Challenges for Future Regional Policy in East Germany. Does East Germany really show Characteristics of Mezzogiorno?
Mirko Titze
A. Kuklinski; E. Malak-Petlicka; P. Zuber (eds), Souther Italy – Eastern Germany – Eastern Poland. The Triple Mezzogiorno? Ministry of Regional Development,
2010
Abstract
Despite extensive government support the gap between East and West Germany has still not been successfully closed nearly 20 years post German unification. Hence, some economists tend to compare East Germany with Mezzogiorno – underdeveloped Southern Italy. East Germany is still subject to sever structural problems in comparison to West Germany: lower per capita income, lower productivity, higher unemployment rates, fewer firm headquarters and fewer innovation activities. There are East German regions with less than desirable rates of development. Nevertheless, the new federal states have shown some evidence of a convergence process. Some regions have developed very positively – they have improved their competitiveness and employment levels. As such, the comparison of East Germany with Mezzogiorno does not seem applicable today.
According to Neoclassical Growth Theory, regional policy is targeted enhancing investment (hereafter the notion ‘investment policy’ is used). has been the most important instrument in forcing the ‘reconstruction of the East’. Overall, the investment policy is seen as having been successful. It is not, however, the only factor influencing regional development – political policy makers noted in the mid 1990s that research and development (R&D) activities and regional concentrated production networks, amongst other factors, may also play a part. The investment policy instrument has therefore been adjusted. Nevertheless, it cannot be excluded that investment policy may fail in particular cases because it contains potentially conflicting targets. A ‘better road’ for future regional policy may lie in the support of regional production and innovation networks – the so-called industrial clusters. These clusters would need to be exactingly identified however to ensure effective and efficient cluster policies.
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What Happened to the East German Housing Market? A Historical Perspective on the Role of Public Funding
Claus Michelsen, Dominik Weiß
Post-Communist Economies,
2010
Abstract
The paper analyses the development of the East German housing market after the reunification of the former German Democratic Republic and the Federal Republic of Germany in 1990. We analyse the dynamics of the East German housing market within the framework of the well-known stock-flow model, proposed by DiPasquale and Wheaton. We show that the today observable disequilibrium to a large extend is caused by post-unification housing policy and its strong fiscal incentives to invest into the housing stock. Moreover, in line with the stylized empirical facts, we show that ‘hidden reserves’ of the housing market were reactivated since the economy of East Germany became market organized. Since initial undersupply was overcome faster than politicians expected, the implemented fiscal stimuli were too strong. In contrast to the widespread opinion that outward migration caused the observable vacancies, this paper shows that not weakness of demand but supply side policies caused the observable disequilibrium.
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What Happened to the East German Housing Market? – A Historical Perspective on the Role of Public Funding –
Claus Michelsen, Dominik Weiß
IWH Discussion Papers,
Nr. 20,
2009
Abstract
The paper analyses the development of the East German housing market after the reunification of the former German Democratic Republic and the Federal Republic of Germany in 1990. We analyse the dynamics of the East German housing market within the framework of the well-known stock-flow model, proposed by DiPasquale and Wheaton. We show that the today observable disequilibrium to a large extend is caused by post-unification housing policy and its strong fiscal incentives to invest into the housing stock. Moreover, in line with the stylized empirical facts, we show that ‘hidden reserves’ of the housing market were reactivated since the economy of East Germany became market organized. Since initial undersupply was overcome faster than politicians expected, the implemented fiscal stimuli were too strong. In contrast to the widespread opinion that outward migration caused the observable vacancies, this paper shows that not weakness of demand but supply side policies caused the observable disequilibrium.
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Keeping the Bubble Alive! The Effects of Urban Renewal and Demolition Subsidies in the East German Housing Market
Dominik Weiß
IWH Discussion Papers,
Nr. 11,
2009
Abstract
German urban renewal programs are favoring the cities in the Eastern part since the re-unification in 1990. This was accompanied additionally by attractive tax incentives, designed as an accelerated declining balance method of depreciation for housing investments during the late 1990s. The accumulated needs for comfortable housing after 40 years of a disastrous housing policy of the GDR era were generally accepted as justification for the subvention policy. But various subsidies and tax incentives caused a construction boom, false allocations, and a price bubble in Eastern Germany. After recognizing that the expansion of housing supply was not in line with the demographic development and that high vacancy rates were jeopardizing housing companies and their financial backers, policy changed in 2001. Up to now, the government provides demolition grants to reduce the vast oversupply. By means of a real option approach, it is ex-plained how different available forms of subsidies and economic incentives for landlords lift real estate values. The option value representing growth expectations and opportunities is calculated as an observable market value less an estimated fundamental value. Empirical results disclose higher option premiums for cities in Eastern Germany and a strong correlation of the option premium with urban renewal spending.
