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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page The Global Economic Implications of German Unification
Lewis S. Alexander and Joseph E. Gagnon
1990-379  (April 1990)

Abstract:  This paper uses a multi-country econometric model to assess the global impact of rapid economic integration of the two Germanys. The fundamental assumptions are that East Germany brings relatively more labor than capital to the union than does West Germany, and that the economic structure of a united Germany is essentially identical to that of pre-unification West Germany. In all of the simulations economic union leads to an acceleration of growth and investment in Germany, a real appreciation of the Deutsche­mark, and a reduction in Germany's current account surplus. The impact of German economic unification on other countries is relatively modest, as the additional investment demand is not large relative to global investment and a disproportionate share of that investment demand is met by domestic German savings.

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