The Pathological Export Boom and the Bazaar Effect - How to Solve the German Puzzle
AbstractGermany is the laggard of Europe, yet the country is world champion in merchandise exports. The paper tries to solve this theoretical and empirical puzzle by diagnosing a “pathological export boom” and a “bazaar effect”. Excessively high wages defended by unions and the welfare state against the forces of international low-wage competition destroy too big a fraction of the labour intensive sectors and drive too much capital and labour into the capital intensive export sectors, causing both unemployment and excessive value added in exports. Moreover, excessive wages induce too much outsourcing of upstream production activities which implies that export quantities grow too much in relation to value added contained in exports. Finally, excessive wages cause capital flight resulting in a too large current account surplus.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1708.
Date of creation: 2006
Date of revision:
trade; wage rigidity; replacement incomes; Germany;
Other versions of this item:
- Hans-Werner Sinn, 2006. "The Pathological Export Boom and the Bazaar Effect: How to Solve the German Puzzle," The World Economy, Wiley Blackwell, vol. 29(9), pages 1157-1175, 09.
- Sinn, Hans-Werner, 2006. "The pathological export boom and the bazaar effect: How to solve the German puzzle," Munich Reprints in Economics, University of Munich, Department of Economics 19602, University of Munich, Department of Economics.
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- Sinn, Hans-Werner & Ochel, Wolfgang, 2003. "Social Union, Convergence and Migration," Munich Reprints in Economics, University of Munich, Department of Economics 948, University of Munich, Department of Economics.
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