A Retrospective on the Challenges of the East German Economy Following Reunificatio
School of Business | Bachelor's thesis
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Bachelor’s programme in Economics
AbstractJust over 30 years have passed since the reunification of East and West Germany. While East Germany fell behind under a command economy, it was generally argued that a transition to a market economy would allow it to catch up. Despite the original cause of falling behind being long gone, East Germany has yet to fully recover. This paper is a literature review which covers the challenges of German reunification. It finds that the initial reunification caused a significant recession in East Germany, largely due to low labour productivity, high wages and outdated production. Later, East Germany recovered from this shock and is now on the road to convergence, with West-to-East migration overtaking the reverse for the first time in 2017, but differences in wages and productivity persist. This paper finds explanations to these differences but finds that it is unclear to what extent some of the differences between East and West are the result of GDR policy and to what extent they are pre-existing regional differences. Ultimately no clear policy recommendations or alternatives are found, as the problems of East Germany seem to be largely self-correcting over time, and it is unclear whether either government intervention or the lack of it could have done or could now do very much to speed up convergence.
Thesis advisorStyrjan, Miri
East Germany, German reunification, transition economics, convergence