The Economic Impact of Social Ties: Evidence from German Reunification
We use the fall of the Berlin Wall in 1989 to show that personal relationships which individuals maintain for non-economic reasons can be an important determinant of regional economic growth. We show that West German households who have social ties to East Germany in 1989 experience a persistent rise in their personal incomes after the fall of the Berlin Wall. Moreover, the presence of these households significantly affects economic performance at the regional level: it increases the returns to entrepreneurial activity, the share of households who become entrepreneurs, and the likelihood that firms based within a given West German region invest in East Germany. As a result, West German regions which (for idiosyncratic reasons) have a high concentration of households with social ties to the East exhibit substantially higher growth in income per capita in the early 1990s. A one standard deviation rise in the share of households with social ties to East Germany in 1989 is associated with a 4.6 percentage point rise in income per capita over six years. We interpret our findings as evidence of a causal link between social ties and regional economic development.
We are grateful to Philippe Aghion, Fernando Aragon, Oriana Bandiera, Tim Besley, Davide Cantoni, Wendy Carlin, Larry Katz, Yael Hochberg, Jason Garred, Maitreesh Ghatak, Claudia Goldin, Jennifer Hunt, Erik Hurst, Nathan Nunn, Rohini Pande, Torsten Persson, Michael Peters, Antoinette Schoar, Daniel Sturm, and Luigi Zingales. We also thank seminar participants at Harvard University, the University of Chicago, UCLA, the London School of Economics, London Business School, Northwestern, UBC, UPF, Bocconi, CEMFI, EBRD, Warwick, Namur, MPI Bonn, Carlos III, IIES Stockholm, TU Dresden, the Chicago Fed, and Dalhousie University, as well as at the NBER Summer Institute and the AEA, EFA, and EDP annual meetings for useful comments. All mistakes remain our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Konrad B. Burchardi & Tarek A. Hassan, 2013. "The Economic Impact of Social Ties: Evidence from German Reunification," The Quarterly Journal of Economics, Oxford University Press, vol. 128(3), pages 1219-1271. citation courtesy of