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Title: The origins of the German current account surplus: Unbalanced productivity growth and structural change

Author(s): Fabrizio Coricelli, Farshad R Ravasan and Andreas Wörgötter

Publication Date: June 2013

Keyword(s): German current account surplus, structural change and unbalanced productivity change

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Coricelli, F, Ravasan, F and Wörgötter, A. 2013. 'The origins of the German current account surplus: Unbalanced productivity growth and structural change'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9527