The Economic Impact of Social Ties: Evidence from German Reunification
64 Pages Posted: 7 Nov 2011
There are 4 versions of this paper
The Economic Impact of Social Ties: Evidence from German Reunification
The Economic Impact of Social Ties: Evidence from German Reunification
The Economic Impact of Social Ties: Evidence from German Reunification
The Economic Impact of Social Ties: Evidence from German Reunification
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: Suggested Citation
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