Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/150950
Authors: 
Burchardi, Konrad B.
Hassan, Tarek A.
Year of Publication: 
2011
Series/Report no.: 
SOEPpapers on Multidisciplinary Panel Data Research 405
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.
Subjects: 
economic development
German reuni cation
networks
social ties
JEL: 
O11
J61
L14
Document Type: 
Working Paper

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