Abstract
ABSTRACT State socialism failed due to its inner contradictions. We compare the two economies that existed in parallel in the two Germanies to shed light on the successes and failures of the socialist system of innovation until its collapse in 1989. Based on newly created indicators from archival data, we show that investments in R&D-intensive industries were much larger in comparison to economic performance in the last decades of the German Democratic Republic than in the Federal Republic of Germany. These achievements, however, could not be fully realized through economic growth due to obstacles related to research priorities, innovation incentives, and knowledge flow.
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