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German reunification and convergence policies

Author

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  • Juan Carlos Martinez Oliva

    (Banca d'Italia)

Abstract

This paper examines German reunification from its inception. It shows that after the rapid expansion of the early years, former East Germany entered a phase of slow growth that made it impossible to bridge the gap with West Germany. Unemployment remains high, low growth rates appear ingrained, and persistent regional unbalances affect the social and economic prospects of the area. The long-term outlook is threatened by adverse demographic trends and by the need for fiscal consolidation. A comparison between eastern Germany and the Italian Mezzogiorno shows that both rely heavily on government intervention. This dependency is perpetuated by the evident difficulty of setting an autonomous growth process in motion. By contrast, unlike the Mezzogiorno, the eastern German regions enjoy a high level of infrastructural endowment, a legal system that is both efficient and effective, and excellent human capital, partly inherited from the former DDR.

Suggested Citation

  • Juan Carlos Martinez Oliva, 2009. "German reunification and convergence policies," Questioni di Economia e Finanza (Occasional Papers) 51, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_51_09
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2009-0051/QEF_51.pdf
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    More about this item

    Keywords

    Germany; Mezzogiorno; transition; integration; Finanzausgleich; Treuhandanstalt;
    All these keywords.

    JEL classification:

    • H0 - Public Economics - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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