DP1256 Will East Germany Become a New Mezzogiorno?
|Author(s):||Andrea Boltho, Wendy Carlin, Pasquale Scaramozzino|
|Publication Date:||February 1996|
|Keyword(s):||Convergence, Regional Development, Regional Economic Policy|
|JEL(s):||O57, R12, R58|
|Programme Areas:||Transition Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1256|
Despite massive regional policy efforts, GDP per capita in Southern Italy has only briefly converged on Northern Italian levels (during the 1960s). Failure since then is associated with a policy switch from investment towards income maintenance, with reduced wage sensitivity to regional labour market conditions and with increases in rent-seeking opportunities and corruption. East Germany?s early experience of rapid wage and income, but not productivity, convergence raised fears that a Mezzogiorno scenario could be repeated. Since then, however, investment has been successfully encouraged, wage setting has become more flexible and productivity growth has risen. Given a more favourable non-economic environment as well, the prospects for East German convergence are now more promising.