Committing to grow : privatizations and firm dynamics in East Germany / Ufuk Akcigit, Harun Alp, André Diegmann, Nicolas Serrano-Velarde ; editor: Halle Institute for Economic Research (IWH) - Member of the Leibniz Association
VerfasserAkcigit, Ufuk ; Alp, Harun ; Diegmann, André ; Serrano-Velarde, Nicolas
KörperschaftLeibniz-Institut für Wirtschaftsforschung Halle
ErschienenHalle (Saale), Germany : Halle Institute for Economic Research (IWH) - Member of the Leibniz Association, August 2023
Umfang1 Online-Ressource (III, 65 Seiten, 6,69 MB) : Diagramme
SerieIWH-Diskussionspapiere ; no. 17 (August 2023)
Schlagwörterindustrial policy / privatizations / productivity / size-dependent regulations
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Committing to grow [6.69 mb]
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.