Committing to Grow: Privatizations and Firm Dynamics in East Germany
Ufuk Akcigit, Harun Alp, André Diegmann, Nicolas Serrano-Velarde
IWH Discussion Papers,
Nr. 17,
2023
Abstract
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.
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Ostdeutschland
Die garstige Lücke Warum Ostdeutschland auch 30 Jahre nach der Vereinigung um 20% ärmer ist...
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Decision Making by the Treuhandanstalt on Privatization, Restructuring, or Liquidation of Former State-owned Firms in East Germany
Gerhard Heimpold
H.-G. Jeong, G. Heimpold (Hrsg.), Economic Development after German Unification and Implications for Korea. Policy References 18-08. Sejong: Korea Institute for International Economic Policy,
2018
Abstract
Subject to this paper is the decision making by Treuhandanstalt on privatization, restructuring, or liquidation of former state-owned firms in East Germany. To explain: the Treuhandanstalt was the agency at the Federal level tasked with the privatization of the former state-owned firms of the GDR. All former state-owned firms were assigned to the Treuhandanstalt in mid-1990. The notion of Treuhand firms (“Treuhandfirmen”) will be used to characterize this type of firms.
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Economic Transition in Unified Germany and Implications for Korea
Hyung-Gon Jeong, Gerhard Heimpold
H.-G. Jeong and G. Heimpold (eds.): Economic Transition in Unified Germany and Implications for Korea. Policy References 17-13. Sejong: Korea Institute for International Economic Policy,
2017
Abstract
The reunification of Germany, which marked the end of the Cold War in the 20th century, is regarded as one of the most exemplary cases of social integration in human history. Nearly three decades after the German reunification, the economic and social shocks that occurred at the beginning of the reunification process have largely been resolved. Moreover, the unified Germany has grown into one of the most advanced economies in the world.
The unification process that Germany underwent may not necessarily be the way that the Republic of Korea would choose. However, the economic and social exchanges between East and West Germany prior to unification, and the cooperation in a myriad of policies based on these exchanges, served as the crucial foundation for unification. The case of Germany will surely help us find a better way for the re-unification of the Korean Peninsula.
In this context, this is the first edition of a joint research which provides diverse insights on social and economic issues during the process of unification. It consists of nine chapters whose main topics include policies on macroeconomic stabilization, the privatization of state-owned enterprises in East Germany, labor policies and the migration of labor, integration of the social safety nets of the North and South, and securing finances for reunification. To start with, the first part covers macroeconomic stabilization measures, which include policies implemented by the federal government of Germany to overcome macroeconomic shocks directly after the reunification. There was a temporary setback in the economy at the initial phase of reunification as the investment per GDP went down and the level of fiscal debt escalated, reverting to its original trend prior to the reunification. While it appears the momentum for growth was compromised by reunification from the perspective of growth rate of real GDP, this state did not last long and benefits have outpaced the costs since 2000.
In the section which examines the privatization of state-owned enterprises in East Germany, an analysis was conducted on the modernization of industrial infrastructure of East German firms. There was a surge in investment in East German area at the beginning stages but this was focused on a specific group of firms. Most of the firms were privatized through unofficial channels, with a third of these conducted in a management buy-out (MBO) process that was highly effective. Further analysis of a firm called Jenoptik, which was successfully bailed out, is incorporated as to draw implications of its accomplishments.
In the section on migration, we examine how the gap between the unemployment rates in the West and East have narrowed as the population flow shifted from the West to East. Consequently, there was no significant deviation in terms of the Gross Regional Domestic Product (GRDP) per capita in each state of East Germany. However, as the labor market stabilized in East Germany and population flows have weakened, the deviation will become larger. Meanwhile, if we make a prediction about the movement of population between the North and the South, which show a remarkable difference in their economic circumstances, a radical reunification process such as Germany’s case would force 7% of the population of the North to move towards the South. Upon reunification, the estimated unemployment rate in North Korea would remain at least 30% for the time being. In order to reduce the initial unemployment rate, it is crucial to design a program that trains the unemployed and to build a system that predicts changes in labor demand.
