Industry Concentration and Regional Innovative Performance – Empirical Evidence for Eastern Germany

Regarding technological innovativeness, the transformed economy of the former German Democratic Republic (GDR) clearly lags behind the Western part of the country. To face this weakness, a broad mixture of policy measures was carried out in recent years. Particular attention is drawn to the development of industry concentrations and economic clusters. However, little is known about the effectiveness of these policy measures regarding how industry concentrations in fact promote innovative performance in Eastern Germany. The present study tries to fill this gap by analyzing the relationship between industry concentration in Eastern Germany and regional innovative performance. Our empirical analysis is based upon the number of patent applications of 22 manufacturing industries in 22 Eastern German planning regions. The estimated regression models indicate an inverted Ushaped relationship between the degree of industry concentration and innovative performance. An exceedingly high degree of industry concentration in one region hampers regional innovative output. We discuss policy implications of our findings and give recommendations for future refinement of clustersupporting policy schemes in Eastern Germany.