The pathological export boom and the bazaar effect: How to solve the German puzzle
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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|Date of creation:||2006|
|Date of revision:|
|Publication status:||Published in World Economy 9 29(2006): pp. 1157-1175|
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Web page: http://www.vwl.uni-muenchen.de
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- 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 478-94, June.
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CESifo Working Paper Series
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- Ferdinand Dudenhöffer, 2005. "Wie viel Deutschland steckt im Porsche?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 58(24), pages 03-05, December.
- Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
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