Why Do Companies Invest in Germany?

On the basis of responses to the IW Business Survey conducted by the German Economic Institute, the present study examines both the factors currently discouraging private investment and, on the other hand, why companies continue to invest in Germany. Two-thirds of responders stated that they invest exclusively in this country, while a further 13 per cent do so primarily. Only 2 per cent invest exclusively or mainly abroad. For 27 per cent of companies, investments already made and the existing capital stock have a positive influence on current domestic investment activity. The large market and the reliability of the German legal system are further arguments in favour of investing here. Conversely, labour costs (including government-imposed non-wage labour costs) are an obstacle to domestic investment for 77 per cent of companies. Regulation, high corporate taxes and energy costs affect around two-thirds of firms’ investment decisions. The need for an improved investment environment becomes more acute when the investment structure shifts. The rapid pace of modernisation – particularly in the case of intangible assets (such as intellectual property derived from research and development and data mining) and leading-edge capital goods (such as information and communication technology) – means that current investment and capital stock formation are being countered by a consistently high level of disposals.