Nothing new in the East? New evidence on productivity effects of inventions in the GDR

Former socialist systems were considered inferior to Western market economies in terms of innovation and productivity. We provide new evidence on the productivity effects of inventorship in the Soviet-type economy of the German Democratic Republic (GDR). We investigate three types of inventorship: knowledge generation, accumulation and diffusion. By applying a Cobb-Douglas production function using original primary and harmonized productivity data and manually cleaned patent data of the GDR between 1970 and 1989, we show that inventorship contributed to productivity in the industry sectors. This holds for knowledge generation, accumulation and diffusion in general, while in the presence of sufficient local interactive capabilities, international knowledge diffusion did not result in productivity gains. We contribute to empirical evidence on the productivity effects from an alternative system of patenting and innovation.