In a new study by the Ifo Institute covering 18 OECD countries, Germany lags behind other industrialized nations regarding the proportion of its industrial research and development (R&D) spending dedicated to high-tech sectors. The research indicates that only 20 percent of Germany’s industrial R&D expenditures are directed towards high-tech industries like semiconductors, pharmaceuticals, or aerospace.
In stark contrast, the United States tops the list with a high-tech contribution of 68 percent, while France sits in the middle of the pack with 46 percent.
Oliver Falck, head of the Ifo Centre for Innovation Economics and Digital Transformation, commented that Germany tends to concentrate its research efforts on traditional industrial sectors. He added that countries with a higher proportion of high-tech research typically experience stronger growth, even when accounting for differences in overall R&D expenditure levels.
The German share of high-tech R&D spending has decreased notably, dropping from 32 percent in 1995 to approximately 20 percent in 2023. During the same period, this share in the US rose from 57 to 68 percent. Conversely, three-quarters of German R&D investments are allocated to medium-technology industries, such as automotive manufacturing, machinery, and chemistry, making Germany a leader in this area.
The researchers investigated the correlation between R&D expenditure structure and economic growth, finding that if a country’s high-tech share increases by ten percentage points in a given year, the average real per capita economic growth in the subsequent five years is nearly half a percentage point higher.
According to Ifo researcher Yuchen Guo, simply increasing the volume of research spending is insufficient. “It is not only the height of the expenditure that is critical, but whether it is directed towards technologies that lead to greater growth,” Guo stated. He urged policymakers to improve the underlying conditions to make risky and potentially disruptive innovation projects more attractive to businesses. These conditions should include an innovation-friendly tax system and better access to venture capital.
