Do Differences in Data Management Help to Explain Persistent Productivity Differences Between Western and Eastern Germany?

By 2021, the German Economic Institute’s IW Index of German Unity, a composite of seven economic indicators, showed that Eastern Germany had reached 78 per cent of the Western German average. A major obstacle to progress appears to be the stalling in the convergence of capital endowment and corporate R&D personnel. The following article examines the extent to which differences in how companies in the two parts of the country use and manage their data might be contributing to the persistent productivity differences between Eastern and Western Germany. With exception of the city state of Berlin, the eastern states are still ill-prepared for participation in the digital economy, with broadband availability, a prerequisite for digital applications, well below the national average. With weaker investment, the unfavourable demographics of a generally older workforce and a preponderance of small- and medium-sized enterprises, it is clear that Eastern Germany will require special assistance in the digitalisation of its economy. In addition, recent decisions by leading companies in the data economy to establish a presence in Eastern Germany may have a positive effect on the future convergence process.