The Determinants of Local Employment Growth in Germany

This paper studies the impact of the local industrial structure on employment dynamics in Germany. Local employment growth is decomposed into internal growth resulting from employment changes in existing plants and external growth, which is determined by employment decisions of newly established plants. The dynamics of both components are estimated simultaneously, taking explicitly into account the timing of the impact of diversity and specialisation in a region. The analysis is conducted on the NUTS3-level from 1993 to 2002. Special emphasis is put on Eastern and Western Germany separately in order to take account of the di¤erent developments in the two regions. Estimation results hint towards the positive in‡uence of diversity and competition in a region. Dynamic panel regressions show that static externalities dominate. Keywords: regional labour markets, externalities, newly established plants, dynamic panel techniques. JEL classi…cation: C33, O18, R11. Preliminary version please do not quote! ifo Institute for Economic Research, Branch Dresden, Einsteinstrasse 3, 01069 Dresden, Germany, Phone +49-351-2647629, Fax +49-351-264-20, email: [email protected].