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A Study of the Competitiveness of Regions based on a Cluster Analysis: The Example of East Germany
Franz Kronthaler
IWH Discussion Papers,
Nr. 179,
2003
Abstract
This paper examines whether some East German regions have already achieved the same economic capability as the regions in West Germany, so that they are on a competitive basis with the West German regions and are able to reach the same economic level in the long run. If this is not the case, it is important to know more about the reasons for the economic weakness of the East German regions twelve years after unification.
The study is based on a cluster analysis. Criteria for the cluster formation are several economic indicators, which provide information about the economic capability of regions. The choice of the indicators is based on a review of results of the theoretical and empirical literature on the new growth theory and new economic geography.
The results show that most of the East German regions have not yet reached the economic capability and competitiveness of their West German counterparts so that they - from the viewpoint of the new growth theory and the new economic geography - are not in the position to reach the same economic level. According to these theories economic disadvantages are most notably the consequences of less technical progress, a lack of entrepreneurship and fewer business concentration. Under these points it is especially noteworthy that young well educated people leave these East German regions so that human capital might will turn into a bottle-neck in the near future. Only a few regions in East Germany - those with important agglomerations - are comparable to West German regions that are characterised by average capability and competitiveness, but not to those with above average economic capability and competitiveness. Even those more advanced East German regions still suffer from a slower technical progress.
There are important policy implications based on these results: regional policy in East Germany was not able to assist raising all regions to a sufficient level of competitiveness. It may be more effective to concentrate the regional policy efforts on a selection of important agglomerations. This has also strong implications for the EU regional policy assuming that the accession countries will have similar problems in catching up to the economic level of the EU as have the East German regions.
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Macroeconomic Modelling of the German Economy in the Framework of Euroland
Rüdiger Pohl, Heinz P. Galler
Schriften des IWH,
Nr. 11,
2002
Abstract
An attempt to develop a new macroeconometric model for Germany is confronted with several questions that range from the general rationality of such an approach to specific problems of an appropriate model structure. One important aspect of this discussion is the introduction of the Euro as a common currency of the European monetary union. This institutional change may result in structural breaks due to changing behavior of economic agents. In addition, the definition of the spatial unit that is appropriate for modelling becomes a problem. Additional problems come from the introduction of the European Single Market and the increasing international economic integration not only within the European union but also beyond its borders. And in the case of Germany, the unification of the West and the East demand special attention. Last but not least, the harmonization of national accounting for the member states of the European Union has to be dealt with. Thus, the introduction of the Euro as a common currency is just one problem besides others that must be addressed.
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Korean Unification and Banking System - An Analysis in View of German Experiences and Korean Differences
Ralf Müller
IWH Discussion Papers,
Nr. 139,
2001
Abstract
One of the reforms that have to be launched in a future unification process in Korea, which seems possible after the political negotiations last year, is the transformation of the North Korean banking system. The question arises whether Korea could profit from the German experience where banking transformation was one of the rather few success stories in unification. In 1990 the East German banking transformation was achieved relatively fast and uncomplicated due to considerable direct investments of the West German banks compounded with state guarantees for bad loans resulting from the credit business with existing GDR-corporations. Unfortunately, South Korea currently lacks some major prerequesites that contributed to the German banking unification, among them – and probably the most important one – is the lack of a sound and efficient banking
system that could become active in the North. Consequently, depending on the circumstances of a future Korean unification either a more gradual process is recommended or, if inner-Korean migration requires a more dynamic transition, considerable investment by foreign banks and assistance from international organisations is recommended.
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German Unification and the ‘Market Adoption’ Hypothesis
Udo Ludwig, John B. Hall
Cambridge Journal of Economics,
1995
Abstract
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