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Abstract
Substantial resources will be needed to rebuild the economy of east Germany. Over time, as productivity rises, a growing proportion of these resources is likely to come from domestic (i.e., east German sources). But, in the early years of German economic, monetary, and social union (GEMSU), it is likely that net saving in east Germany will be negative. From the perspective of the German economy as a whole, the large external surplus that has existed in the western part of the country will be more than adequate to finance resource needs in the eastern part. But the redirection of this surplus will have implications both for west Germany and the rest of the world. The transmission of demand shock associated with GEMSU to the rest of the world, which has been analyzed in Chapter VI, will depend, inter alia, on the extent to which the west German economy is able to generate additional resources for investment in the east, that is, over and above its existing surplus of saving. In examining this last issue, there are three important questions concerning how the west German economy responds to GEMSU: How much additional output will be stimulated? How will saving respond? And what will be the reaction of investment? Some of the important considerations bearing on the first question were analyzed in Chapters VII and VIII. Taking an assumed scenario for the effects of GEMSU on output, interest rates, and other macroeconomic variables, this chapter uses econometric estimates of saving and investment behavior in west Germany to look at aspects of the second and third questions. In addition, the influence of changes in government saving is examined closely, in order to evaluate the potential role for budgetary measures in generating additional saving at the national level.
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