The Yanks of Europe? Technological Change and Labor Productivity in German Manufacturing, 1909-1936

America’s lead over Europe from the late nineteenth century onwards has often been contributed to differences in initial conditions, trapping Europe in a labor-intensive and low productive technological path. However, in the case of German manufacturing, this analysis does not align with qualitative evidence obtained from the German metal-engineering industry, which shows that German manufacturers actively copied or imported American machinery. In this paper, we reassess the productivity dynamics in Germany on the basis of a new model by Basu and Weil that emphasizes the role of technology and which predicts convergence in light of rapid capital deepening. We construct a data set on the basis of two new German/American industry-of-origin benchmarks for 1909 and 1936. By means of a data envelopment analysis, we measure the effects of capital accumulation, technological change, and efficiency change and find evidence for considerable increased capital-intensity levels in the German manufacturing sector during this period. The process of capital deepening was accompanied by a large labor-productivity growth potential which, however, did not materialize as low levels of technical efficiency stood in the way of German convergence. These findings are in line with Basu and Weil’s model of localized technological change and discredit the traditional technological lock-in hypothesis.

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