German Foreign Economic Policy in the Age of Globalisation
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Introduction
- German Foreign Economic Policy in the Age of Globalisation Georg Koopmann HWWA-Diskussionspapier 56 HWWA-Institut für Wirtschaftsforschung-Hamburg 1998 ISSN 1432-4458 5 CONTENTS.
- Main Lines of Development in German Foreign Economic Policy 14 IV International Competitiveness and Domestic Competition: The Role of Competition Policy 16 V Foreign Economic Policy Implications of Subsidisation, Technology Promotion and Regulation 19 VI Export Promotion and Import Policy 22 VII Reforming Foreign Economic Policy 26 Notes 31 References 39 6 7.
I The Scope, Levels and Constraints of Foreign Economic Policy in Germany
- Enhancing the competitiveness of German firms on foreign markets and preserving the attractiveness of Germany as a business location to foreign investors are the twin objectives of foreign economic policy (FEP) in Germany.
- Its scope extends far beyond conventional “border“ measures to encompass a broad range of “domestic“ policies, such as competition policy, technology policy, and the policies of regulation and subsidisation, as these policies are increasingly relevant in terms of international competition.
- Policy on the underlying order (“Ordnungspolitik”), setting out the legal framework and underlying economic institutions; Competition policy, safeguarding individual economic freedom; Market policy, ensuring that markets function properly, also known as The latter consists of.
- Even though each individual industry promotes the policy it favours in this area, there is a fairly large degree of coordination at the top of the BDI through its Foreign Trade Committee .
- The European “factor” in German FEP varies with the policy area at hand.
II Germany’s Position in International Trade and Investment
- Since the end of the (short-lived) post-unification boom in 1992, there have been more frequent and vocal complaints in Germany about a lack of international competitiveness on the part of German industry and a declining ability of the country to attract internationally mobile factors of production such as capital, technical knowledge and entrepreneurial commitment.
- This corresponds with increasing shares of dynamic growth regions in other parts of the world, in particular Pacific Asia and Latin America, and of eastern European countries.
- 13 Similar trends occur in the field of investment in knowledge capital which is a special element of the general direct investment process.
III Main Lines of Development in German Foreign Economic Policy28
- After the Second World War, de facto sovereignty in trade policy was returned to the German government in November 1949.29 (West) Germany quickly became a leader in trade liberalisation within the OEEC (which preceded the OECD).
- Structural and related foreign economic policy in Germany in this second phase, which 15 lasted until the early 1980s, was based on the Principles of Sectoral Structural Policy (Grundsätze der sektoralen Strukturpolitik; BMWi 1968).
- A second - and more important - route through which considerations of international competitiveness, and thus industrial and foreign economic policy, may enter competition policy in Germany is ex post authorisation by the Minister of Economics of mergers prohibited by the Federal Cartel Office.
- Pure export cartels must “serve to protect and promote German exports“ (Section 6 (1) of the GWB, own translation), that is, they must be intended to strengthen the competitive position of the domestic member firms vis-à-vis their foreign competitors (Bundeskartellamt 1981, p. 134).
- In another four cases approval was denied.
V Foreign Economic Policy Implications of Subsidisation, Technology Promo-
- From a theoretical viewpoint, subsidies may be justified by market failure due to externalities, entry barriers or asymmetrical information.
- It has been shown, for instance, that the sectoral structure of R&D subsidies in Germany stands in marked contrast to the pattern of R&D externalities, or spillovers,44 as an overwhelming share of the aid payments goes to the aerospace industry which for its part is only an insignificant source of technological spillovers to other businesses.
- Airbus Industrie - a joint venture between France, Germany, the United Kingdom and Spain - can be seen as an exercise in international competition policy as well as in strategic trade and industrial policy aimed at international “rent-shifting“.
- On balance, regulation in Germany seems to impair rather than enhance commercial opportunities and thus diminish the attractiveness of Germany as a business location.
VI Export Promotion and Import Policy
- In the “classic“ areas of trade policy, which concern direct intervention on the export or import side of trade with goods, the German government has traditionally been committed to an open international trading environment and non-discrimination among trading partners.
- The federal government thereupon suspended the measure, which was intended to last until 1998, as from January 15, 1992.60 Relief for financing exports is provided in the form of low-interest loans with interest rates which remain below market interest rates.
- Finally, a key instrument of market-oriented export policy in Germany is the provision of export-related information by the Bundesstelle für Außenhandelsinformation (Federal Office for Foreign Trade Information), the Außenhandelskammern (Chambers of Foreign Trade) and the official German representations abroad which together form the three-pillar system of trade promotion in Germany.
- With regard to public procurement, the very low percentage of contracts awarded to foreign businesses suggests that true liberalisation is still a far cry off in this area.62 Complaints raised by foreign companies constitute a further indicator.
VII Reforming Foreign Economic Policy
- Globalisation and the related intensification of international competition is hardly the principal reason for the economic ills that have plagued Germany in recent years.
- Among the policies more directly related to foreign-economic transactions, competition control, technology promotion, subsidisation, import restriction and export enhancement are prominent.
- The idea of an “open international subsidy club“ for hightechnology development has also been proposed (HWWA, IfW, NRC 1996, p. 206 ff.).
- IMF, Direction of Trade Statistics, Yearbook 1997, also known as 22 Source.
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...Schmitt-Grohé and Uribe 2008, Acocella 2009) and previous empirical research (see Frankel and Okongwu 1996, Hadiwibowo and Komatsu 2011), an empirical model is derived such that net capital flows (CAPt) are a function of a foreign interest rate, the domestic interest rate and the exchange rate: CAPt 1⁄4 f ðI_EUt; It; EtÞ ð1Þ where I_EUt represents the benchmark eurozone interest rate, It represents the domestic interest rate and Et represents the exchange rate of the domestic currency against the euro. Economic theory indicates the following signs of partial derivatives: ›CAP ›I_EU , 0; ›CAP ›I . 0 and ›CAP ›E , 0. Data on capital flows are obtained from the IMF International Financial Statistics (IFS) database. Net capital flows are calculated as the sum of net foreign direct investment, portfolio and other investment. Capital flows are presented in the form of a moving annual cumulative, expressed as a percentage of GDP. This reduces the volatility of capital flows and offsets the seasonality in the GDP and capital flows time series. The primary sources of data on interest rates were the IFS and Eurostat databases. Domestic interest rates are represented by domestic short-term money market rates, while the foreign interest rate is given by the three-month EURIBOR. Finally, data on exchange rates are taken from Eurostat and are presented in the form of an index, with 2005 as the base year. Time series have been seasonally adjusted using the X11 procedure in the WinRATS 8 software. In order to ensure the stationarity of variables, deterministic components (constant and trend) have been removed from all time series, in accordance with the procedure used by Blanchard and Quah (1989). The data for the countries analysed support the hypothesis that the degree of capital mobility can be estimated by the response intensity of capital flows to changes in domestic and eurozone interest rates....
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References
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"German Foreign Economic Policy in t..." refers background in this paper
...…has been maintained (Figure 1).13 Even in 1997, when exports were the engine of overall economic growth in Germany, the German world market share declined, which is however largely a technical “valuation“ effect owing to the devaluation of the Deutschmark up to mid-1997 (Hinze 1998, p. 111)....
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...17 To some extent, this is a technical effect reflecting the new reporting system for intra-EU trade since the completion of the internal market in 1992 (Hinze 1998, p. 111)....
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...20 The figures for 1997 refer to January-October (Hinze 1998, p. 112)....
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