DP981 | The Causes of Post-War Slumps and Miracles. An Evaluation of Olsonian Views on German Economic Performance in the 1920s and the 1950s

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This paper examines whether the different macroeconomic performances of the German economy in two post-war decades provide evidence for the theory (first advanced by Mancur Olson) that sharp institutional breaks are conducive to economic growth because they destroy the existing network of distributional coalitions. It is shown that the answer to this question is negative because the institutional break in Germany after World War II was much less complete than assumed by Olson and others: all major interest groups quickly regained their traditional strength, and they did so in organizational forms that were not substantially more encompassing than before in the sense of Olson's theory. The paper proposes an alternative interpretation of the relevant periods in terms of stable corporatist institutions that reduce the absorptive capacity of an economy in a symmetric way, thus exacerbating the growth and employment effects of negative and positive exogenous shocks that originate in changes of the terms of trade or the speed of productivity growth.