Local employment growth in West Germany: A dynamic panel approach

In this paper we study the dynamics of local employment growth in West Germany from 1980 to 2001. Using dynamic panel techniques, we analyse the timing of the impact of diversity and specialisation, as well as of the human capital structure of local industries. Diversity has a positive effect on employment growth in the short run, which is stronger in manufacturing than in services. Concerning specialisation we find also positive effects. They are, however, not strong enough to reinforce growth permanently, since there is mean reversion in the process. A positive effect of education is only found in manufacturing. Additionally, we look at the impact of firm size and regional wages on local employment growth.