Twenty Years after the Fall of the Berlin Wall: Structural Convergence in a Slow-Growth Environment

In this paper, we take a closer look at the development of the East German economy since German reunification in 1990 and its sectoral structure. Manufacturing has regained importance, driven by strong growth. Particularly in the southern East German states—Saxony, Saxony-Anhalt and Thuringia—manufacturing has grown rapidly and new industrial clusters have emerged. These states have experienced a substantially higher rate of growth in GDP per capita than the northern states Brandenburg, Mecklenburg-Western Pomerania and Berlin over the last eight years. In connection with the growth of manufacturing, the contribution of the joint federal-state regional investment incentives to the industrial build-up in East German regions will be examined using panel regressions. For this we apply a comprehensive dataset on investment incentives by region. The results show that investment incentives contribute substantially to regional growth in manufacturing. Moreover, we found significant employment effects for seventeen manufacturing industries and business services. We conclude that investment incentives are effective in strengthening regional growth and employment in East Germany. Investment-oriented measures should remain a cornerstone of regional policy in the future, with more emphasis given to innovation.