Committing to grow: Privatizations and firm dynamics in East GermanyUfuk Akcigit, Harun Alp, André Diegmann and Nicolas Serrano-Velarde No 23-039, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research Abstract: This paper investigates a unique policy designed to maintain employment during the privatization of East German firms after the fall of the Iron Curtain. The policy required new owners of the firms to commit to employment targets, with penalties for non-compliance. Using a dynamic model, we highlight three channels through which employment targets impact firms: distorted employment decisions, increased productivity, and higher exit rates. Our empirical analysis, using a novel dataset and instrumental variable approach, confirms these findings. We estimate a 22% points higher annual employment growth rate, a 14% points higher annual productivity growth, and a 3.6% points higher probability of exit for firms with binding employment targets. Our calibrated model further demonstrates that without these targets, aggregate employment would have been 15% lower after 10 years. Additionally, an alternative policy of productivity investment subsidies proved costly and less effective in the short term. Keywords: industrial policy; privatizations; productivity; size-dependent regulations (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:279550 Access Statistics for this paper More papers in ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research Contact information at EDIRC. |
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