No abstract

We analyse the impact of public subsidies on private sector research and development (R&D) activity for a sample of East German firms. Using propensity score matching, our empirical results indicate that subsidized firms indeed show a higher level of R&D intensity (R&D expenditures relative to total turnover) and a higher probability for patent application compared with non‐subsidized firms. We find that, on average, the R&D intensity increases from 1.5% to 3.9%. The probability of patent application rises from 20% to 40%. These results closely match earlier empirical findings for East Germany. Given the fact that the East German innovation system is particularly driven by small‐ and medium‐sized enterprises (SMEs), we draw special attention to the effectiveness of R&D subsidies for this latter subgroup. Here, no specific empirical evidence is available so far. Our findings indicate that policy effectiveness also holds for private R&D activity of SMEs, with the highest increase in terms of R&D intensity being estimated for microbusinesses with up to ten employees.

The agglomeration of industries has recently received much interest both in empirical and theoretical work. Especially in Germany politicians became inspired by the notion of high-technology industry clusters, and regional policy has seen a wave of initiatives aiming at the formation of such clusters. This paper explores in a systematic way the geographic concentration of German manufacturing industries and relates it to industry characteristics and agglomeration forces proposed by theory. The main finding is that there is no general relationship between agglomeration and high-technology related business which suggests that hope put in the fast and effective development of "high-tech" clusters might see some disappointments in the future.

The aim of this paper is to analyse the e¨ects of regional investment incentives ± a main component of regional policy in West Germany ± on regional factor demand (investment and labor), growth and convergence of per capita income for the period 1978 to 1989. Demand for investment and labor arise from a model of cost minimization at given output with a putty-clay production function. The production function allows for regional technical e½ciency. To model the output e¨ect on factor demand an auxiliary output function is speci®ed. In estimating the functions attention is given to the short-run dynamics and the long-run behaviour of factor demand by error-correction models. The empirical long-run relationships are then used to simulate the e¨ects of regional investment incentives. In contrast to most studies for other countries the empirical results provide evidence that regional policy in Germany induces not only additional investment but also creates positive employment e¨ects. However, the e¨ects of regional investment incentives on growth and convergence of labor productivity are negligible.

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