The Economic Gap between East and West Germany
The group uses innovative methods to investigate why the economy in eastern Germany is still lagging behind that in western Germany – and what role the privatisation process 30 years ago played in this.
The main project of the group investigates the privatisation of former GDR businesses by the Treuhandanstalt. To what extent did the qualifications of the selected managers or their networking with other decision-makers play a role? How would eastern German firms be performing today if exclusively the most talented entrepreneurs had been put in charge? The group uses data at a micro level (firms, managers, patents, ideas) in order to answer macroeconomic questions with the help of a model estimation. The second research project analyses why highly innovative firms are established less frequently in eastern than in western Germany, and also examines the role of migrants in economic growth and knowledge creation in Germany. Finally, the third research project looks for reasons for the slowing productivity growth in Europe using CompNet data.
Research ClusterMacroeconomic Dynamics and Stability
Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory
in: American Economic Journal: Macroeconomics, No. 1, 2021
In this paper, we review the literature on declining business dynamism and its implications in the United States and propose a unifying theory to analyze the symptoms and the potential causes of this decline. We first highlight 10 pronounced stylized facts related to declining business dynamism documented in the literature and discuss some of the existing attempts to explain them. We then describe a theoretical framework of endogenous markups, innovation, and competition that can potentially speak to all of these facts jointly. We next explore some theoretical predictions of this framework, which are shaped by two interacting forces: a composition effect that determines the market concentration and an incentive effect that determines how firms respond to a given concentration in the economy. The results highlight that a decline in knowledge diffusion between frontier and laggard firms could be a significant driver of empirical trends observed in the data. This study emphasizes the potential of growth theory for the analysis of factors behind declining business dynamism and the need for further investigation in this direction.
Lack of Selection and Limits to Delegation: Firm Dynamics in Developing Countries
in: American Economic Review, No. 1, 2021
Delegating managerial tasks is essential for firm growth. Most firms in developing countries, however, do not hire outside managers but instead rely on family members. In this paper, we ask if this lack of managerial delegation can explain why firms in poor countries are small and whether it has important aggregate consequences. We construct a model of firm growth where entrepreneurs have a fixed time endowment to run their daily operations. As firms grow large, the need to hire outside managers increases. Firms’ willingness to expand therefore depends on the ease with which delegation can take place. We calibrate the model to plant-level data from the U.S. and India. We identify the key parameters of our theory by targeting the experimental evidence on the effect of managerial practices on firm performance from Bloom et al. (2013). We find that inefficiencies in the delegation environment account for 11% of the income per capita difference between the U.S. and India. They also contribute to the small size of Indian producers, but would cause substantially more harm for U.S. firms. The reason is that U.S. firms are larger on average and managerial delegation is especially valuable for large firms, thus making delegation efficiency and other factors affecting firm growth complements.
Does Low-pay Persist across Different Regimes? Evidence from the German Unification
in: Economics of Transition and Institutional Change, No. 3, 2020read publication
History, Microdata, and Endogenous Growth
in: Annual Review of Economics, 2019
The study of economic growth is concerned with long-run changes, and therefore, historical data should be especially influential in informing the development of new theories. In this review, we draw on the recent literature to highlight areas in which study of history has played a particularly prominent role in improving our understanding of growth dynamics. Research at the intersection of historical data, theory, and empirics has the potential to reframe how we think about economic growth in much the same way that historical perspectives helped to shape the first generation of endogenous growth theories.
Innovation and Top Income Inequality
in: Review of Economic Studies, No. 1, 2019
In this article, we use cross-state panel and cross-U.S. commuting-zone data to look at the relationship between innovation, top income inequality and social mobility. We find positive correlations between measures of innovation and top income inequality. We also show that the correlations between innovation and broad measures of inequality are not significant. Next, using instrumental variable analysis, we argue that these correlations at least partly reflect a causality from innovation to top income shares. Finally, we show that innovation, particularly by new entrants, is positively associated with social mobility, but less so in local areas with more intense lobbying activities.
Police Reorganization and Crime: Evidence from Police Station Closures
in: German Council of Economic Experts Working Paper, No. 7, 2019
Does the administrative organization of police affect crime? In answering this question, we focus on the reorganization of local police agencies. Specifically, we study the effects police force reallocation via station closures has on local crime. We do this by exploiting a quasi-experiment where a reform substantially reduced the number of police stations. Combining a matching strategy with an event-study design, we find no effects on total theft. Police station closures, however, open up tempting opportunities for criminals in car theft and burglary in residential properties. We can rule out that our effects arise from incapacitation, crime displacement, or changes in employment of local police forces. Our results suggest that criminals are less deterred after police station closures and use the opportunity to steal more costly goods.