Determinants of regional growth and convergence in Germany

Katharina Weddige-Haaf, Clemens Kool

Research output: Working paperDiscussion paperOther research output

Abstract

In this paper, we analyse the sources of real per capita income growth and
convergence in the 16 German states over the period 1995-2014 using a
panel approach. The empirical analysis applies the popular growth – initial
income equation. We augment the basic model specification with a trend
term and a crisis dummy. We then augment the model with additional
explanatory variables and account for non-linear interaction effects. Overall,
we find evidence of slow but significant convergence once the crisis and a
trend are appropriately accounted for. Internal migration has a positive
impact on growth in the East and thus contributes to the convergence
between Eastern and Western states. Horizontal tax equalisation is
ineffective in promoting growth and convergence, but we do find some
evidence that federal supplementary grants have contributed to
convergence between grant receiving and non-receiving states. Structural
funding is found to have opposing growth effects on Eastern and Western
states and has significantly promoted convergence.
Original languageEnglish
PublisherT. Koopmans Institute
Number of pages34
Publication statusPublished - 2017

Publication series

SeriesIZA Discussion Paper Series
Number17-12

JEL classifications

  • c33 - "Multiple or Simultaneous Equation Models: Models with Panel Data; Longitudinal Data; Spatial Time Series"
  • e13 - General Aggregative Models: Neoclassical
  • e62 - Fiscal Policy
  • o15 - "Economic Development: Human Resources; Human Development; Income Distribution; Migration"
  • o47 - "Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence"

Keywords

  • internal migration
  • fiscal equalisation
  • structural funding
  • panel approach
  • interaction effects

Cite this

Weddige-Haaf, K., & Kool, C. (2017). Determinants of regional growth and convergence in Germany. T. Koopmans Institute. IZA Discussion Paper Series, No. 17-12 https://dspace.library.uu.nl/handle/1874/355264