Working Paper: CEPR ID: DP12082
Authors: Michael C. Burda; Battista Severgnini
Abstract: A quarter-century after reunification, labor productivity in the states of eastern Germany continues to lag systematically behind the West. Persistent gaps in total factor productivity (TFP) are the proximate cause; conventional and capital-free measurements confirm a sharp slowdown in TFP growth after 1995. Strikingly, eastern capital intensity, especially in industry, exceeds values in the West, casting doubt on the embodied technology hypothesis. TFP growth is negatively associated with rates of investment expenditures. The stubborn East-West TFP gap is best explained by low concentration of managers, low startup intensity and the distribution of firm size in the East rather than R&Dactivities.
Keywords: development; accounting; productivity; regional convergence; german reunification
JEL Codes: D24; E01; E22; O33; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investment expenditures (E20) | TFP growth (O49) |
| Concentration of managerial talent (D29) | TFP growth (O49) |
| Large firms (L25) | TFP growth (O49) |
| R&D spending (O32) | TFP growth (O49) |
| R&D spending (O32) | Absorptive capacity (F35) |
| Absorptive capacity (F35) | TFP growth (O49) |