Free DP Download 18 July 2019 - Exportweltmeister: The Low Returns on Germany’s Capital Exports

Thursday, July 18, 2019

Exportweltmeister: The Low Returns on Germany’s Capital Exports

Franziska Hünnekes, Moritz Schularick and Christoph Trebesch
CEPR DP No. 13863 14 July 2019

No other country invests larger amounts of savings outside its borders as Germany goes. But while Germany is world champion in exporting capital – ‘Exportweltmeister’ – it plays in the third division when it comes to investment performance, according to new CEPR research. The findings of the low returns to the country’s capital exports raise substantial doubts about whether German households, firms, and banks allocate their savings in a beneficial way. 

The authors examine the returns on German foreign investments from 1950 to 2017 and find that: 

  • 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, including in the last decade. 
  • Domestic returns on German assets have outperformed foreign returns abroad by about 3 percentage points per year. 
  • Germany’s external wealth provides very little consumption insurance as foreign returns are highly correlated with domestic activity. 
  • The capital exports do little to diversify demographic risks as Germany mainly invests in countries with similar demographics. 

Figure 1: Culminated nominal returns, 1975-2017

Note: This graph shows culminated total returns since 1975 for a portfolio with an initial value of 1. We focus on foreign nominal returns of the US, the UK and Germany, as well as the German domestic return. 


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