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Sources of the German Productivity Demise – Tracing the Effects of Industry-Level ICT Investment

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  • Theo Eicher
  • Oliver Roehn

Abstract

While the US 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, Communication and Technology (ICT) investment in Germany was deeply lacking in the mid 1990’s as compared to the US. 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 German industries (accounting for almost 50 percent of German output) experienced negative TFP growth. This second major difference between the US and German industry performance explains Germany’s secular departure from the technological frontier.

Suggested Citation

  • Theo Eicher & Oliver Roehn, 2007. "Sources of the German Productivity Demise – Tracing the Effects of Industry-Level ICT Investment," CESifo Working Paper Series 1896, CESifo.
    • Handle: RePEc:ces:ceswps:_1896
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    References listed on IDEAS

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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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    9. 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.
    10. James A. Kahn & Kevin Stiroh, 2002. "Productivity Growth: A New Era?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 237-242, April.
    11. Bart van Ark & Robert Inklaar & Robert H. McGuckin, 2003. "The Contribution of ICT-Producing and ICT-Using Industries to Productivity Growth: A Comparison of Canada, Europe and the United States," International Productivity Monitor, Centre for the Study of Living Standards, vol. 6, pages 56-63, Spring.
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    Cited by:

    1. Martin Schneider, 2014. "Labor Productivity Developments in Austria in an International Perspective," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 13-35.
    2. Theo Eicher & Thomas Strobel, 2008. "The decline in German productivity: Research into causes at the industry branch level," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 61(15), pages 33-40, August.
    3. Inklaar Robert & Timmer Marcel P. & Ark Bart van, 2007. "Mind the Gap! International Comparisons of Productivity in Services and Goods Production," German Economic Review, De Gruyter, vol. 8(2), pages 281-307, May.
    4. Hyunbae Chun & M. Ishaq Nadiri, 2016. "Intangible Investment and Changing Sources of Growth in Korea," The Japanese Economic Review, Japanese Economic Association, vol. 67(1), pages 50-76, March.
    5. Oliver Roehn & Theo Eicher & Thomas Strobel, 2007. "The Ifo Industry Growth Accounting Database," CESifo Working Paper Series 1915, CESifo.
    6. Robert Inklaar & Marcel P. Timmer, 2007. "Of Yeast and Mushrooms: Patterns of Industry‐Level Productivity Growth," German Economic Review, Verein für Socialpolitik, vol. 8(2), pages 174-187, May.
    7. Thiess Büttner & Petra Enß & Fédéric Holm-Hadulla & Robert Schwager & Christiane Starbatty & Wiebke Webering, 2010. "Der kommunale Finanzausgleich in Mecklenburg-Vorpommern : langfristige Entwicklung und Reformperspektiven ; Teil I: Der vertikale Finanzausgleich ; Gutachten im Auftrag des Innenministeriums des Lande," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 45.
    8. Theo Eicher & Thomas Strobel, 2008. "Germany’s Continued Productivity Slump: An Industry Analysis," ifo Working Paper Series 58, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    9. Thomas Strobel & Stefan Sauer & Klaus Wohlrabe, 2013. "Ifo Investment Database: a Tool for Analysing Investment Structures in Germany," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 66(06), pages 29-33, March.
    10. Robert Inklaar & Marcel P. Timmer & Bart Van Ark, 2007. "Mind the Gap! International Comparisons of Productivity in Services and Goods Production," German Economic Review, Verein für Socialpolitik, vol. 8(2), pages 281-307, May.

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    More about this item

    Keywords

    growth accounting; industry productivity analysis; information and communication technology;
    All these keywords.

    JEL classification:

    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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