Business Environment And Enterprise Behaviour In East Germany Compared To West Germany And Central Europe

This paper examines institutional differences between the former East and West Germany and four central European transition countries (the Czech Republic, Hungary, Poland and the Slovak Republic). Using enterprise survey data the authors show that the quality of both formal and informal institutions in East Germany still differs from West Germany. In addition, central European transition countries are shown to have closed the gap in institutional quality with East Germany in many areas. They also show that enterprises in the central European transition countries have compensated for country level institutional deficiencies by focusing on company-level innovation and investment in human capital.