Germany channels roughly three-quarters of its manufacturing research and development spending into mid-tech industries, the ifo Institute said Oct. 20, highlighting a sector mix it sees as a constraint on growth.
Mid-tech sectors include automotive manufacturing, mechanical engineering and chemicals. High-tech industries received 20% of Germany’s manufacturing R&D spending in 2023, compared with 68% in the United States, according to the institute.
The gap was smaller in 1995, when Germany’s high-tech share stood at 32% and the U.S. share at 57%. For another comparison, ifo put France’s high-tech share at 46%.
Across 18 countries, the researchers found that a high-tech spending share 10 percentage points greater in a given year was associated with nearly 0.5 percentage point more annual growth in real output per person over the following five years. The finding describes a relationship across countries; it does not establish how much growth Germany would gain by shifting research funds.
Germany’s overall research spending presents a different picture. A government report put the preliminary estimate for economy-wide R&D spending at 3.17% of gross domestic product in 2024, above the averages for the Organisation for Economic Co-operation and Development (OECD) and the European Union. That measure includes research outside manufacturing, while ifo’s comparison examines how manufacturing R&D is divided among sectors.
ifo researcher Yuchen Guo said the amount spent alone was an insufficient target. The institute’s concern is that Germany’s manufacturing research remains concentrated in mid-tech industries even as its total research spending exceeds those international averages.
The institute called for an innovation-friendly tax system and better access to venture capital to make riskier innovation projects more attractive to companies. Its cross-country findings do not measure the effect those policies would have on German growth.
The government aims to raise economy-wide R&D spending to 3.5% of GDP by 2030, its next stated benchmark.
