Effects of the promotion of investment in East Germany
Joachim Ragnitz
IWH Discussion Papers,
No. 186,
2003
Abstract
Investment in East Germany is heavily subsidized. Econometric estimates based on a treatment approach show that the level of investment is significantly higher in firms being supported by state aid. Nevertheless, capital productivity is lower in East Germany, indicating a misallocation of capital. Additionally, there are negative effects in West Germany due to negative crowding-out effects. Therefore state aid in East Germany should be reduced in the medium run.
Read article
