East Germany Rearguard
Only investments in education will lead to a further catch-up
Dossier

In a nutshell
The East German economic convergence process is hardly progressing. The economic performance of East Germany stagnates between 70 and 80% of West Germany's level, depending on the statistical figure used. The productivity gap between East German companies and equivalent groups in the west remains even if firms of the same size of workforce and the same industry are compared.
Politicians' and economists' explanations for this development differ: While politicians are more likely to argue with the start-up difficulties, the lack of large-scale research firms and the break-up of the East German markets, scientists have brought lack of investment in education and research, the lack of internationality and insufficient innovations – and thus future-oriented arguments – to the forefront.
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In the first half of the 1990's, policy focused on the build-up of physical infrastructure. East Germany's economic performance increased substantially. “This process benefited from transfers from West Germany, which is why productivity advanced faster compared to other transition countries such as Poland, Hungary or the Czech Republic,” says Oliver Holtemöller, IWH Vice President. Today, the East-German physical infrastructure is on the same level as West Germany. However, the fact that the catch-up process has remained slow thus far, also in terms of the employment structure in East Germany, has other causes.
Demography
While the population in West Germany had been stagnating since the turn of the millennium and recently even increased, East Germany suffers a decline in population of about 15% since 2000 since many people left East Germany after the German unification. “On the one hand, the decline can be explained by natural demographic development. On the other hand, people still have better economic perspectives elsewhere and therefore move,” Oliver Holtemöller points out. Indeed, in 2015, the population increased in East Germany as well. But this is mainly due to the extraordinary influx of refugees who are distributed to the federal states of Germany according to a fixed ratio.
Insufficient investment in education and research
To improve the economic situation, it is essential to invest in education and research – from early childhood development to academic training. Education does not only enable people to participate in the labour market with equal chances but also fights poverty and unemployment, which is far more sustainable, for example, than the widespread minimum wage. Education is the key to innovation and productivity. The same is true for investments in research and development. In 2012, for example, Saxony-Anhalt spent just 1.5% in relation to GDP, which was the lowest number among all 16 German federal states.
Lack of internationality
The German economy is strongly oriented toward international markets. Here Saxony-Anhalt has a long way to go as an East German state – foreign sales as a percentage of the total sales the manufacturing sectors is about 30%, well below the national average of 45%.
“The partial manifestation of xenophobia aggravates the situation,” says Holtemöller. On the one hand, this is a negative location factor: For example, in Saxony-Anhalt, the number of right-wing criminal offenses is twelve times higher than in Hesse. This makes it extremely difficult to attract qualified specialists from foreign countries to settle in East Germany.
“A one-sided orientation toward physical capital and technology will not help to bring East Germany forward. The key future drivers are human capital, creativity and open-mindedness,” summarises the Vice President.
Info Graphics
The German economy has overcome a period of weakness following reunification

Gross domestic product per capita, purchasing power parity, 2011, international dollar
Degree of openness of the German economy

Gross domestic product per capita, purchasing power parity, 2011, international dollar
Current account balance

Relative to gross domestic product, in %
Productivity differences in Germany between west and east

Gross domestic product in current prices per employee
East-west differences in productivity in companies of all sizes

East-west differences in productivity in companies of all sizes

Hardly any corporate HQs in East Germany

Headquarters of the TOP 500 companies in Germany 2016 ranked by DIE WELT
East-west productivity differences are smaller in rural areas than in cities

Gross domestic product per employee in urban and rural spaces in East Germany including Berlin, spatial category in West Germany = 100
Economic output per resident in German regions compared to European regions

Gross domestic product (GDP) in purchasing power parities (PPS) per capita 2016
Economic output per capita in East Germany higher than in the Visegrád countries

Gross domestic product per capita in purchasing power parities relative to Germany, in %
Germany‘s regional income disparity has lessened compared to other European regions

Variance of gross domestic product, lograrithmised, purchasing power parities
East Germany has only recorded a more favourable development of economic output than West Germany in 11 out of 26 years

Yearly rate of change of gross domestic product, price-adjusted, chain-linked, in %
Average wage: clear east-west divide in salaries

Median of monthly gross wages of full-time employees liable to the social insurance system; Germany = 100, 31.12.2017
Services are the main source of added value and employment

Absolute change in gross value added in current prices and in employment by industries
Underemployment rates: large regional differences

Underemployment quota in Germany = 100, 2017
Lack of capital of no significance for East Germany‘s productivity shortfall

