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Technological capability of foreign and West German investors in East Germany

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Like in Central East European countries and other catching-up economies, it is expected in East Germany that modern equipped foreign (West German) investors increase productivity, which in East Germany still lags clearly behind the Western part of the country and constitutes an ongoing developing problem. Thereby it is not only the transfer of technology from the parent company to the subsidiary but also the hope that subsidiaries build a source of technology spillovers in favor of local firms. These expectations raise the question of technological capability of foreign (West German) investors. Are external investors in East Germany really characterized by technological superiority compared to pure East German firms? Do they innovate more? Are they stronger involved in R&D (if at all)? Do they finally perform better in terms of productivity? These and further aspects will be dealt with in this paper. In the following, there will be an overview about the development of FDI in East Germany based on official data provided by the Federal Bank of Germany. The investigation will also include a comparison to Central East European countries. But the focus of the paper will be the analysis of a representative enterprise survey, the IAB-establishment panel, which provides a number of variables on the technological capability of (majority) foreign, West German, and East German owned firms.

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Jutta G√ľnther

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Adapt according to the presented license agreement and reference the original author.