Espionage-Based Knowledge Flows and Firm Outcomes

Economic espionage is a pervasive global phenomenon. In the presented paper, the authors study how espionage-based knowledge flows alter the production structure and performance of firms in the perpetrating country. Exploiting a historical East German database that traces the flows of scientific-technical information from their sources in the West to their destinations in the East, they show that economic espionage during the Cold War increased firms' output and productivity. This positive impact is driven by intelligence reports internally assessed as valuable. The authors also show that a higher inflow of information in the past is associated with a higher likelihood of successful privatization following German reunification.