Innovative East German Businesses Are Faster in Reaching West German Level

Despite remarkable progress in terms of adjustment, the productivity of the East German industry is still below the West German level. However, the individual East German businesses differ considerably from one another in terms of their productivity. It is clearly demonstrated that innovative businesses, in contrast to non-innovative businesses, exhibit a far more positive development regarding productivity. Businesses that cooperate with West German or foreign shareholding companies are equally faster in reaching the West German level than independent businesses. These are the findings of a study carried out by the Centre for European Economic Research (ZEW) in Mannheim.

East German businesses that have already started implementing product or process innovations at the beginning of the transition process could gain an advantage of six per cent in terms of productivity over non-innovative businesses within two years. In 1994, innovative businesses had already reached 73 per cent of the West German production level, whereas two years before, they still had only reached 62 per cent. The ZEW study shows that process innovators, which make up the smallest group among innovative businesses, are fastest in catching up on the West German level: in 1994, their productivity amounted to 77 per cent of the West German level.

As early as 1993, businesses that cooperate with West German or foreign shareholding companies surpassed independent businessesin terms of productivity growth by eight per centand by 13.5 per cent in 1994. In 1994, the productivity of businesses cooperating with shareholding companies amounted to 78 per cent of the West German level. The differences in productivity growth are also reflected in the remuneration of employees. Hence, businesses implementing process innovations and businesses cooperating with shareholding companies are faster in adjusting wages to West German standards.

Contact

Katrin Voss, E-mail: voss@zew.de