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The global economic implications of German unification

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  • Lewis S. Alexander
  • Joseph E. Gagnon

Abstract

This paper uses a multi-country econometric model to assess the global impact of rapid economic integration of the two Germanys. The fundamental assumptions are that East Germany brings relatively more labor than capital to the union than does West Germany, and that the economic structure of a united Germany is essentially identical to that of pre-unification West Germany. In all of the simulations economic union leads to an acceleration of growth and investment in Germany, a real appreciation of the Deutschemark, and a reduction in Germany's current account surplus. The impact of German economic unification on other countries is relatively modest, as the additional investment demand is not large relative to global investment and a disproportionate share of that investment demand is met by domestic German savings.

Suggested Citation

  • Lewis S. Alexander & Joseph E. Gagnon, 1990. "The global economic implications of German unification," International Finance Discussion Papers 379, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:379
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    References listed on IDEAS

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    1. Joseph E. Gagnon, 1989. "A forward-looking multicountry model: MX3," International Finance Discussion Papers 359, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Joseph E. Gagnon & Paul R. Masson & Warwick J. McKibbin, 2019. "German Unification: What Have We Learned from Multi-Country Models?," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 4, pages 101-140, World Scientific Publishing Co. Pte. Ltd..
    2. Hughes Hallett, A. & Ma, Y. & Melitz, J., 1996. "Unification and the policy predicament in Germany," Economic Modelling, Elsevier, vol. 13(4), pages 519-544, October.
    3. Charles Wyplosz, 1991. "On the real exchange rate effect of German unification," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 127(1), pages 1-17, March.

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    Keywords

    Germany;

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