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Some Lessons from Economic Transformation in East Germany

Author

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  • Bofinger, Peter
  • Cernohorsky, Ivan

Abstract

The paper compares the experience with shock therapies in East Germany, Poland and the CSFR. After an analysis of the individual starting conditions and economic performance since the inception of comprehensive reform programmes it focuses on the specific elements of the East German reform strategy. It shows that the short-term impact of huge transfers from West to East Germany was not necessarily positive for East German firms. It identifies the lack of incomes policies as a major flaw in the East German transformation concept. On the positive side the rapid restructuring of the East German financial sector allowed it to overcome the inefficiencies that characterize the banking systems nd enterprise finance in Poland and the CSFR. In addition, with the Treuhand it was possible to establish a functioning principal-agent relation between the government as the owner of state-owned firms and the management of these firms, which is completely absent in Poland and the CSFR. That explains why these two countries were not able to benefit much more from their enormous wage advantage over the former GDR.

Suggested Citation

  • Bofinger, Peter & Cernohorsky, Ivan, 1992. "Some Lessons from Economic Transformation in East Germany," CEPR Discussion Papers 686, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:686
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    Citations

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    Cited by:

    1. Lee, Chung Hoon, 1993. "Korean unification: Issues in transition and economic union," Kiel Working Papers 590, Kiel Institute for the World Economy (IfW Kiel).
    2. Karp, Larry & Paul, Thierry, 1998. "Labor adjustment and gradual reform: when is commitment important?," Journal of International Economics, Elsevier, vol. 46(2), pages 333-362, December.
    3. Karp, Larry & Paul, Thierry, 1994. "Labor Adjustment and Gradual Reform:Is Commitment Important?," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7gc7t3nm, Department of Agricultural & Resource Economics, UC Berkeley.

    More about this item

    Keywords

    German Unification; Stabilization; Transition of Socialist Economies; Treuhandanstalt; Wages;
    All these keywords.

    JEL classification:

    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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