Gross fixed assets at replacement costs in East Germany including Berlin relative to West Germany, in %
In East Germany, rural regions gained aboveaverage benefit from regional aid – but the period of generous subsidies is over

Investment grants to commercial businesses from 1991 to 2017
In East Germany, rural regions gained aboveaverage benefit from regional aid – but the period of generous subsidies is over

Investment grants to commercial businesses from 1991 to 2017
East-west migration: net emigration comes to a halt

Out-migration from East Germany to West Germany, in-migration to East Germany from West Germany, migration balance, from 1989 to 2015
Population development in East Germany: an increase from 2013 onwards as a result of overseas migration gains

Population development in East and West Germany in the period from 1990 to 2015 by components, yearly population change (number of persons)
Internal migration: the population of rural areas in East Germany has continuously declined since 1999

Balance of internal migration per 1,000 inhabitants
Decline in working-age population in East German territorial areas until 2060 more than twice as big as in West Germany

Index of development of population at employable age (20 up to below 67 years) based on the updated 13. coordinated population projection by the Federal Statistical Office, year 2015 = 100
Migration gains from the EU: significantly lower in East Germany than in West Germany

Cumulative net migration gain per 1,000 inhabitants, Germany = 100
EU blue card: Berlin has a clear lead

Blue card recipients per 100,000 employees in the federal states in 2017
Proportion of people with a migrant background in East Germany and rural regions well below the federal average

Share of population without and with migration background in 2017 in % (total population = 100)
Percentage of foreigners seeking asylum: well above average percentage in East German territorial areas, with a lower percentage of foreigners

31.12.2016
Specialist staff vacancies: a growing problem in East and West German companies

Vacancies, 2007 to 2017, in %
Part-time work: lower proportion of part-time staff in East Germany

Part-time employment and share of part-time employment in total employment, 1997 to 2017
Tertiary education is falling behind in East German territorial areas

Employment in the federal states by education level, ranked by the share of employees with tertiary education
Tertiary education is falling behind in East German territorial areas

Employment in the federal states by education level, ranked by the share of employees with tertiary education
Large regional differences in school drop-outs

Early school leavers: share of school leavers who do not possess a Certificate of Secondary Education in the total number of school leavers in 2016, Germany = 100
In East Germany and structurally weak West German states, SMEs make an above-average contribution to the economy‘s research and development spending

Internal R&D expenditures in the corporate sector by employment size of firms 2015, in % (total expenditures per state or region = 100)
Baden-Wuerttemberg, Berlin, Lower Saxony and Bavaria spend above-average amounts on research and development

Share of internal R&D expenditures 2016 in gross domestic product by federal states and regions, current prices, in %
Excellence clusters: East German territorial areas underrepresented in cutting-edge research, with the exception of Saxony

Share of the federal states in the 57 excellence clusters of German universities in relation to the share in total population in Germany, in %
In industry, companies of below-average size tend to be associated with lower export rates

Employees per enterprise, share of exports in total turnover, 2017, enterprises belonging to firms of the manufacturing sector, mining and quarrying of 20 and more employees
East Germany‘s transfer dependency has fallen, but still exists

Gap between expenditure and gross domestic product in East Germany including Berlin, absolute volume and relative to the GDP in West Germany
2017 tax coverage ratio: still an east-west divide

Tax revenues as a percentage of adjusted expenditures, in %
Not all municipalities anticipate demographic change in their investment decisions

Distribution of municipal investment in fixed assets per resident in Euro for the years 2013 and 2014
Publications on "East Germany"

The East-West German Gap in Revenue Productivity: Just a Tale of Output Prices?
in: Journal of Comparative Economics, forthcoming
Abstract
East German manufacturers’ revenue productivity is substantially below West German levels, even three decades after German unification. Using firm-product-level data with product quantities and prices, we analyze the role of product specialization and show that the prominent “extended work bench hypothesis” cannot explain these sustained productivity differences. Eastern firms specialize in simpler product varieties generating less consumer value and being manufactured with less or cheaper inputs. Yet, such specialization cannot explain the productivity gap because Eastern firms are physically less productive for given product prices. Hence, there is a genuine price-adjusted physical productivity disadvantage of Eastern compared to Western firms.

