One transition story does not fit them all: initial regional conditions and new business formation after communism

We investigate the reasons for the pronounced regional differences of new business formation after the transformation from a centrally planned system to a market economy in East Germany. Relatively high start-up rates are found in regions that had a well-qualified workforce and a relatively high share of self-employment left over at the end of the communist period. This also holds for high-tech manufacturing start-ups. Based on our conclusion that policy should account for these initial regional conditions, we use a measure of the regional knowledge base and self-employment at the end of the communist period to introduce a classification of regions.