Economic Transition in Unified Germany and Implications for Korea
Hyung-Gon Jeong, Gerhard Heimpold
H.-G. Jeong and G. Heimpold (eds.): Economic Transition in Unified Germany and Implications for Korea. Policy References 17-13. Sejong: Korea Institute for International Economic Policy,
2017
Abstract
The reunification of Germany, which marked the end of the Cold War in the 20th century, is regarded as one of the most exemplary cases of social integration in human history. Nearly three decades after the German reunification, the economic and social shocks that occurred at the beginning of the reunification process have largely been resolved. Moreover, the unified Germany has grown into one of the most advanced economies in the world.
The unification process that Germany underwent may not necessarily be the way that the Republic of Korea would choose. However, the economic and social exchanges between East and West Germany prior to unification, and the cooperation in a myriad of policies based on these exchanges, served as the crucial foundation for unification. The case of Germany will surely help us find a better way for the re-unification of the Korean Peninsula.
In this context, this is the first edition of a joint research which provides diverse insights on social and economic issues during the process of unification. It consists of nine chapters whose main topics include policies on macroeconomic stabilization, the privatization of state-owned enterprises in East Germany, labor policies and the migration of labor, integration of the social safety nets of the North and South, and securing finances for reunification. To start with, the first part covers macroeconomic stabilization measures, which include policies implemented by the federal government of Germany to overcome macroeconomic shocks directly after the reunification. There was a temporary setback in the economy at the initial phase of reunification as the investment per GDP went down and the level of fiscal debt escalated, reverting to its original trend prior to the reunification. While it appears the momentum for growth was compromised by reunification from the perspective of growth rate of real GDP, this state did not last long and benefits have outpaced the costs since 2000.
In the section which examines the privatization of state-owned enterprises in East Germany, an analysis was conducted on the modernization of industrial infrastructure of East German firms. There was a surge in investment in East German area at the beginning stages but this was focused on a specific group of firms. Most of the firms were privatized through unofficial channels, with a third of these conducted in a management buy-out (MBO) process that was highly effective. Further analysis of a firm called Jenoptik, which was successfully bailed out, is incorporated as to draw implications of its accomplishments.
In the section on migration, we examine how the gap between the unemployment rates in the West and East have narrowed as the population flow shifted from the West to East. Consequently, there was no significant deviation in terms of the Gross Regional Domestic Product (GRDP) per capita in each state of East Germany. However, as the labor market stabilized in East Germany and population flows have weakened, the deviation will become larger. Meanwhile, if we make a prediction about the movement of population between the North and the South, which show a remarkable difference in their economic circumstances, a radical reunification process such as Germany’s case would force 7% of the population of the North to move towards the South. Upon reunification, the estimated unemployment rate in North Korea would remain at least 30% for the time being. In order to reduce the initial unemployment rate, it is crucial to design a program that trains the unemployed and to build a system that predicts changes in labor demand.
It seems nearly impossible to apply the social safety nets of the South to the North, as there is a systemic difference in ideologies. Taking steps toward integration would be the most suitable option in the case of the Koreas. We propose to build a sound groundwork for stabilizing the interest rates and exchange rates, maintain stable fiscal policies, raise momentum for economic growth and make sure people understand the means required to financially support the North in order to reduce the gap between the two.
This book was jointly organized and edited by Dr. Hyung-gon Jeong of the Korea Institute for International Economic Policy (KIEP) and Dr. Gerhard Heimpold of the Halle Institute for Economic Research (IWH). We believe that this report, which examines numerous social and economic agendas that emerged during the reunification of Germany, will provide truly important reference for both Koreas. It is also our view that it will serve as a stepping-stone to establish policies in regard to South-North exchanges across numerous sectors prior to discussions of reunification. KIEP will continue to work with IWH and contribute its expertise to the establishment of grounds for unification policies.
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Who Benefits from GRW? Heterogeneous Employment Effects of Investment Subsidies in Saxony Anhalt
Eva Dettmann, Mirko Titze, Antje Weyh
IWH Discussion Papers,
No. 27,
2017
Abstract
The paper estimates the plant level employment effects of investment subsidies in one of the most strongly subsidized German Federal States. We analyze the treated plants as a whole, as well as the influence of heterogeneity in plant characteristics and the economic environment. Modifying the standard matching and difference-in-difference approach, we develop a new procedure that is particularly useful for the evaluation of funding programs with individual treatment phases within the funding period. Our data base combines treatment, employment and regional information from different sources. So, we can relate the absolute effects to the amount of the subsidy paid. The results suggest that investment subsidies have a positive influence on the employment development in absolute and standardized figures – with considerable effect heterogeneity.
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7. IWH/INFER-Workshop on Applied Economics and Economic
Policy: “Challenges and Implications of Inflationary Dynamics“
Birgit Schultz, Gregor von Schweinitz
Wirtschaft im Wandel,
No. 4,
2017
Abstract
Am 7. und 8. September 2017 fand am IWH in Zusammenarbeit mit dem International Network for Economic Research (INFER) und unter Förderung der Stadt Halle (Saale) der 7. Workshop in der Reihe „Applied Economics and Economic Policy“ statt. Im Rahmen des Workshops stellten Wissenschaftlerinnen und Wissenschaftler europäischer Universitäten und internationaler Organisationen ihre neuesten Forschungsergebnisse zu aktuellen ökonomischen Fragen und Problemen vor und diskutierten diese intensiv. Insbesondere gab es einen regen Austausch über das Spezialthema „Challenges and Implications of Inflationary Dynamics“. Hier ging es vor allem um die Entwicklungen von Inflationserwartungen sowie mögliche Gründe und Folgen dieser Entwicklungen.
