Employment Growth Determinants in New Firms in Eastern Germany

Abstract

The unification of both Germanies and the introduction of the market economy in eastern Germany came as a shock to existing firms and led to an enormous boom in the establishment of new firms. The first section of this paper shows that during the period under observation (January 1991--June 1995) the number of firms nearly doubled and in 1995, nearly 50% of all jobs were to be found in firms established after 1991. Shortly after unification, a kind of "start- window" existed during which the conditions for establishment, growth and survival of firms were extraordinarily good. The next section deals with the determinates of the growth of these newly founded firms. Most determinants have been selected on the basis of the most recent studies by Bruderl, Preisendorfer and Ziegler (1996), and Storey (1994). The analysis included not only establishment characteristics but also strategic factors such as the technological status of the establishment, the proportion of sales in interregional markets, and a corporate competitive strategy indicator. A comparison of these results with other studies shows that the determinants that affect employment growth in new firms in eastern German are apparently the same as in western Germany and Britain, albeit to different extents.