MEASURING GERMANY’S ECONOMIC INTEGRATION: A STATISTICAL APPROACH

This thesis measured the degree of economic integration of the reunified German states for the period between 1991 and 2011 by using the statistical method developed by Bowen, Munandar and Viaene. This approach is based on three theoretical predictions with respect to the distribution of output and production factors across the member states of an integrated economic area (IEA), where there are no barriers to goods and factor movements and policies are harmonized. Empirical results show that all predictions hold and that the distribution human capital is the furthest away from the theoretically expected one. The applied integration statistic indicates that during the covered period Germany became more economically integrated, however integration stagnated since 1999. A further East-West migration of higher educated is expected, but could be reduced through policy harmonization. Also the union of Bremen and Saarland with their circumambient states will lead to a distribution of human capital in Germany that is closer to what is theoretically expected.