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Sources of the German Productivity Demise: Tracing the Effects of Industry-Level Information and Communication Technology Investment

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  • Eicher Theo S.

    (University of Washington Ifo Institute for Economic Research at the University of Munich, München, Germany)

  • Roehn Oliver

    (Ifo Institute for Economic Research at the University of Munich, München, Germany)

Abstract

While the United States experienced two successive labor productivity surges in 1995 and 2000, Germany’s productivity declined dramatically during the same period. We examine the sources of Germany’s productivity demise using the ifo industry growth accounting database that provides detailed industry-level investment information. While much attention has focused on the reduction in German labor hours, our data show that information and communication technology (ICT) investment in Germany was deeply lacking in the mid-1990s as compared with the United States. The transition to the new economy mitigated the German productivity slowdown, but did not reverse it. After 2000, we find that a recovery in Non-ICT investment was offset by a widespread collapse in German total factor productivity. Over half of the German industries (accounting for almost 50 per cent of German output) experienced negative total factor productivity growth. This second major difference between the United States and German industry performance explains Germany’s secular departure from the technological frontier.

Suggested Citation

  • Eicher Theo S. & Roehn Oliver, 2007. "Sources of the German Productivity Demise: Tracing the Effects of Industry-Level Information and Communication Technology Investment," German Economic Review, De Gruyter, vol. 8(2), pages 211-236, May.
    • Handle: RePEc:bpj:germec:v:8:y:2007:i:2:p:211-236
    DOI: 10.1111/j.1468-0475.2007.00405.x
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    1. Robert Inklaar & Mary O'Mahony & Marcel Timmer, 2005. "ICT AND EUROPE's PRODUCTIVITY PERFORMANCE: INDUSTRY‐LEVEL GROWTH ACCOUNT COMPARISONS WITH THE UNITED STATES," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 505-536, December.
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    4. Kevin J. Stiroh, 2002. "Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say?," American Economic Review, American Economic Association, vol. 92(5), pages 1559-1576, December.
    5. Timmer, Marcel P. & Ypma, Gerard & Ark, Bart van der, 2003. "IT in the European Union: driving productivity divergence?," GGDC Research Memorandum 200363, Groningen Growth and Development Centre, University of Groningen.
    6. Paul Schreyer, 2002. "Computer Price Indices and International Growth and Productivity Comparisons," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(1), pages 15-31, March.
    7. Alessandra Colecchia & Paul Schreyer, 2002. "ICT Investment and Economic Growth in the 1990s: Is the United States a Unique Case? A Comparative Study of Nine OECD Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 408-442, April.
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    Cited by:

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