Regional economic integration and factor mobility in unified Germany

Sebastian Böhm

No 463, FSES Working Papers from Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland

Abstract: The massive movement of capital and labor in opposite directions is the most striking characteristic of economic integration of Eastern and Western Germany. Beyond that, wage-setting behavior during the early years of unification and massive public social transfers have affected the transition path of the Eastern economy. In this paper, I set up a two-region open economy model with capital and labor mobility, wage-setting behavior, and public social transfers to explain major empirical trends of the German integration episode. I show that the model is able to replicate aggregate migration pattern in unified Germany and that wage-setting behavior has delayed labor productivity convergence between both German regions, whereas public social transfers have reduced the effect of wage setting on East-West net migration.

Keywords: Economic Integration; German Reunification; Capital Mobility; Migration (search for similar items in EconPapers)
JEL-codes: E60 F20 H20 J61 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-11-09
New Economics Papers: this item is included in nep-lab, nep-mac, nep-mig and nep-tra
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