Ifo Analysis: German Industry Lags Behind in High Technology

According to the analysis titled "Germany's Medium-Tech Trap" published by the Munich-based Ifo Institute, German industry is lagging behind developed countries in high-tech research. Only 20 percent of the country's industrial R&D expenditures are allocated to high-tech sectors such as pharmaceuticals, semiconductors, and aerospace.

The Munich-based Ifo shared its analysis examining the impact of countries' R&D expenditures on economic growth with the public. According to the data, the US leads the global race with a 68 percent high-tech share, while France ranks in the middle tier with 46 percent. Germany's share in high-tech expenditures dropped from 32 percent in 1995 to 20 percent as of 2023, whereas the US share increased from 57 percent to 68 percent. Currently, three-quarters of German R&D spending is channeled into medium-scale technologies such as automotive, mechanical engineering, and the chemical industry.

Examining data from 18 countries covering the period 2000-2024, economists revealed that a 10 percentage point higher high-tech share in any given year increases real per capita economic growth by an annual average of about 0.5 percentage points over the following 5 years. Had Germany's high-tech share been at the international average level of 38 percent, an annual growth of about 0.9 percentage points more in per capita Gross Domestic Product could have been achieved over the medium term.

Prof. Dr. Oliver Falck, Director of the Ifo Center for Industrial Organization and New Technologies, stated that Germany concentrates its research in traditional industrial sectors and that countries with a higher share of high-tech research grow much stronger. Ifo researcher Yuchen Guo emphasized that merely increasing the total research budget is insufficient and that resources must be allocated to technologies that drive high growth, calling on political decision-makers to establish an innovation-friendly tax system and facilitate access to venture capital.