Initial conditions and regional performance in the aftermath of disruptive shocks: the case of East Germany after socialism

Abstract

Abstract We investigate how specific regional conditions found in East Germany at the end of the socialist regime impact development during the turbulent shock transition to a market economy. Both the self-employment rate (an indicator of a pre-socialist entrepreneurial tradition) and the share of the workforce with a university degree (as measure of the general qualification of the workforce) have a strong positive effect on regional development. Our results show that entrepreneurship and knowledge are key regional resources for mastering disruptive historical shocks.