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The Ossified Economy: The Case of Germany, 1870-2020


  • Naudé, Wim

    (RWTH Aachen University)

  • Nagler, Paula

    (Erasmus University Rotterdam)


We describe Germany's rise as an industrial power in the late 19th century through radical innovation and entrepreneurship, and contrast this with the post-World War II period. This latter period, although it contained the German economic miracle, was nevertheless a period during which innovation slowed down - a somewhat surprising conclusion, but consistent with the decline in business dynamism noted in a growing number of advanced economies. We document this decline using several innovation indicators, and offer four broad, interrelated explanations in a historical context: (i) the innovation system is locked into incremental innovation, (ii) the diffusion of technology is slowing down, (iii) the education system is subject to weaknesses, and (iv) entrepreneurship is stagnating. Implications for policy are noted. Our paper contributes to the literature on the decline in business dynamism and the "great stagnation", to the literature on the historical forces that determine innovation outcomes, and to the literature that seeks to identify what makes an entrepreneurial state.

Suggested Citation

  • Naudé, Wim & Nagler, Paula, 2022. "The Ossified Economy: The Case of Germany, 1870-2020," IZA Discussion Papers 15607, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp15607

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    More about this item


    innovation; Germany; entrepreneurship; technology;
    All these keywords.

    JEL classification:

    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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