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The Economic Impact of Social Ties: Evidence from German Reunification
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
2013 (English)In: Quarterly Journal of Economics, ISSN 0033-5533, E-ISSN 1531-4650, Vol. 128, no 3, p. 1219-1271Article in journal (Refereed) Published
Abstract [en]

We use the fall of the Berlin Wall in 1989 to show that personal relationships which individuals maintain for noneconomic reasons can be an important determinant of regional economic growth. We show that West German households who had social ties to East Germany in 1989 experienced 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 that (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 4.7 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. JEL Codes: O10, O43, J61, L14, F20.

Place, publisher, year, edition, pages
2013. Vol. 128, no 3, p. 1219-1271
National Category
Economics
Identifiers
URN: urn:nbn:se:su:diva-70840DOI: 10.1093/qje/qjt009OAI: oai:DiVA.org:su-70840DiVA, id: diva2:482873
Note

A short non-technical version of the article was published in German: "Soziale Kontakte und wrtschaftliches Wachstum", ifo Dresden berichtet 18 (06), pp. 26-26, Publisher: ifo Institut, Dresden, 2011.)

Available from: 2012-01-24 Created: 2012-01-24 Last updated: 2018-01-25Bibliographically approved

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