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Eastern Germany on the Brink of Closing the Productivity Gap? Firm Level Evidence from Manufacturing

Referierte Aufsätze Web of Science

Bernd Görzig, Martin Gornig, Ramona Voshage, Axel Werwatz

In: Post-Communist Economies 22 (2010), 4, S. 499-511


After 20 years of transition, productivity in Eastern Germany is still considerably below the Western level. We study the development of the East-West productivity gap at the firm level and link it to firms' product policy. Redesigning their product range was a major challenge for Eastern enterprises as they sought their place in the international division of labour. Based on data from manufacturing we apply a non-parametric extension of the widely used Oaxaca-Blinder method to decompose the average East-West productivity difference. By running separate decompositions for modifiers and non-modifiers of the product range we study the impact of product policy on the productivity gap. We find that the time span 1995-2004 has two component periods: a period of adaptation from 1995 to 2001 and a period of branding from 2002 to 2004. The initial period is characterised by a smaller share of Eastern firms that modify their product range and by a large productivity gap between Eastern and Western non-modifiers of comparable size and sector. The evidence for the second period, however, points to a more active and established role of Eastern German manufacturers: more of them alter their product range and step up their productivity performance.

Martin Gornig

Deputy Head of Department in the Firms and Markets Department

Topics: Productivity