To the disappointment of all German people, the East-German economic growth rate became lower than the West-Germany`s since the mid 1990s. Even though the German government has continued to pour a huge amount of capital into the East-German regions, t...
To the disappointment of all German people, the East-German economic growth rate became lower than the West-Germany`s since the mid 1990s. Even though the German government has continued to pour a huge amount of capital into the East-German regions, the catching-up process doesn`t seem to be recovered. It implies the remaining gap of productivity between East and West German regions is not the problem of capital endowment. It resulted from an inappropriate design of industrial policy, so-called high-wage, high technology through increasing capital stock. The basic mistake in the planning was the regarding industry with high capital intensity as industry of high technology. Various measures of capital subsidy enlarged mainly the capital intensive chimney-industries absorbing a greater portion of capital to increase productivity than other industries. The new catching-up process should begin with correcting the relation of unit wage cost between both German regions and with industrial restructuring to increase productivity without additional subsidy.