A “Marginal” Tale of Two Germanies: Accounting for the Systemic Divide

A “Marginal” Tale of Two Germanies: Accounting for the Systemic Divide | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article A “Marginal” Tale of Two Germanies: Accounting for the Systemic Divide Vasilij Konysev, Daniel Fehrle This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-9519374/v1 This work is licensed under a CC BY 4.0 License Status: Under Review Version 1 posted 6 You are reading this latest preprint version Abstract The comparative economic performance of the former socialist German Democratic Republic (GDR) and the capitalist Federal republic of Germany (FRG) remains inconclusive due to valuation problems. We address these problems by applying wedge-growth accounting to a newly compiled dataset. More precisely, we analyze allocation efficiency via wedges between marginal utility and productivity, alongside Total Factor Productivity (TFP) growth differentials. We incorporate binding quantity constraints in the GDR's consumption goods market and the FRG's labor market by modeling them as wedges in marginal utility. We analyze the unitless wedges and swap them across the two Germanies in a growth model, producing counterfactuals that quantify their effects on output and economic welfare. A faster output growth observed in the GDR stems from excessive labor input, which depresses consumption-based welfare by a quarter, rather than from physical capital accumulation or TFP growth. Instead, lower TFP growth caused the GDR's economic activity to fall roughly ten years further behind that of the FRG. Finally, persistent, substantial net imports increase GDR's welfare by 25 %. JEL classification: E13, N14, O11, O47, P51 Wedge-growth accounting central planner allocation quantity constraints Full Text Additional Declarations No competing interests reported. Supplementary Files GDRPaprepl.zip Cite Share Download PDF Status: Under Review Version 1 posted Reviewers agreed at journal 18 May, 2026 Reviewers agreed at journal 03 May, 2026 Reviewers invited by journal 30 Apr, 2026 Editor assigned by journal 28 Apr, 2026 Submission checks completed at journal 28 Apr, 2026 First submitted to journal 24 Apr, 2026 You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-9519374","acceptedTermsAndConditions":true,"allowDirectSubmit":false,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":633566944,"identity":"875fdd6a-e4b8-4b6e-9413-13a4fac4af1a","order_by":0,"name":"Vasilij Konysev","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAABCElEQVRIiWNgGAWjYJCCAw8M2BgkoBw5BgbGBiDNjF9LApIWY6K0MCQAMUxLYgOExq3F4PjxhwcSCvgYJNt7j0n+qDicvuF2cwPDDwZrOZxazuQYgB0mzXMuTZrnzOHcDXcONjD2MKQb49Ii2ZAD8YucRI6ZNGNbWu6GG4ntP3gYDsNciKml//kDuBbJn//S0g1uJDYw/mE4XI9LC79EAtRhQC0SvA02CSAtzEBbEnA5jF/iDVgLj2TPGWNrnmM2hjNBWmQM0g1x2cLGn/74w4c/x+QkjvcY3vxRIyHPdyP9AeObCmt5XLZAwTEeIMEigRAwIKCBgaEGRDB/IKhuFIyCUTAKRiQAAKFZU4gbvg+3AAAAAElFTkSuQmCC","orcid":"","institution":"University of Augsburg","correspondingAuthor":true,"prefix":"","firstName":"Vasilij","middleName":"","lastName":"Konysev","suffix":""},{"id":633566945,"identity":"acf1d281-3631-4abc-82c7-ef7e2db087c0","order_by":1,"name":"Daniel Fehrle","email":"","orcid":"","institution":"Kiel University","correspondingAuthor":false,"prefix":"","firstName":"Daniel","middleName":"","lastName":"Fehrle","suffix":""}],"badges":[],"createdAt":"2026-04-24 16:38:12","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-9519374/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-9519374/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":108755862,"identity":"34280850-d9a5-4b9d-9889-880ddbc8f059","added_by":"auto","created_at":"2026-05-08 05:10:35","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":843968,"visible":true,"origin":"","legend":"","description":"","filename":"GDRPapmerge.pdf","url":"https://assets-eu.researchsquare.com/files/rs-9519374/v1_covered_dec902c1-26cb-4a1c-80f5-f2e26dea5a6e.pdf"},{"id":108755838,"identity":"d59eab13-e2bc-4817-9566-e9ecbc11c85d","added_by":"auto","created_at":"2026-05-08 05:10:26","extension":"zip","order_by":0,"title":"","display":"","copyAsset":false,"role":"supplement","size":3782674,"visible":true,"origin":"","legend":"","description":"","filename":"GDRPaprepl.zip","url":"https://assets-eu.researchsquare.com/files/rs-9519374/v1/dc6c097906b9b427a5cb9bad.zip"}],"financialInterests":"No competing interests reported.","formattedTitle":"\u003cp\u003eA “Marginal” Tale of Two Germanies: Accounting for the Systemic Divide\u003c/p\u003e","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":false,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"journal-of-economic-growth","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"joeg","sideBox":"Learn more about [Journal of Economic Growth](http://link.springer.com/journal/10887)","snPcode":"10887","submissionUrl":"https://submission.nature.com/new-submission/10887/3","title":"Journal of Economic Growth","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"em","reportingPortfolio":"Springer Hybrid","inReviewEnabled":true,"inReviewRevisionsEnabled":false},"keywords":"Wedge-growth accounting, central planner allocation, quantity constraints","lastPublishedDoi":"10.21203/rs.3.rs-9519374/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-9519374/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThe comparative economic performance of the former socialist German Democratic Republic (GDR) and the capitalist Federal republic of Germany (FRG) remains inconclusive due to valuation problems. We address these problems by applying wedge-growth accounting to a newly compiled dataset. More precisely, we analyze allocation efficiency via wedges between marginal utility and productivity, alongside Total Factor Productivity (TFP) growth differentials. We incorporate binding quantity constraints in the GDR's consumption goods market and the FRG's labor market by modeling them as wedges in marginal utility. We analyze the unitless wedges and swap them across the two Germanies in a growth model, producing counterfactuals that quantify their effects on output and economic welfare. A faster output growth observed in the GDR stems from excessive labor input, which depresses consumption-based welfare by a quarter, rather than from physical capital accumulation or TFP\u0026nbsp; growth. 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