Faculté des sciences économiques et sociales

Regional economic integration and factor mobility in unified Germany

Böhm, Sebastian

(Working Papers SES ; 463)

The massive movement of capital and labor in opposite directions is the most striking characteristic of economic integration of Eastern and Western Germany. Beyond that, wage-setting behavior during the early years of unification and massive public social transfers have affected the transition path of the Eastern economy. In this paper, I set up a two-region open economy model with capital and... Plus

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    Summary
    The massive movement of capital and labor in opposite directions is the most striking characteristic of economic integration of Eastern and Western Germany. Beyond that, wage-setting behavior during the early years of unification and massive public social transfers have affected the transition path of the Eastern economy. In this paper, I set up a two-region open economy model with capital and labor mobility, wage-setting behavior, and public social transfers to explain major empirical trends of the German integration episode. I show that the model is able to replicate aggregate migration pattern in unified Germany and that wage-setting behavior has delayed labor productivity convergence between both German regions, whereas public social transfers have reduced the effect of wage setting on East-West net migration.