2004 OECD Economic Surveys: Germany 2004

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Germany’s strong export performance is helping to restore growth, but in this 2004 review of Germany’s economy, OECD suggests further measures to create confidence and strength in the economy. In particular, OECD carefully examines linking fiscal consolidation to public sector reform, measures to create employment, and fostering product market competition. This edition’s special feature looks at how to improve Germany’s capacity to innovate.

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Improving the Capacity to Innovate

Reviving the dynamism of the German economy also requires policy measures that strengthen productivity growth. Total factor productivity growth -- the growth in output, which can be achieved given all inputs combined -- decelerated in Germany in the 1990s, as it did in several other countries within the OECD. Innovation is a key element stimulating total factor productivity. This, in turn, can potentially spur higher employment of both capital and labour, which is a source of higher economic growth in its own. Indeed, empirical studies establish a strong positive relationship between research and development (R&D) and per capita GDP growth.105 The recent policy debate in Germany has therefore focussed increasingly on innovation as a means to foster economic activity. This led the federal government to establish a commission whose task is to propose policy measures, in the second ...

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