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Productivity: Urban-Rural Differences Affect Productivity More Than East-West Differences

DIW Weekly Report 43 / 2019, S. 387-393

Heike Belitz, Martin Gornig, Alexander Schiersch

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Following reunification, productivity in eastern Germany grew rapidly. A strong industrial sector is key to a thriving German economy. However, the narrowing of the industrial productivity gap between eastern and western Germany has come to a standstill since the financial and economic crisis and the gap remains considerable today. Nevertheless, when comparing similar regions in eastern and western Germany, the productivity gap shrinks. In both eastern German cities as well as rural areas, industrial companies are using labor and capital almost as efficiently as their competitors in comparable regions in the west. However, the productivity level in urbanized areas in eastern Germany is significantly lower than in urbanized regions in western Germany. For this reason, these regions in the east should be strengthened by expanding research and infrastructure and by encouraging the creation and growth of clusters. Progress in closing the productivity gap between eastern and western Germany can also be made by implementing a sustainable, countrywide infrastructure offensive to increase the attractiveness and growth opportunities of rural areas. As the east is very rural in structure, it would profit from this in particular.

Alexander Schiersch

Research Associate in the Firms and Markets Department

Martin Gornig

Research Director in the Firms and Markets Department

JEL-Classification: D24;L60;R12
Keywords: Productivity, manufacturing, spatial analysis

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