Committing to Grow: Privatizations and Firm Dynamics in East Germany
IWH Discussion Papers,
This paper investigates a unique policy designed to maintain employment during the privatization of East German firms after the fall of the Iron Curtain. The policy required new owners of the firms to commit to employment targets, with penalties for non-compliance. Using a dynamic model, we highlight three channels through which employment targets impact firms: distorted employment decisions, increased productivity, and higher exit rates. Our empirical analysis, using a novel dataset and instrumental variable approach, confirms these findings. We estimate a 22% points higher annual employment growth rate, a 14% points higher annual productivity growth, and a 3.6% points higher probability of exit for firms with binding employment targets. Our calibrated model further demonstrates that without these targets, aggregate employment would have been 15% lower after 10 years. Additionally, an alternative policy of productivity investment subsidies proved costly and less effective in the short term.
22.06.2023 • 16/2023
Revival in service sectors, but industrial activity remains weak for the time being
After the recession during winter, the German economy will expand at a moderate pace in the coming quarters and despite higher interest rates, as private consumption will pick up again with slowly declining inflation and increased wage momentum. In its summer forecast, the Halle Institute for Economic Research (IWH) expects gross domestic product to decline by 0.3% in 2023, while growth of 1.7% is forecast for the coming year.
Read press release
IWH Medium-Term Projection The IWH medium-term projection shows: If Germany wants to stick to both its current debt...
Wirtschaft im Wandel
Wirtschaft im Wandel Die Zeitschrift „Wirtschaft im Wandel“ will eine breite...
People Job Market Candidates Doctoral...
Lecturers at CGDE Institutions ...
IWH Alumni The IWH would like to stay in contact with its former employees. We...
Financial Linkages and Sectoral Business Cycle Synchronization: Evidence from Europe
IMF Economic Review,
We analyze whether financial integration leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996 to 2017, we find that the spillover effects are positive on average and much larger during periods of financial stress, pointing towards stronger business cycle synchronization. Dismantling GDP growth into value added growth of ten major industries, we observe that spillover intensities vary significantly. The findings are robust to a variety of alternative model specifications.
The Nasty Gap 30 years after unification: Why East Germany is still 20% poorer than the...
Joint Economic Forecast
Joint Economic Forecast The joint economic forecast is an instrument for evaluating...