The long-lasting impact of historical shocks on innovation activity: The case of German separation and reunification

Abstract

The reunification of East and West Germany in 1990 initiated the merging of two distinct innovation systems. In this process, the poorly functioning socialist system of East Germany adopted the formal institutions and organization of West Germany, a western-style market economy. We investigate the effect of German separation and reunification on patenting activity. Although patenting increased in both parts of the country until recently, the gap between East and West Germany widened considerably over time. East German innovation activity fell behind especially in technological fields in which both East and West Germany were specialized before reunification. In general, we find that after the merging of the two innovation systems the increase in patenting activity was stronger in the West. Our findings show that historical shocks can leave long-lasting imprints on the geographic disparities of innovation activities while adopting democratic institutions was not sufficient to boost innovation activity in East Germany to the level of West Germany having the same institutions.