The determinants of German exports – an analysis of intra- and extra-EMU trade

Henriette Neumann

International Review of Applied Economics, 2020, vol. 34, issue 1, 126-145

Abstract: Since the early 2000s German net exports have grown persistently, generating huge current account surpluses. These surpluses have added to 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 paper investigates econometrically the determinants of German intra- and extra-EMU exports for 1995 to 2014. The long-term relationship between exports, foreign activity and the real effective exchange rate is estimated in an error correction framework. The results show that German exports are sensitive to foreign activity. Germany has benefited from growth of trading partners and high income elasticities of demand for exports, indicating 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 explains 12% to 17% of 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.

Date: 2020
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DOI: 10.1080/02692171.2019.1654983

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