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Strong firms, weak banks: The financial consequences of Germany's export-led growth model

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  • Braun, Benjamin
  • Deeg, Richard

Abstract

The financial foundation of Germany's manufacturing success, according to the comparative capitalism literature, is an ample supply of long-term capital, provided to firms by a three-pillar banking system and "patient" domestic shareholders. This premise also informs the recent literature on growth models, which documents a shift towards a purely export-led growth model in Germany since the 1990s. We challenge this common assumption of continuity in the German financial system. Export-led growth, characterized by aggregate wage suppression and high corporate profits, has allowed non-financial corporations to increasingly finance investment out of retained earnings, thus lowering their dependence on external finance. This paper documents this trend and shows that business lending by banks has increasingly been constrained on the demand side, reducing the power - and relevance - of banks vis-à-vis German industry. The case study suggests a need for students of growth models to pay greater attention to the dynamic interaction between institutional sectors in general, and between the financial and the non-financial sectors in particular.

Suggested Citation

  • Braun, Benjamin & Deeg, Richard, 2019. "Strong firms, weak banks: The financial consequences of Germany's export-led growth model," MPIfG Discussion Paper 19/5, Max Planck Institute for the Study of Societies.
    • Handle: RePEc:zbw:mpifgd:195
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    Cited by:

    1. Annamaria Simonazzi, 2021. "Germany's Two Models and the Long-Term Sustainability of the Eurozone," Annals of the Fondazione Luigi Einaudi. An Interdisciplinary Journal of Economics, History and Political Science, Fondazione Luigi Einaudi, Torino (Italy), vol. 55(2), pages 129-154, December.

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    Keywords

    bank power; business lending; corporate finance; institutional change; non-financial corporations; Banken; exportorientiertes Wachstumsmodell; institutioneller Wandel; Kreditgeschäft; Unternehmensfinanzierung;
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