The rise or the fall of the wall? Determinants of low entrepreneurship in East Germany

Zoe Kuehn ()

No 2014/03, Working Papers in Economic Theory from Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History)

Abstract: Between 1949 and 1989, communism restricted private entrepreneurship in East Germany, but even after reunification in 1990 entrepreneurship remained low compared to other transition economies. To quantify the determinants of low entrepreneurship in East Germany and its impact on economic outcomes, I set up a two-region model economy with occupational and migration choices. Individuals can become workers or entrepreneurs in East or West Germany. In line with German policy after reunification, in East Germany wages are fixed above labor productivity and there are capital subsidies. Managerial knowhow is a combination of innate talent and entrepreneurial parental background which only West Germans possess. Technological growth increases with the innate talent of entrepreneurs. Counter-factual experiments show that the missing tradition of entrepreneurship, while contributing to technological growth, accounts for almost 10 percentage points of the gap between East and West German GDP per capita. On the other hand, reunification (wage setting policy, migration possibilities, and subsidies) slowed down technological growth and increased the output gap by 7 percentage points.

Keywords: Entrepreneurship; Growth; Allocation of Talent; Social Mobility; Transition (search for similar items in EconPapers)
JEL-codes: E24 F15 J22 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2014-07
New Economics Papers: this item is included in nep-ent, nep-eur, nep-ger, nep-gro, nep-mac and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.uam.es/departamentos/economicas/analecon/especifica/mimeo/wp20143.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.uam.es/departamentos/economicas/analecon/especifica/mimeo/wp20143.pdf [307 Moved Temporarily]--> https://www.uam.es/departamentos/economicas/analecon/especifica/mimeo/wp20143.pdf [301 Moved Permanently]--> https://www.uam.es/Economicas/AnalisisEconomicoTeoriaHistoria/1234888140248.htm/especifica/mimeo/wp20143.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uam:wpaper:201403

Access Statistics for this paper

More papers in Working Papers in Economic Theory from Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History) Contact information at EDIRC.
Bibliographic data for series maintained by Andrés Maroto-Sánchez ( this e-mail address is bad, please contact ).