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Migration, Wages, And Parental Background: Obstacles To Entrepreneurship And Growth In East Germany

Date Added: May 2010
Format: PDF

For the last decade, the East German economy has been suffering from high unemployment and low economic growth. Policy makers often point to the lack of entrepreneurship as one of East Germany's main problems. This paper addresses the question of how East Germany's integration into an established economy, West Germany, may have hindered a fruitful development of entrepreneurship and how this may have an effected economic growth. The author builds a model economy that places Lucas's [1978] span-of-control model into an overlapping-generations framework. Following Hassler and Rodriguez Mora [2000] managerial knowhow is defined as a combination of two factors, innate talent and entrepreneurial parental background, and growth depends on the innate talent of entrepreneurs.