The East German Nature of Transition from Socialist to Capitalist (Market) Economy

Posted: 14 Nov 1998

See all articles by Hans-Peter Brunner

Hans-Peter Brunner

Action International for Evolutionary Development

Date Written: June 1998

Abstract

Hard currency, and high wages may not explain the slow response of the East German economy to the opportunities of western capitalism. The success of the East German transition model may lie in those sectors that pay the highest wages. This paper shows that on a more detailed manufacturing sector level, those sectors that received the bulk of western investment and management expertise, for example machinery, chemical and vehicle industries are not always the ones that had achieved the greatest advances in export competitiveness by 1995. Losses in terms of export competitiveness occurred in sectors that are relatively low-tech, and dependent on cheap labor. Strong gains in export competitiveness of the eastern region of Germany appeared in some high-technology sectors, particularly in the historic optical and precision instrument sectors. Those are also sectors which are skill intensive and command high wages. For explanation of the discovered sector patterns of export competitiveness change, the paper offers an industrial organization and trade model.

However, in East Germany most firms never got to the stage where they could effectively compete on technology due to the initial adjustment shock of unification. Those firms that did survive the first two years, due to appropriate technology management and bridge financing, were largely able to catch up with their rivals and successfully compete in export markets.

JEL Classification: O11, O52, P21

Suggested Citation

Brunner, Hans-Peter W., The East German Nature of Transition from Socialist to Capitalist (Market) Economy (June 1998). Available at SSRN: https://ssrn.com/abstract=139730

Hans-Peter W. Brunner (Contact Author)

Action International for Evolutionary Development ( email )

17 ADB Avenue, Level 29, Pasig
1600 Metro Manila
Philippines
+63 920 9707531 (Phone)

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