SEMINAR 5 November 2012: Hans-Jörg Schmerer, Institute for Employment Research, Germany

Dissecting the German Export Miracle: Plant-level evidence

Abstract

Wage moderation in Germany is often cited as major cause of its recent export success. We construct competitiveness measures on both the industry- and plantlevel using OECD Stan data in order to confront this hypothesis with empirical evidence. Our results show that i) plants’ export intensity is positively correlated with German competitiveness and ii) that the relationship is spuriously driven by a non-industry specific common time trend. One possible explanation for this development is real exchange rate movements due to fixed rates within the Euro area. Exploiting a plant-level competitiveness measure we use a corner solution model that enables us to disentangle the total effect into its effects at the intensive and extensive margin. Our results indicate a positive and significant effect of competitiveness at both margins but the effect turns out insignificant before the introduction of the Euro. A one standard deviation increase in a plant’s competitiveness (about 70 percent) is associated with a 3 percent higher probability to become an exporter. At the intensive margin the same increase in competitiveness leads to a 0.7 percentage point increase in the export intensity.

Keywords: trade, wage moderation, international comparison, German export miracle, firm level data.

JEL codes: F16, J51, E24, J3.