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The pathological export boom and the bazaar effect: How to solve the German puzzle

  • Sinn, Hans-Werner

Germany 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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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 19602.

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Date of creation: 2006
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Publication status: Published in World Economy 9 29(2006): pp. 1157-1175
Handle: RePEc:lmu:muenar:19602
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