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The German Democratic Republic has developed into a powerful member of the Soviet bloc, and yet little attention has so far been paid to it. The author argues that communist propaganda pictures developments in East Germany as a triumph of socialist planning over inherited backwardness, while free-market economists consider every failure as proof of imminent collapse. Instead, East Germany is a very interesting case of its own due to the peculiarity of its resource endowment as well as the recent history of bombing and war damage.   JEL: O20, O52, P21