Transfers and transition: The impact of government support on factor demand and production in Eastern Germany

Katja Gerling

No 878, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The paper presents an error-correction model of factor demand and output, analysing the effects of a change in relative factor prices on investment, employment and output in the eastern German manufacturing sector. The principal aim is twofold: first, to examine if the large amounts of capital subsidization mainly benefitted the capital-intensive industries, thus leading to distortions in the production structure, and second, to find out if the subsidies proved to be successful in creating employment in the eastern German industries or if they rather contributed to a substitution of capital for labour and skilled labour. The model uses the concept of the user cost of capital for a representation of capital costs, integrating the main instruments of subsidization. The results confirm that all in all, capital subsidies seem to encourage capital-intensive production structures. As to employment, the positive output effect might overcompensate the substitution effect only for skilled, but not for unskilled labour and only in the capital- and surprisingly also in the labour-intensive industries. For the skilledlabour- intensive industries, the outcome is much less encouraging.

JEL-codes: C33 E22 E24 H20 (search for similar items in EconPapers)
Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/46689/1/258316632.pdf (application/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:zbw:ifwkwp:878

Access Statistics for this paper

More papers in Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().