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Problems of regional development in Germany and their possible solutions
Material posted: Publication date: 16-05-2022

Germany is one of the most developed countries in Europe, which pursues a successful regional policy. However, it is still characterized by differentiation in socio-economic development between the West and the East parts of the country. Studies also show that this gap is supplemented by a difference in economic indicators between South and North and city and village. This article analyzes the main problems in the regional development of Germany and suggests solutions that in the future could reduce the socio-economic differences between the federal states of Germany and contribute to the achievement of the main goal of the German regional policy – providing the entire population with equivalent living conditions.

Regional policy in Germany is implemented through a wide range of measures aimed at achieving the main goal – ensuring equal living conditions for the population of the country. Despite the successful implementation of regional governance, there are still problems in Germany and its federal states and their solution requires even more targeted measures.

The main difficulties in the development of the German regions exist in the spheres of economy, demography and infrastructure.

Economically not all states and regions of Germany are equally developed. Economically structurally weak regions are found mainly in rural areas of East Germany, far from large megacities where there is a successful economic dynamic. At the same time, it is worth saying that the gap in economic development does not lie exclusively along the former internal border of Germany between West and East, there are also differences between North and South and city and village.

The economic problems of the German states include municipal loans and debts of municipal housing companies, which in East Germany amount to about 2.1 billion euros. [2. p. 120] Other important indicators of the economic development of the region are the gross domestic product per employee and the unemployment rate. The GDP per employee and, accordingly, labor productivity in regions with developed labor markets in 2020 ranged from 72% to 160% of the national average. Thus, productivity in the economically strongest region is twice as high as in the weakest region. Among the 20 labor market regions with the highest rates, six are from Baden-Württemberg and four from Bavaria, four from North Rhine-Westphalia, as well as two regions each in Hesse and Rhineland-Palatinate. Northern Germany is represented by Wolfsburg and Hamburg, and the eastern states, on the contrary, are not represented at all. On the other hand, 20 regions with the lowest productivity (from 72% to 77% of the national average) are located in new states. As for unemployment, it has decreased everywhere in recent years. However, a number of regions of North Rhine and Westphalia, in particular the cities of the Ruhr region, are among the 20 regions with the highest unemployment rate, in addition to the regions of East Germany. The unemployment rate is also higher than average in coastal areas, in the southeast of Lower Saxony and in some parts of the Saarland and Rhineland-Palatinate. On a large scale, in addition to the East-West bias, there is a growing North-South unemployment bias.


Figure 1. GDP per capita in 2020 (in euros)

Figure 2. Unemployment rate in 2021 (in %)

Source: made up by the author based on: Bruttoinlandsprodukt (BIP) je Einwohner nach Bundesländern im Jahr 2020. Statista. Business Data Platform. URL.: https://de.statista.com/statistik/daten/studie/73061/umfrage/bundeslaender-im-vergleich-bruttoinlandsprodukt/ (date of application 30.03.2022)

Source: made up by the author based on: Arbeitslosenquote im Jahr 2021. Bundesagentur für Arbeit. URL.: https://web.arbeitsagentur.de/portal/metasuche/suche/information?volltext=arbeitslosenquote (date of application 30.03.2022).

Demographic development is another problem in the regions of Germany, especially in the rural areas of the eastern part of the country. The feature here is the high average age. The regions of Saxony-Anhalt (48 years), Brandenburg, Saxony and Thuringia (47 years) are problematic in this regard. There are also negative population trends in Saxony-Anhalt and Mecklenburg-Vorpommern. [1. p. 51] At the same time, there are no particularly problematic states and regions in Germany regarding the fertility rate and life expectancy. Therefore, we note that today the greatest number of negative demographic trends are found in rural regions, while urban regions of Germany are characterized by relative demographic stability.

Regarding infrastructure, attention is drawn primarily to the availability of broadband Internet access, the number of doctors in the region – the availability of medical care, the quality of housing and communal services and real estate prices. Today the most problematic from this point of view is the western part of Germany – the regions of North Rhine-Westphalia, Rhineland-Palatinate and Saarland. At the same time, it should also be noted that in rural regions, infrastructure problems reveal themselves in relatively weak broadband Internet access and high real estate prices, while in urbanized regions of Germany, the weak point of infrastructure is poor quality of housing and communal services.

Summing up the problems in the economy, demography and infrastructure, we can conclude that the areas of Saxony-Anhalt and North Rhine-Westphalia, namely the Ruhr region and rural areas of East Germany, need targeted measures of regional alignment more than others.

Migration can play a key role in countering the negative consequences of demographic changes in the regions of Germany, which, along with the birth rate and mortality rate, affects the population. However, if we talk about regions, usually large cities and especially economically successful regions of Southern Germany attract foreigners. Very few people move to rural areas of East Germany and Northern Bavaria, especially affected by demographic changes. [2. p. 157]

At the same time, active immigration is a positive factor when the integration of immigrants with the labor market and society is successful. After all, if immigrants remain unemployed in the long term, not only federal, but also municipal budgets bear substantial expenses for unemployment benefits, organization of asylum, social assistance, etc.

Immigrants in Germany can be divided into two categories: foreigners who are able to work and refugees from third world countries. The former usually enter Germany under an existing employment contract, so integration in the labor market is ensured from the very beginning. The latter, as a rule, have more problems with integration not only into the German labor market, but also into German society.

