Working Paper: CEPR ID: DP13863
Authors: Franziska Hünnekes; Moritz Schularick; Christoph Trebesch
Abstract: Germany is world champion in exporting capital (\Exportweltmeister"). No other country invests larger amounts of savings outside its borders. However, Germany plays in the third division when it comes to investment performance, as we show in this paper. We study the returns on German foreign investments from 1950 to 2017 and find that: (1) Germany's annual returns on foreign assets were 2 to 5 percentage points lower than those of comparable countries. Germany ranks last among the G7 countries, also in the last decade; (2) Domestic returns on German assets have outperformed foreign returns abroad by about 3 percentage points per year; (3) Germany's external wealth provides very little consumption insurance as foreign returns are highly correlated with domestic activity; (4) The capital exports do little to diversify demographic risks as Germany mainly invests in countries with similar demographics. Taken together, these facts raise substantial doubts whether German households, firms, and banks allocate their savings in a beneficial way.
Keywords: international capital flows; foreign assets; foreign returns
JEL Codes: F21; F30; F31; F36; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nature of capital exports (F21) | investment performance (G11) |
| domestic investment strategies (F21) | higher returns (G12) |
| foreign returns (F21) | consumption insurance (G52) |
| capital exports (F21) | demographic risks diversification (J19) |
| domestic returns (F21) | foreign returns (F21) |