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

46 Pages Posted: 8 Oct 2022

See all articles by Wim Naudé

Wim Naudé

RWTH Aachen University

Paula Nagler

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

Abstract

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.

Keywords: innovation, Germany, entrepreneurship, technology

JEL Classification: N13, N14, O31, O33

Suggested Citation

Naudé, Wim and Nagler, Paula, The Ossified Economy: The Case of Germany, 1870-2020. IZA Discussion Paper No. 15607, Available at SSRN: https://ssrn.com/abstract=4241585 or http://dx.doi.org/10.2139/ssrn.4241585

Wim Naudé (Contact Author)

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

Paula Nagler

Erasmus University Rotterdam (EUR) ( email )

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

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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