The Rise and Fall of German Innovation

37 Pages Posted: 9 Mar 2021

See all articles by Wim Naudé

Wim Naudé

RWTH Aachen University

Paula Nagler

Erasmus University Rotterdam (EUR); IZA Institute of Labor Economics


In this paper, we describe the historical co-evolution of innovation and economic growth in Germany since 1871. The country's rise as an industrial power in the late 19th century, through its innovation and entrepreneurial performance, is contrasted with the post-World War II period. This latter period, although it contained the German economic miracle, was nevertheless a period during which innovation went into relative decline. We document this decline and offer four broad, interrelated explanations: (i) an innovation system locked into incremental innovation, (ii) a slowdown in the diffusion of technology, (iii) weaknesses in the education system, and (iv) entrepreneurial stagnation. Implications for policy are noted. Our paper contributes to the growing literature attempting to understand the decline in business dynamism that characterises many advanced economies.

JEL Classification: D31, L26, O33, O38, O52

Suggested Citation

Naudé, Wim and Nagler, Paula, The Rise and Fall of German Innovation. IZA Discussion Paper No. 14154, Available at SSRN: or

Wim Naudé (Contact Author)

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056

Paula Nagler

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072

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