Michael Koetter acknowledges financial support from the Netherlands Organization for Scientific Research (NWO). We would like to thank Steven Brakman, Heinz Herrmann, Dan Stegarescu and three anonymous IJURR referees for helpful comments and suggestions. Any remaining errors are, of course, our own.
Transfer Payments without Growth: Evidence for German Regions, 1992–2005
Article first published online: 18 JAN 2013
© 2013 Urban Research Publications Limited
International Journal of Urban and Regional Research
Volume 37, Issue 4, pages 1438–1455, July 2013
How to Cite
Koetter, M. and Wedow, M. (2013), Transfer Payments without Growth: Evidence for German Regions, 1992–2005. International Journal of Urban and Regional Research, 37: 1438–1455. doi: 10.1111/j.1468-2427.2012.01193.x
- Issue published online: 20 JUN 2013
- Article first published online: 18 JAN 2013
- Netherlands Organization for Scientific Research (NWO)
- Regional growth;
- investment subsidies;
After German reunification, interregional subsidies accounted for approximately 4% of gross fixed capital investment in the new federal states (i.e. those which were formerly part of the German Democratic Republic). We show that, between 1992 and 2005, infrastructure and corporate investment subsidies had a negative net impact on regional economic growth and convergence. This result is robust to both the specification of spatially weighted control variables and the use of instrumental variable techniques to control for the endogeneity of subsidies. Our results suggest that regional redistribution was ineffective, potentially due to a lack of spatial concentration to create growth poles.