Kiel Working Papers, Kiel Institute for World Economics
No 943:
Industrial Policy and the East German Productivity Puzzle
Henning Klodt
Abstract: Catching-up of East German productivity to West German
levels has completely faded out since the mid l990s. The remaining
productivity gap cannot be attributed to an inferior capital endowment.
Instead, it appears to be the result of an inappropriate design of
industrial policy which fostered the specialization of East German industry
on capital intensive smoke-stack industries. These industries are absorbing
a large share of factor inputs, whereas their contribution to aggregate
output is rather limited. East Germany will have to face, therefore,
another wave of painful structural adjustment when public subsidies will
further be reduced.
JEL-Codes: D24; L16; L52; (follow links to similar papers)
27 pages, August 1999
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