What kind of shock was it? Regional integration and structural change in Germany after unification

Michael Burda

No 1306, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Eastern Germany's recovery from the ?unification shock? has been characterized by deep structural change – with apparent repercussions for the West as well – and an integration process involving both capital deepening (extensive and intensive investment) and labor thinning (net out-migration). I propose a constant-returns neoclassical model of economic integration which can account for these facts. Adjustment costs determine dynamics and steady state regional distribution of production factors. The model also explains persistent wage and capital rate-of-return differentials along the equilibrium path. Under competitive conditions, observed factor price differentials contain information on those adjustment costs.

Keywords: German reunification; regional integration; costs of adjustment; capital mobility; migration (search for similar items in EconPapers)
JEL-codes: F2 J61 P23 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (4)

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Journal Article: What kind of shock was it? Regional integration and structural change in Germany after unification (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1306

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