The Political-Economic Foundations of Export-Led Growth: An Analysis of the German Case

Abstract The chapter provides a reconstruction of the emergence of export-led growth in Germany. Between 1991 and 2019, exports were the most important growth driver, brought about by real undervaluation in the context of an inflexible (since 1999: fixed) exchange rate regime. Real undervaluation is the result of a bargaining regime oriented toward wage moderation, conservative monetary and fiscal policies, strict credit regulation that discourages household debt, and shrinking domestic credit only partially compensated by cross-border banking outflows. The export-oriented growth model emerged after the unification shock and further radicalized in the six distress years after the introduction of the euro due to painful processes of cost reduction, wage restraint, liberalization, and domestic demand compression. Due to its export surpluses, Germany managed to escape the international trend of de-industrialization. The German growth model is fragile because it depends on conditions that are not directly controllable by domestic policymakers.