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19.12.2017 • 40/2017
The medium-term economic development in Germany from 2017 to 2022 and opportunities for fiscal policies of a new federal government
Due to the cyclical upswing in Germany, in case of unaltered legislation, the general government would achieve considerable budget surpluses in the years ahead. As a consequence, there is large fiscal scope for a new federal government. With the fiscal policy simulation model of the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association, the macroeconomic effects of various fiscal policy measures are analysed. The results show that additional government expenditures, like the expansion of social benefits, do have a stronger effect on GDP than revenue cuts, like for instance tax reliefs. „Due to the already high capacity utilisation, revenue cuts seem to be advantageous from a business cycle perspective. Moreover, a reduction of the high taxes and charges on labour would, in contrast to an expansion of social benefits, have a positive effect on potential output“, says Oliver Holtemöller, head of the Department of Macroeconomics and IWH vice president.
Oliver Holtemöller
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Economic Growth: The Past, the Present, and the Future
Ufuk Akcigit
Journal of Political Economy,
No. 6,
2017
Abstract
“Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia’s or Egypt’s? If so, what, exactly? If not, what is it about the ‘nature of India’ that makes it so? The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else. (Lucas 1988, 5)”
These words by the Nobel laureate Chicago economist Robert Lucas Jr. summarize why so many great scholars found it hard to “think about anything else” and spent their careers trying to understand the process of economic growth. Economies are complex systems resulting from the actions of many actors. This complexity makes it challenging, but also infinitely interesting, to understand the determinants of economic growth. What are the roles of human capital, fertility, ideas, basic science, and public policy for growth? These are just some of the important questions that were posed by many highly influential studies featured in the issues of the Journal of Political Economy over the years. Indeed, this journal has been the platform to diffuse many of the brilliant ideas and start important debates in the field of economic growth. In this short paper, my goal is to revisit some of those seminal papers, briefly describe some of the more recent contributions, and end with some thoughts about the future direction of the field. The reader should note in advance that the list of work covered here is by no means exhaustive and mostly targets work that has been featured in issues of the JPE.
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Bank Financing, Institutions and Regional Entrepreneurial Activities: Evidence from China
Iftekhar Hasan, Nada Kobeissi, Haizhi Wang, Mingming Zhou
International Review of Economics and Finance,
November
2017
Abstract
We investigate the effects of bank financing on regional entrepreneurial activities in China. We present contrasting findings on the role of quantity vs. quality of bank financing on small business formation in China: while we document a consistent, significantly positive relationship between the quality of bank financing and new venture formation, we find that the quantity of supplied credit is insignificant. We report that formal institutions are positively correlated to regional entrepreneurial activities, and informal institutions substitute formal institutions. Our findings also reveal that the institutional environment tends to supplement bank financing in promoting regional entrepreneurial activities.
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01.11.2017 • 38/2017
IWH Policy Talk „Risk Sharing and Risk Reduction – The Challenges that Lie Ahead“
The Halle Institute for Economic Research (IWH) – Member of the Leibniz Association is pleased to inform about its next upcoming IWH Policy Talk „Risk Sharing and Risk Reduction – The Challenges that Lie Ahead“ with Andrea Enria, first Chairperson of the European Banking Authority (EBA). The talk will take place on Tuesday, No¬vember 7, 2017, 5:00 p.m., in the IWH conference room. You are hereby cordially invited to attend.
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Macroprudential Policy and Intra-group Dynamics: The Effects of Reserve Requirements in Brazil
Chris Becker, Matias Ossandon Busch, Lena Tonzer
Abstract
This paper examines whether intra-group dynamics matter for the transmission of macroprudential policy. Using novel bank-level data on the Brazilian banking system, we investigate the effect of reserve requirements targeting headquarter banks’ deposit share on credit supply by their municipal bank branches. For identification purposes, we exploit that reserve requirements are adjusted following global economic cycles. Our results reveal a lending channel of reserve requirements for branches whose parent banks are more exposed to targeted deposits. Branch ownership and exposure to internal liquidity are central in explaining the results. Our findings reveal limitations in current macroprudential policy frameworks.
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Non-linearity in the Finance-Growth Nexus: Evidence from Indonesia
Nuruzzaman Arsyad, Iftekhar Hasan, Wahyoe Soedarmono
International Economics,
August
2017
Abstract
This paper investigates the finance-growth nexus where bank credit is decomposed into investment, consumption, and working capital credit. From a panel dataset of provinces in Indonesia, it documents that higher financial development measured by financial deepening and financial intermediation exhibits an inverted U-shaped relationship with economic growth. This non-linear effect of financial deepening is driven by both investment credit and consumption credit. These results suggest that too much investment credit and, to a lesser extent, consumption credit are detrimental to economic growth. Ultimately, only financial intermediation associated with working capital credit has a positive and monotonic impact on economic growth.
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