The Economic Impact of Social Ties: Evidence from German Reunification

Konrad Burchardi () and Tarek Hassan

No 8470, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use the fall of the Berlin Wall in 1989 to show that personal relationships which individuals maintain for non-economic reasons can be an important determinant of regional economic growth. We show that West German households who have social ties to East Germany in 1989 experience a persistent rise in their personal incomes after the fall of the Berlin Wall. Moreover, the presence of these households significantly affects economic performance at the regional level: it increases the returns to entrepreneurial activity, the share of households who become entrepreneurs, and the likelihood that firms based within a given West German region invest in East Germany. As a result, West German regions which (for idiosyncratic reasons) have a high concentration of households with social ties to the East exhibit substantially higher growth in income per capita in the early 1990s. A one standard deviation rise in the share of households with social ties to East Germany in 1989 is associated with a 4.7 percentage point rise in income per capita over six years. We interpret our findings as evidence of a causal link between social ties and regional economic development.

Keywords: Economic development; German reunification; Migration; Networks; Social ties (search for similar items in EconPapers)
JEL-codes: J61 L14 O11 (search for similar items in EconPapers)
Date: 2011-07
New Economics Papers: this item is included in nep-dem, nep-soc and nep-ure
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Citations: View citations in EconPapers (23)

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Related works:
Journal Article: The Economic Impact of Social Ties: Evidence from German Reunification (2013)
Working Paper: The Economic Impact of Social Ties: Evidence from German Reunification (2011)
Working Paper: The Economic Impact of Social Ties: Evidence from German Reunification (2011)
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