Abstract: Economic espionage is a pervasive global phenomenon. We study how this illicit activity affects the performance and production structures of firms in the perpetrating country. Exploiting historical data from East Germany that trace the flow of scientific-technical information from their sources in the West to their recipients in the East, we show that economic espionage increased firms’ output, productivity and exports. The results further suggest that the technical change induced by economic espionage was factor-neutral, and that the associated productivity gains propagated through the production network via input-output linkages. In the long run, a higher inflow of espionage information was associated with a higher likelihood of successful privatization following German reunification.

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