Allocative Efficiency, Plant Dynamics and Regional Productivity: Evidence from Germany

Simon Bruhn and Thomas Grebel

International Regional Science Review, 2025, vol. 48, issue 1, 62-91

Abstract: The productivity gap between East and West Germany is a long ongoing discussion among the public and policy makers. Regional disparities still appear to be substantial. In this paper, we shed light on the role of allocative efficiency as a region’s driver of productivity disparities. We show that over 50 percent of the East-West productivity gap is associated with a less efficient labor allocation in former East Germany. Controlling for the heterogeneity among German federal states, we perform spatial regression on official firm-level data (AFiD), revealing that the regional differences in allocative efficiency are significantly associated with trade openness, competitive intensity, economies of scale and labor mobility.

Keywords: regional productivity gap; productivity decomposition; allocative efficiency; labor allocation; E24; J24; L11; L25; O47 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Allocative efficiency, plant dynamics and regional productivity: Evidence from Germany (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:inrsre:v:48:y:2025:i:1:p:62-91

DOI: 10.1177/01600176241237175

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