The Growth Crisis of Germany: A Blueprint of the Developed Economies

Germany has realized tremendous growth rates in the aftermath of the Second World War. Since the early 1970s, growth rates declined and settled down at a more or less constant rate of 2% per year, only to experience a renewed negative trend around the early 2000s. Estimating GMM growth models in a panel of 187 countries between 1970 and 2010, we illustrate that large parts of historical welfare increases have emerged due to conditional convergence, human capital accumulation, and innovation activity. Whereas conditional convergence was the main driver behind the extraordinary postwar growth rates in Germany, human capital accumulation in Germany currently lags behind the average level of most developed countries. While this may explain the moderate position of Germany in the group of the 25 richest countries, the developed countries on their part are experiencing a period of below-average GDP growth. In nearly all advanced economies, growth reveals a downward trend since the turn of the millennium. We argue that this decline must be traced back to a general lack of radically new ideas in the world economy. The explanation of the German growth crisis may thus be considered a blueprint of the situation in developed economies.