This chapter presents research findings elaborated on at the Halle Institute for Economic Research, which has analysed economic development in East Germany empirically since the early 1990s. Before identifying these structural shortcomings a brief look at recent theoretical concepts of new growth theory and new economic geography is necessary because these go some way towards explaining why regions do not necessarily converge. Depending on the factors considered, regional development theories predict either convergence or divergence. After German unification, the productivity gap between the eastern and the western parts of the country became the indicator which reflected, in a very condensed manner, the weak performance of East Germany's economy. The development of firm growth which was highlighted and a precondition for achieving progress in terms of productivity is embedded in a regional environment. Therefore, economic aspects should be integrated in an appropriate manner in the overall urban development strategies.