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

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  • Sinn, Hans-Werner

Abstract

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.

Suggested Citation

  • Sinn, Hans-Werner, 2006. "The pathological export boom and the bazaar effect: How to solve the German puzzle," Munich Reprints in Economics 19602, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenar:19602
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    1. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
    2. Hans-Werner Sinn & Wolfgang Ochel, 2003. "Social Union, Convergence and Migration," Journal of Common Market Studies, Wiley Blackwell, vol. 41(5), pages 869-896, December.
    3. Ferdinand Dudenhöffer, 2005. "Wie viel Deutschland steckt im Porsche?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 58(24), pages 03-05, December.
    4. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-494, June.
    5. Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 98-116.
    6. Peter Egger & Michael Pfaffermayr, 2006. "Spatial convergence," Papers in Regional Science, Wiley Blackwell, vol. 85(2), pages 199-215, June.
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