The determinants of German exports: An analysis of intra- and extra-EMU trade

Henriette Heinze

No 95/2018, IPE Working Papers from Berlin School of Economics and Law, Institute for International Political Economy (IPE)

Abstract: Since the early 2000s German exports and net exports have grown persistently, generating huge current account surpluses. These surpluses have added to immense current account imbalances within and outside the European Monetary Union (EMU). Contributing to the economic policy debate of whether it is foreign demand or 'world-beating' price competitiveness driving German exports, the present paper econometrically investigates the determinants of German intra- and extra-EMU exports for the period 1995 to 2014. The longterm relationship between real exports, foreign activity and the real effective exchange rate is estimated using different explanatory variables in an error correction framework. The results show that German exports are very sensitive to foreign activity. Germany has benefited from growth dynamics of trading partners and high income elasticities of demand for German exports indicate strong non-price competitiveness. With regard to exchange rate effects, we do not detect a significant impact of the real exchange rate on intra-EMU exports. However, our estimations provide a stable relationship between the real exchange rate and extra-EMU exports. We calculate that the real exchange rate only explains 12% to 25% of our predicted export growth. Moreover, taking into account quantity and price effects caused by changes in the real exchange rate, we observe contrary effects on real and nominal exports. Thus, for the German economy it cannot simply be concluded that the real exchange rate is the indicator to focus on in explaining German export success.

Keywords: German exports; current account imbalances; competitiveness; single equation error correction model (search for similar items in EconPapers)
JEL-codes: C22 E12 F14 F41 F43 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-eec, nep-int and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ipewps:952018

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