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This paper analyses different categories of legacy from socialist central planning policies (SCPP) for urban development. How have city-specific measures by SCPP affected local economic systems, and have there been long-term consequences for cities even after their return to a market economy? Drawing from case studies of four East German cities, we identify several types of socialist policy measures that determine the local economic performance up to now. The impact of some measures was primarily displayed via ‘soft’ factors such as local image and identity and the attitudes of residents, local decision-makers.

Public sector activities are often neglected in economic approaches to analyze the driving forces of urban growth and changes in urban hierarchies. One crucial aspect of public sector activities is the institutional status of cities as regional capital. The paper is reporting on a quasi natural experiment on East German county towns. Since 1990, cities in East Germany have shown remarkable differences in their population development. During the same period many towns have lost their former status as county seat due to several administrative reforms. Using a Difference-In-Difference approach we compare the population development of former county capitals to cities successfully holding a capital status over the observed period. The estimation results show a statistically significant and economically relevant positive effect of holding a county capital status on annual population change. We further observe that the difference in population developments is increasing over time. Our results are not only of empirical interest but contribute to the general literature, explaining urban hierarchies and should be considered by policymakers for future policy measures stimulating urban economic growth.