6:d:10.1007_s10272-019-0854-8
    DOI: 10.1007/s10272-019-0854-8
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    Cited by:

    1. Björn Alecke & Timo Mitze & Annekatrin Niebuhr, 2021. "Building a bridge over the valley of death? New pathways for innovation policy in structurally weak regions," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 41(2), pages 185-210, October.
    2. Blum Ulrich, 2023. "What Can Ukraine Learn from Aufbau Ost?," Intereconomics: Review of European Economic Policy, Sciendo, vol. 58(2), pages 119-126, March.
    3. Fanti, Lucrezia & Pereira, Marcelo C. & Virgillito, Maria Enrica, 2023. "The North-South divide: Sources of divergence, policies for convergence," Journal of Policy Modeling, Elsevier, vol. 45(2), pages 405-429.

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