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Total factor productivity convergence in German states since reunification: Evidence and explanations

Michael Burda () and Battista Severgnini ()

Journal of Comparative Economics, 2018, vol. 46, issue 1, 192-211

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&D activities.

Keywords: Development accounting; Productivity; Regional convergence; German reunification (search for similar items in EconPapers)
JEL-codes: D24 E01 E22 O33 O47 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:46:y:2018:i:1:p:192-211

DOI: 10.1016/j.jce.2017.04.002

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