Innovation Cooperation in East and West Germany: A Study on the Regional and Technological Impact
in: International Journal of Computational Economics and Econometrics, forthcoming
Abstract
In this paper, we investigate the impact of regional and technological innovation systems on innovation cooperation. We develop an indicator applicable to regions, which demonstrates the relative regional impact on innovation cooperation. Applying this method to German patent data, we find that regional differences in the degree of innovation cooperation do not only depend on the technology structure of a region but also on specific regional effects. High-tech oriented regions, whether east or west, are not automatically highly cooperative regions. East German regions have experienced a dynamic development of innovation cooperation since re-unification in 1990. Their cooperation intensity remains higher than in West German regions.

Umsetzung der Hilfen für die Flankierung des Kohleausstiegs in der brandenburgischen Lausitz – eine Zwischenbilanz
in: ifo Dresden berichtet, No. 3, 2022
Abstract
Die bisherige Vergabe der Hilfen für die Flankierung des Kohleausstiegs in den ostdeutschen Ländern wird zuweilen kritisch gesehen, so auch vor kurzem in dieser Zeitschrif. Wesentlicher Kritikpunkt dabei ist, dass die geplanten Projekte zu einem erheblichen Teil Maßnahmen unterstützen, die zwar die Lebensbedingungen vor Ort verbessern, aber nur einen geringen Beitrag zu einer erfolgreichen Strukturentwicklung leisten. Dieser Beitrag gibt einen detaillierten Einblick in die Mittelvergabe in der brandenburgischen Lausitz. Die wirtschafspolitischen Entscheidungsträger orientieren sich bei der Mittelvergabe an den im Investitionsgesetz Kohleregionen und im Lausitzprogramm 2038 verankerten Leitbildern. Das wichtigste Kriterium für die Auswahl der Projekte ist ihre Strukturwirksamkeit, welche die Bewilligungsbehörden des Landes in einem mehrstufgen Prozess eingehend evaluieren. Die empirische Bestandsaufnahme zeigt, dass die Mehrzahl der Projekte in der brandenburgischen Lausitz auf die Förderbereiche „wirtschafsnahe Infrastruktur“ und „Infrastrukturen für Bildung und Forschung“ entfallen, diese Bereiche überproportional mit finanziellen Mitteln untersetzt sind und sich überwiegend in den kernbetroffenen Gemeinden fnden.

Die Ost-West-Produktivitätslücke: Die Rolle von Produktspezialisierung, Produktpreisunterschieden und physischer Produktivität
in: Wirtschaft im Wandel, No. 1, 2022
Abstract
Auch 30 Jahre nach der Deutschen Vereinigung erreicht die ostdeutsche Wirtschaft nur 82% der westdeutschen Arbeitsproduktivität. Dieser Unterschied in der gesamtwirtschaftlichen Arbeitsproduktivität steht in engem Zusammenhang mit vielen wirtschaftlichen und gesellschaftlichen Problemen, denen Ostdeutschland heute gegenübersteht. Auf Basis differenzierter Daten zu den einzelnen Produkten, die Firmen im deutschen Verarbeitenden Gewerbe herstellen, untersuchen wir in diesem Beitrag, wie sich ost- und westdeutsche Firmen bezüglich Produktspezialisierung, Produktpreisen und technischer Effizienz unterscheiden. Wir zeigen auf, dass der Osten – entgegen der Hypothese der „verlängerten Werkbank“ – nicht aufgrund einer Spezialisierung auf Vorprodukte weniger produktiv als der Westen ist. Obwohl Ostprodukte zu deutlich geringeren Preisen verkauft werden, können auch Preisunterschiede zwischen Ost- und Westfirmen den Produktivitätsrückstand nicht erklären. Stattdessen sind Faktoren, welche die physische Produktivität (technische Effizienz) von Unternehmen beeinflussen, entscheidend, um den Produktivitätsrückstand auf Unternehmensebene zu erklären.

30 Jahre Aufbau Ost
in: Apelt, A.H.; Lüdicke, L. (Hrsg.): Die Treuhandanstalt. Mitteldeutscher Verlag, 2021
Abstract
Mit der Verabschiedung des Treuhandgesetzes legte die Volkskammer der DDR die Basis für die Überführung der Plan- in die Marktwirtschaft. Bis heute werden Wirken und Wirkung der Treuhandanstalt zwiespältig eingeschätzt. Ursachen dieses Ungleichgewichts werden auf die Treuhandanstalt zurückgeführt. Der Band versammelt Aufsätze, die einen differierten Gesamtbeitrag zur Historisierung der Treuhandanstalt leisten wollen.