Thus, in order to improve the quality of immigration, it is necessary, firstly, to encourage work-oriented immigration to demographically and economically weak places. If we talk about immigration through the education system, it would be advisable to simplify the procedure for admitting people from countries outside the European Union to German educational institutions and take measures to create more jobs in structurally weak regions of the country so that specialists can move to these areas, and not just stay in large cities. Immigration of qualified specialists can be stimulated through so-called targeted marketing. The point is that the rural regions of Germany are mostly unknown abroad, so potential immigrants must be provided with clear information about these places. In addition, local firms should resort to purposeful hiring of specialists abroad and regional associations and business promotion companies can help them. This method can also work to attract domestic students from other regions.

Secondly, it is necessary to take measures to distribute the integration load. In addition to creating jobs and training opportunities for refugees, it would be wise to inform them how their income and career potential can be represented in other regions. If we talk about the financial relief of municipalities that receive especially many immigrants and are engaged in their integration, it can be achieved through the targeted allocation of federal funds.

Infrastructure is of great importance for the successful positioning and development of the country's regions. The infrastructure includes various sections that face different problems. On the one hand, there are already established infrastructure areas, such as road and railway networks, energy infrastructure, which face not many problems. On the other hand, there is a new infrastructure, such as a modern communication network, where the gaps in the development are much more significant.

The expansion of digital infrastructure is important for Germany, since the spread of broadband and 5G technologies benefits not only households, which can, for example, among other things, get better access to medical or social services, but also businesses, which makes a significant contribution to the development of the economy of the region and the country. Of course, programs for federal and land financing for the spread of broadband Internet connection are already being implemented in Germany, but the progress is slow; there are still many “white spots” on the map. Thus, applicants for the federal funding program need to be provided with the greatest bureaucratic support. At the same time, it would be reasonable to create incentives for investment in fiber-optic technologies that have advantages in providing high-speed information transmission and do not limit the number of users. Regarding the 5G network, which today is distributed mainly in such large cities as Cologne, Dusseldorf, Hamburg, Munich and Berlin, we should say that for wider coverage it is also necessary to facilitate the procedure for companies to obtain a license to distribute this network.

The measures improving economic development cover a set of activities carried out in several areas at once. These include the measures already mentioned above concerning demographic and infrastructural development, since minimizing problems in these areas has a positive impact on the economy of regions, especially structurally weak ones.

From the point of view of equal living conditions, as well as ensuring regional competitiveness and a balanced economic structure, individual regions have an interest in strengthening the structure of the regional labor market. Firstly, this includes the preservation and attraction of specialists by informing young people about their prospects for studying and working in their region. To do this, regional companies should participate in school and student professional orientation, for example, through open meetings or internships. The attractiveness of educational institutions and professions is also particularly important for young people. For this purpose, companies and educational institutions should create or increase targeted investments in branding. Secondly, the creation of new jobs. This can be achieved by promoting and retaining companies already existing in the region, stimulating startups and attracting companies from other regions through the development of infrastructure in all areas of life.

Another important component of the economic development of the regions is the financing of municipalities, which largely lack the autonomy to determine their own level of income and expenses independently. The point is that municipalities themselves can regulate property tax rates and other small taxes, which together account for about 60% of tax revenues. The remaining 40% are income from income tax and VAT, the revenue from which is distributed, however, between the federation and the states. [1. p. 92] Even more difficult in this context is that responsibilities for regional development are transferred to municipalities without providing them with sufficient funding. As a result, many municipalities had to borrow money, which is why today there is a situation with debt, especially in Saarland, Rhineland-Palatinate, North Rhine-Westphalia and Hesse. Despite the fact that now the municipalities themselves are trying to control their expenses, and the federation is helping them with additional funding, it has not yet been possible to solve the debt problem. From an economic point of view, both within the municipal and national financial balance, an improved incentive system would be important to strengthen independence for better financing of programs and repayment of existing loans. To make this possible, territorial authorities should be allowed to retain a larger share of tax revenues.

Thus, it can be concluded that the main regional problem in Germany is the uneven development of the country's states. Difficulties can be found in the field of demography, which is characterized by negative population trends and a high average age. In addition, attention should be paid to infrastructure, especially uneven Internet access. Another problematic area is the economy of the federal states, the development of which is complicated by municipal loans in the regions. Possible solutions to these problems may be the stimulation of migration (including internal), the expansion of digital infrastructure, additional financing of municipalities, etc., which should lead to the achievement of the main goal of the regional policy of Germany – the provision of equal living conditions for the whole population of the country.

List of references

  1. Bundesministerium des Innern, für Bau und Heimat (BMI) (Hrsg.), Unser Plan für Deutschland. Gleichwertige Lebensverhältnisse überall – Berlin, 2019 – 164 S.
  2. Hüther Michael, Jens Südekum, Michael Voigtländer. – Die Zukunft der Regionen in Deutschland. Zwischen Vielfalt und Gleichwertigkeit. IW-Studien. Schriften zur Wirtschaftspolitik aus dem Institut der Deutschen Wirtschaft – Köln: Institut der deutschen Wirtschaft, 2019 – 292 S.
  3. Statista // Business Data Platform (https://de.statista.com/)
  4. Bundesagentur für Arbeit (https://www.arbeitsagentur.de/)

Grosman Elsa Anatolyevna,

4th year student of Global Regional Studies, Moscow State Linguistic University


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