Economic convergence: The German 1990 economic and monetary union

This study of the German 1990 unification utilizes several approaches—Absolute Beta Convergence, Conditional beta Convergence, Sigma Convergence, and the unit-root Dickey-Fuller test—to analyze the economic impact, measured by per capita GDP levels, of the monetary union among two unequal economic participants: eastern and western Germany.; The individual East and West German data series show that from 1950 to 1989, the former nations are found to be statistically different (i.e., do not converge to the same long-run equilibrium) with respect to the analyzed variables. Additionally, in an effort to reconcile the pre-unification statistics within the context of the neoclassical growth theory, the findings of the live births, migration, mortality—death, infant and fetal—and the population growth rates, which affect the per capita GDP growth rates, show that as predicted by theory, fertility rates tend to fall with per capita income for the poorest (in terms of low-income) countries; lower mortality rates correspond to higher per capita growth rates: an inverse relationship exists; and higher rate of population growth lowers the steady-state levels of capital and output per worker. Furthermore, my finding on migration growth rates concord with Barro and Sala-i-Martin's (1992) finding that net immigration is positively correlated with per capita income.; Beginning with Germany's 1990 unification until 1999, the theory of club convergence was first tested. Absolute Beta Convergence was not found but Conditional Beta Convergence was found for the High-OECD-Income-Club and the Upper-Middle-Income-Club of which western and eastern Germany are members, respectively. Furthermore, the two clubs were found to have different long-run steady-state equilibrium values. Sigma Convergence reinforced the findings of Beta Convergence for the two clubs. However, upon reviewing the individual nation's series, I find that convergence in the output per person employed does show sign of convergence after 1991. Thus, all utilized convergence testing approaches on the former GDR and FRG data series, led to similar conclusions about the economic impact of the German 1990 monetary unification of these two unequal economic participants: convergence cannot be ruled out.