From socialist showcase to Mezzogiorno? Lessons on the role of technical change from East Germany's post-World War II growth performance

Abstract

We revisit East Germany's growth performance relative to West Germany since World War II. It is shown that before German reunification in 1991, East Germany's regions experienced much lower rates of technical progress than Western regions, while after German reunification, the opposite was the case: relatively high technical progress in the East explains almost half of the East's catch-up with West Germany between 1991–1996. We emphasize the level of domestic innovative activity as well as the extent of international technology diffusion as key reasons for this. These factors explain why East Germany was not the socialist showcase economy before reunification, and suggest that it will not be Germany's Mezzogiorno, staying persistently behind West Germany as does Italy's South relative to its North. The analysis points to the need to study the contribution of technical change as source of growth independently from the accumulation of rival factor inputs such as capital.