Machinery and Productivity: A Comparison of East and West German Manufacturing Plants

Abstract

A central question in economics, as well as in other social sciences, concerns the impact of technology on economic performance The answer to this question has enormous implications for policies that try to stimulate competitiveness and economic development. For example, if modern machinery does not more or less automatically lead to better economic performance, then a policy that mainly involves subsidies for investment in physical capital may not resolve the ‘real’ problem and may, therefore, turn out to be rather ineffective. However, there have been only a few systematic microeconomic empirical analyses of this issue, most of them carried out fairly recently.’ One striking result of this research is the high degree of heterogeneity revealed with regard to the effects of technology on the performance of firms, as well as the variety and complexity of factors responsible for the range of possible outcomes. Obviously, the relationship between technology and economic performance is not deterministic. There usually exists a considerable degree of freedom with respect to the choice, implementation and usage of technology. And the way in which the technology is implemented is of crucial importance for the impact of that technology.