East Germany Rearguard
Only investments in education will lead to a further catch-up
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.
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.
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.
Publications on "East Germany"
Innovation Cooperation in East and West Germany: A Study on the Regional and Technological Impact
in: International Journal of Computational Economics and Econometrics, forthcoming
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.
(Since When) Are East and West German Business Cycles Synchronised?
in: IWH Discussion Papers, No. 7, 2019
This paper analyses whether and since when East and West German business cycles are synchronised. We investigate real GDP, unemployment rates and survey data as business cycle indicators and employ several empirical methods. Overall, we find that the regional business cycles have synchronised over time. GDP-based indicators and survey data show a higher degree of synchronisation than the indicators based on unemployment rates. However, recently synchronisation among East and West German business cycles seems to become weaker, in line with international evidence.
United country – three decades after the Wall came down
in: One-off Publications, 2019
The Berlin Wall, once the symbol of the divided Germany, has now been gone for longer than it ever existed. But the differences within the country are still visible. However, recent research suggests that different economic development does not always follow the former inner-German border. Apart from the west-east divide, differences also emerge between the south and the north or between the cities and the country.
Die wirtschaftliche Entwicklung Sachsen-Anhalts seit 1990
in: R. Stöcker, M. Reichel (Hrsg.), Sachsen-Anhalt – eine politische Landeskunde. Halle (Saale): Mitteldeutscher Verlag, 2019
Sachsen-Anhalt ist als mittelalterliches Zentrum der Ottonen und als Ursprungsland der Reformation ein »Kernland deutscher Geschichte« und besitzt deutschlandweit die meisten Weltkulturerbestätten. Doch nicht nur historisch und kulturell hat das Land viel zu bieten, auch gesellschaftlich und politisch ist es einen genaueren Blick wert. Die Landeskunde soll diese Facetten des Bundeslandes beleuchten. In 16 aufschlussreichen Beiträgen erfährt der Leser, was Sachsen-Anhalt ausmacht, bewegt und prägt. Ein Anhang listet die Regierungen des Bundeslandes von 1990 bis 2017 auf.
Aktuelle Trends: Betriebliche Lohnungleichheit wieder rückläufig
in: Wirtschaft im Wandel, No. 5, 2018read publication