The Role of Comparative Advantage in Shaping Economic Geography: Evidence from East Germany

05.10.2026 14:15 – 15:30

GTDW@IEE

(jointly with: Max Löffler and Andreas Lichter)


Abstract:

This paper exploits Germany’s division and unexpected reunification as a natural experiment to investigate the role of comparative advantage in shaping regions industrial specialization. Using product-level trade data from the 1980s, we first derive East German manufacturing industries revealed comparative advantage relative to West Germany. Standard Ricardian forces predict that in response to market integration East German regions’ industrial specialization should evolve according to their comparative advantage. Our empirical evidence strongly confirms this prediction. Moreover, and in line with our interpretation of reunification acting as market integration shock, effects are significantly stronger in regions close to West Germany.


Biography:

Katharina Erhardt holds a professorship in economics at Heinrich Heine University Düsseldorf and DICE as well as at the Kiel Institut where she is leading the Industrial Policy Lab. She is also a research affiliate at CEPR, CESifo and serves on the managing board of the European Trade Study Group. Moreover, she is a founding member of the Women Economists' Network at the German Ministry of Economic Affairs. She serves on the editorial board of International Economics and the Journal of Industry, Competition and Trade. She holds a PhD from ETH Zurich and was a Postdoctoral Fellow at MIT from 2019-2021. Her research lies at the intersection of international trade and economic geography.

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