The impact of big investments in East Germany (226)

Theme Track: Labour Markets - Employment Trends

Author:
Kawka, Dr. Rupert

A widely applied strategy by public authorities to enforce economic growth in east Germany is the search for big investments. A recent example is BMW which builds its new plant in Leipzig. This policy aims at three effects: firstly, the initial investment creates many employment opportunities, secondly, it attracts further companies, e.g. suppliers, to choose the region as location and thus causing a regional investment multiplier, and thirdly, it signals the attractiveness of the respective region to other firms from different branches. The paper will deal with the former two aspects. With respect to the first effect, it is questionable whether the results match the expectations. E.g. a correlation between investments in manufacturing and mining in east Germany during the second half of the 1990s shows that there is a weak but significant negative correlation between the height of investment and the number of newly created jobs on the level of the counties (Kreise). This statistical evaluation may only give first hints about the effect. It cannot completely answer the question, because aggregated data pool the impacts of investments on the level of the individual companies on employment. The analysis has to use further information, and there is the need for disaggregated statistical information for each firm. These data are available for the sectors of manufacturing and mining for east Germany and will be used in the paper. These information help to find out whether big investments have a significantly different effect than e.g. a comparable sum of small investments. Furthermore, a multi-layered analysis with individual information for each firm on the one hand and aggregated data for the counties on the other becomes possible to avoid ecological fallacies. The second set of data for the individual firms gives further insights while comparing different years. It is possible to find out whether a big investment in one branch in a given region is followed by other investments in the same economic sector e.g. in the next period. Both questions, i.e. the impact of big investments on employment and on further investments in the same branch, should be seen in a regional context, as this is the appropriate way to highlight the differences. E.g., whereas Thüringen has the lowest average investment per company, the average increase of employment is the highest. Contrary is the relation between the two variables in Brandenburg and Sachsen-Anhalt. Possible reasons may be the size of the companies, suggesting the hypothesis that investments in small and medium enterprises (SME) have a higher impact on employment. Nevertheless, the influence of the different branches has to be regarded as a further cause.

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