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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 Röhn

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.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-01/cesifo1_wp1896.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1896.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_1896

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Keywords: growth accounting; industry productivity analysis; information and communication technology;

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References

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  1. Guido Schwerdt & Jarkko Turunen, 2007. "Growth In Euro Area Labor Quality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(4), pages 716-734, December.
  2. MartinNeil Baily & Robert Z. Lawrence, 2001. "Do We Have a New E-conomy?," American Economic Review, American Economic Association, vol. 91(2), pages 308-312, May.
  3. Schreyer, Paul, 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.
  4. 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, Centre for the Study of Living Standards, vol. 6, pages 56-63, Spring.
  5. repec:rus:hseeco:15966 is not listed on IDEAS
  6. Bart van Ark & Robert Inklaar & Robert H. McGuckin, 2003. "ICT and Productivity in Europe and the United States: Where Do the Differences Come From?," Economics Program Working Papers, The Conference Board, Economics Program 03-05, The Conference Board, Economics Program.
  7. 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.
  8. van Ark, Bart & Inklaar, Robert, 2006. "Catching up or getting stuck? Europe's troubles to exploit ICT's productivity potential," GGDC Research Memorandum, Groningen Growth and Development Centre, University of Groningen GD-79, Groningen Growth and Development Centre, University of Groningen.
  9. Linda A. Bell & Richard B. Freeman, 2000. "The Incentive for Working Hard: Explaining Hours Worked Differences in the U.S. and Germany," NBER Working Papers 8051, National Bureau of Economic Research, Inc.
  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. Timmer, Marcel P. & Ypma, Gerard & Ark, Bart van der, 2003. "IT in the European Union: driving productivity divergence?," GGDC Research Memorandum, Groningen Growth and Development Centre, University of Groningen 200363, Groningen Growth and Development Centre, University of Groningen.
  12. Ark, Bart van & Inklaar, Robert & McGuckin, Robert H., 2003. "ICT and productivity in Europe and the United States," CCSO Working Papers 200311, University of Groningen, CCSO Centre for Economic Research.
  13. Harberger, Arnold C, 1998. "A Vision of the Growth Process," American Economic Review, American Economic Association, vol. 88(1), pages 1-32, March.
  14. Kevin J. Stiroh & Dale W. Jorgenson, 1999. "Information Technology and Growth," American Economic Review, American Economic Association, vol. 89(2), pages 109-115, May.
  15. Kevin J. Stiroh, 2001. "Information technology and the U.S. productivity revival: what do the industry data say?," Staff Reports 115, Federal Reserve Bank of New York.
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Citations

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Cited by:
  1. Robert Inklaar & Marcel P. Timmer & Bart van Ark, 2006. "Mind the gap! International comparisons of productivity in services and goods production," Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University d06-175, Institute of Economic Research, Hitotsubashi University.
  2. Robert Inklaar & Marcel P. Timmer, 2007. "Of Yeast and Mushrooms: Patterns of Industry-Level Productivity Growth," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 8, pages 174-187, 05.
  3. Theo S. Eicher & Thomas Strobel, 2008. "Germany’s Continued Productivity Slump: An Industry Analysis," Ifo Working Paper Series Ifo Working Paper No. 58, Ifo Institute for Economic Research at the University of Munich.
  4. Theo S. Eicher & Thomas Strobel, 2008. "Der deutsche Produktivitätsabschwung: Ursachenforschung auf Branchenebene," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 61(15), pages 33-40, 08.
  5. Oliver Röhn & Theo Eicher & Thomas Strobel, 2007. "The Ifo Industry Growth Accounting Database," CESifo Working Paper Series 1915, CESifo Group Munich.

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