Working Paper: CEPR ID: DP9527
Authors: Fabrizio Coricelli; Farshad R. Ravasan; Andreas Wörgötter
Abstract: The surge in the German current account surplus in the 2000s is often interpreted as the result of efficiency-enhancing structural reforms, especially in the labor market. However, this interpretation is puzzling because the growth rate of the German economy has been one of the lowest in the Euro area in the 2000s. Using empirical evidence and a simple theoretical two-sector model, the paper argues that the German surplus is closely linked to the increasing gap between productivity growth in manufacturing and services. Such gap is due not only to improvements in the manufacturing sector but also to a significant slowdown of productivity growth in services. Therefore, despite the success in export markets, the German surplus may signal long-run weaknesses associated with constraints on service growth and the inability of productivity growth in manufacturing to create positive spill-over effects on services. Persistence of barriers to liberalization in services may partly explain these phenomena. The paper concludes that higher and more balanced growth could lead to an equilibrium reduction of the current account surplus.
Keywords: German current account surplus; structural change; unbalanced productivity change
JEL Codes: E21; E22; F31; F41; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased productivity in manufacturing (L23) | Higher current account surplus (F32) |
| Lack of growth in the service sector (O14) | Higher current account surplus (F32) |
| Low competition in services (L89) | Limits spillover effects from manufacturing to services (O14) |
| Structural changes in the economy (L16) | Current account balance (F32) |