Working Paper: CEPR ID: DP5015
Authors: Stephen Redding; Daniel Sturm
Abstract: This paper exploits the division of Germany after the Second World War and the reunification of East and West Germany in 1990 as a natural experiment to provide evidence of the importance of market access for economic development. In line with a standard new economic geography model, we find that following division cities in West Germany that were close to the new border between East and West Germany experienced a substantial decline in population growth relative to other West German cities. We provide several pieces of evidence that the decline of the border cities can be entirely accounted for by their loss in market access and is neither driven by differences in industrial structure nor differences in the degree of war related destruction. Finally, we also find some first evidence of a recovery of the border cities after the reunification of East and West Germany.
Keywords: Economic Geography; German Division; German Reunification; Market Access
JEL Codes: F15; N94; O18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Division of Germany (F55) | Decline in population growth in border cities (J11) |
| Loss of market access (F69) | Decline in population growth in border cities (J11) |
| Reunification of Germany (F55) | Recovery in population growth in border cities (R23) |
| Proximity to the border (F55) | Loss of market access (F69) |
| Market potential (L10) | Differences in growth rates (O41) |