It seems nearly impossible to apply the social safety nets of the South to the North, as there is a systemic difference in ideologies. Taking steps toward integration would be the most suitable option in the case of the Koreas. We propose to build a sound groundwork for stabilizing the interest rates and exchange rates, maintain stable fiscal policies, raise momentum for economic growth and make sure people understand the means required to financially support the North in order to reduce the gap between the two.
This book was jointly organized and edited by Dr. Hyung-gon Jeong of the Korea Institute for International Economic Policy (KIEP) and Dr. Gerhard Heimpold of the Halle Institute for Economic Research (IWH). We believe that this report, which examines numerous social and economic agendas that emerged during the reunification of Germany, will provide truly important reference for both Koreas. It is also our view that it will serve as a stepping-stone to establish policies in regard to South-North exchanges across numerous sectors prior to discussions of reunification. KIEP will continue to work with IWH and contribute its expertise to the establishment of grounds for unification policies.
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Restructuring of Industrial Enterprises in the Course of Privatization in East Germany
Gerhard Heimpold
H.-G. Jeong and G. Heimpold (eds.): Economic Transition in Unified Germany and Implications for Korea. Policy References 17-13. Sejong: Korea Institute for International Economic Policy,
2017
Abstract
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Interrelationship between Industrial and Innovation Development in East Germany
Gerhard Heimpold
Region: Ekonomika i Soziologija,
Nr. 2,
2015
Abstract
The article demonstrates that the most important reason for the slowdown and stagnation of economic convergence in East Germany is the weakness in terms of research and development and innovation. It analyzes the interrelationship between industrial and innovative development in the East German federal states since 1990. The article shows how the East German industry sector and its R&D activities looked like in the late 1980s and which transition it had undergone in the course of privatization. The industrial development of the new federal states after 1990 is analyzed. The paper reveals structural shortcomings in East Germany's economy and considers their impact on the progress in R&D.
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Behold the 'Behemoth'. The privatization of Japan Post Bank
Uwe Vollmer, Diemo Dietrich, Ralf Bebenroth
Research Institute for Economics & Business Administration (RIEB), Kobe University, Discussion Paper Series No. 236,
2009
Abstract
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Can Export Activities of Firms Contribute to the Catching-Up Process of Transitional Economies?
Brigitte Loose, Udo Ludwig
Can the transitional and development economies ever catch up? The Materials from The International Scientific Conference Cracow,
2006
Abstract
In contrast to the majority of the former centrally planned economies, the East German economy has suffered from enormous losses in the transformation process. In the study the question is analyzed whether exports can contribute to the catching-up process in transitional economies. Here it must be explained why the firms emerging out of the privatization process in economies in transition are successful if the export sector consists of small and medium sized enterprises. That is the case with East German manufacturing industry. The study is based on individual company data from the surveys of the East Germany's and North Rhine Westphalia's manufacturing industry between 1995 and 2001 stemming from official statistics.
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Non-market Allocation in Transport: A Reassessment of its Justification and the Challenge of Institutional Transition
Ulrich Blum
50 Years of Transport Research: Experiences Gained and Major Challenges Ahead,
2005
Abstract
Economic theory knows two systems of coordination: through public choice or through the market principle. If the market is chosen, then it may either be regulated, or it may be fully competitive (or be in between these two extremes). This paper first inquires into the reasons for regulation, it analyses the reasons for the important role of government in the transportation sector, especially in the procurement of infrastructure. Historical reasons are seen as important reasons for bureaucratic objections to deregulation. Fundamental economic concepts are forwarded that suggest market failure and justify a regulatory environment. The reasons for regulation cited above, however, may be challenged; we forward theoretical concepts from industrial organization theory and from institutional economics which suggest that competition is even possible on the level of infrastructure. The transition from a strongly regulated to a competitive environment poses problems that have given lieu to numerous failures in privatization and deregulation. Structural inertia plays an important role, and the incentive-compatible management of infrastructure is seen as the key element of any liberal transportation policy. It requires that the setting of rules on the meta level satisfies both local and global efficiency ends. We conclude that, in market economies, competition and regulation should not be substitutes but complements. General rules, an "ethic of competition" have to be set that guarantee a level playing field to agents; it is complimented by institutions that provide arbitration in case of misconduct.
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Social Consequences of Housing Privatization in Hungary
Jutta Günther
South East Europe Review,
Nr. 3,
2000
Abstract
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