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The Eastern Länder as a Transition Economy

  • Michael Kaser
Part of the Studies in Economic Transition book series (SET)

Abstract

This chapter places the German eastern Länder in the context of the almost thirty countries of Europe and Asia which have accompanied the collapse of exclusive communist rule with systemic change towards the market. It compares the Länder as a group within unified Germany against the broadly-accepted benchmarks of the process in other transition economies. Eight years after the political transformation began in the Warsaw, Budapest, Berlin and Prague of late 1989, the economies — Poland alone excepted — have not regained the level they had then. All had become market economies, the German eastern Länder more thoroughly a market economy than any, notably because the federal set of laws and institutions were applied immediately on unification and because the privatisation was more thoroughgoing. Nevertheless, the eastern Länder ‘industrialisation’ that resulted from the operation of the Treuhand could have been less severe under alternative possible policies, and the output recovery after the nadir of recession has been heavily dependent on resource inflows from the western Länder. At no time in the transition, past or future, could equivalent external support be expected for other countries.

Keywords

Corporate Governance International Monetary Fund Purchase Power Parity Purchase Power Parity Unit Labour Cost 
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Notes

  1. 4.
    Some multi-national comparisons cover more than twenty countries, but not the eastern Länder, e.g. Stanley Fischer, Ratna Sahay and Carlos Végh, ‘Stabilization and Growth in Transition Economies: The Early Experience’, Journal of Economic Perspectives, vol. 10 (1996), pp. 45–66;CrossRefGoogle Scholar
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    A notable comparison between East Germany and a set of transition states is in Hans-Werner Sinn, Factor Price Distortions and Public Subsidies in East Germany, Centre for Economic Policy Research (CEPR) Discussion Paper Series no. 1155 (May 1995).Google Scholar
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    See also Hans Werner Sinn and Alfons Weichenrieder, Foreign Direct Investment, Political Resentment and the Privatization Process in Eastern Europe, mimeo for an EBRD Conference, 26–27 April 1996 (the writer is grateful to John Bennett, University of Wales Swansea, for a copy of this paper).Google Scholar
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    It is fair to point out that the NATO Colloquium of the year before had specifically covered the Länder (Wolfgang Vehse, ‘Privatization German Style’, in Reiner Weichhardt (ed.), Privatization in NACC Countries: Defence Industry Experiences and Policies and Experiences in Related Spheres, NATO, Brussels, 1994).Google Scholar
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© Michael Kaser 1998

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  • Michael Kaser

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