Industrial Espionage and Productivity

In this paper, we investigate the economic returns to industrial espionage. We show that the flow of information provided by East German informants in the West over the period 1970-1989 led to a significant narrowing of sectoral TFP gaps between West and East Germany. These economic returns were primarily driven by relatively few high-quality pieces of information and particularly large in sectors closer to the West German technological frontier. Our findings suggest that the East-to-West German TFP ratio would have been 13.3 percent lower at the end of the Cold War had East Germany not engaged in industrial espionage in the West.