London School of Economics EOPP: Economic Organisation and Public Policy Programme LSE
EOPP: Economic Organisation and Public Policy Programme

Abstract for:

The Costs of Remoteness: Evidence from German Division and Reunification

Stephen J. Redding, Daniel M. Sturm, August 2005
Paper No' PEPP 11: | Full paper (pdf)
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Keywords: Market Access; Economic Geography, German Division, German Reunification

JEL Classification: F15; N94; O18

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Abstract:

This paper exploits the division of Germany after the Second World War and the reunification of East and West Germany in 1990 as a natural experiment to provide evidence of the importance of market access for economic development. In line with a standard new economic geography model, we find that following division cities in West Germany that were close to the new border between East and West Germany experienced a substantial decline in population growth relative to other West German cities. We provide several pieces of evidence that the decline of the border cities can be entirely accounted for by their loss in market access and is neither driven by differences in industrial structure nor differences in the degree of war related destruction. Finally, we also find some first evidence of a recovery of the border cities after the re-unification of East and West Germany.