Forecasting regional growth in Germany: A panel approach using business survey data

This paper is a first attempt to construct quantitative forecasts for regional growth in Germany using business survey data (BSD) from the German chambers of commerce. A panel approach is used to model the growth rates of the Bundesländer from the year 2000 onwards. The proposed model does well in explaining regional growth and the coefficients on the BSD are relatively stable. Results suggest that an indicator that is 10 points higher reflects growth rates that are 0.3-0.4 percentage points higher, while a 10 point increase from the previous year suggests an increase in growth by 0.25 percentage points. Fixed effects are found to play a negligible role. The BSD provides additional information on regional growth and outperforms the benchmark without BSD by up to 14 per cent for the full time period. For the period from 2000 to 2007 this value is as much as 20 per cent. However, for the time period from 2008 onwards, BSD does not provide significant information content over the benchmark. This reflects several shortcomings of the BSD, which nonetheless appears a valuable source of information in forecasting regional growth.