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Did High Wages or High Interest Rates Bring Down the Weimar Republic? A Cointegration Model of Investment in Germany, 1925–1930

Published online by Cambridge University Press:  03 March 2009

Hans-Joachim Voth
Hans-Joachim Voth
Affiliation:
Junior Research Fellow at Clare College, Cambridge, CB1 2TL, England, and a doctoral student at Nuffield College, Oxford OX1 1NF, England.
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Abstract

This article offers a new interpretation of the low level of investment in Germany during the interwar period. Earlier contributions attributed the slow expansion of capital stock either to excessive wages due to state intervention and unionization or to the high cost of capital. These hypotheses are tested by estimating a cointegration model of investment. Counterfactual simulations demonstrate that lower wages would have lowered investment still further and that high interest rates acted as the main brake on investment during the second half of the 1920s.

Type
Articles
Information
The Journal of Economic History , Volume 55 , Issue 4 , December 1995 , pp. 801 - 821
Copyright
Copyright © The Economic History Association 1995

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