Learning Capitalism The Hard Way: Evidence From Germany's Reunification

Thomas Triebs and Justin Tumlinson

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: Communism in East Germany sought to dampen the effect of market forces on firm productivity for nearly 40 years. How did East German firms respond to the free market after being thrust into it in 1990? We use a formal learning model and German business survey data to analyze the lasting impact of this far-reaching treatment on the way firms in former East Germany predicted their own productivity relative to firms in former West Germany during the two decades since Reunification. We find in confirmation of our formal model's predictions, that Eastern firms forecast productivity less accurately, particularly in dynamic and uncertain markets, but that the gap gradually closed over 12 to 13 years. Second, by analyzing the direction of firm level errors in conjunction with contemporaneous market signals we find that, in the years immediately following Reunification, Eastern firms estimate the market's role as generally less potent than Western firm do, an observation consistent with overweighting experiences from the communist era; however, over roughly 14 years both converge to the same (incorrect) overestimate of the market's role on their productivity.

JEL-codes: D21 D22 D83 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-bec, nep-eff, nep-eur and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Learning Capitalism the Hard Way - Evidence from German Reunification (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100457

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