The Economic Impact of Social Ties: Evidence from German Reunification

64 Pages Posted: 7 Nov 2011

See all articles by Konrad Burchardi

Konrad Burchardi

London School of Economics & Political Science (LSE)

Tarek A. Hassan

Boston University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 4 versions of this paper

Date Written: November 1, 2011

Abstract

We use the fall of the Berlin Wall in 1989 to show that personal relationships which individuals maintain for non-economic reasons can be an important determinant of regional economic growth. We show that West German households who have social ties to East Germany in 1989 experience a persistent rise in their personal incomes after the fall of the Berlin Wall. Moreover, the presence of these households significantly affects economic performance at the regional level: it increases the returns to entrepreneurial activity, the share of households who become entrepreneurs, and the likelihood that firms based within a given West German region invest in East Germany. As a result, West German regions which (for idiosyncratic reasons) have a high concentration of households with social ties to the East exhibit substantially higher growth in income per capita in the early 1990s. A one standard deviation rise in the share of households with social ties to East Germany in 1989 is associated with a 4.6 percentage point rise in income per capita over six years. We interpret our findings as evidence of a causal link between social ties and regional economic development.

Keywords: economic development, German reunification, networks, social ties

JEL Classification: O11, J61, L14

Suggested Citation

Burchardi, Konrad and Hassan, Tarek Alexander, The Economic Impact of Social Ties: Evidence from German Reunification (November 1, 2011). Available at SSRN: https://ssrn.com/abstract=1955814 or http://dx.doi.org/10.2139/ssrn.1955814

Konrad Burchardi (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Tarek Alexander Hassan

Boston University ( email )

270 Bay State Road
Boston, MA 02215
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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