The effects of market integration and foreign trade on economic growth and employment in Germany (1990-2014)

The aim of this study is to evaluate whether and to what extend past trade liberalization has actually contributed to an increase in trade, an increase in employment and higher wages in Germany. A special focus is set on the importance of foreign trade for labour markets. We analyze the potential of selected EU bilateral trade agreements and evaluate multilateral initiatives (i.e., the WTO). The analysis shows that an increase in the export rate of German firms by 10% increases the annual growth rate of occupational employment by an average of 0.06 percentage points. The EU Eastern enlargement shows a significant positive effect of operational export status on annual employment growth. On the import side, we observe an anticipation effect. Germany’s experience with bilateral free trade agreements is generally good. The customs union with Turkey increased German trade with Turkey by 24%, while the agreement with South Africa has led to a 26% increase in German-South African trade. The EU-Korea FTA resulted in a 23% increase in German trade, with increases particularly in services sectors. At the multilateral level, German goods trade with WTO members increased by one third. The WTO accessions of China and Vietnam led to an increase in trade with these countries.

The study has been conducted in cooperation with the ifo Institute in Munich.

Report (in German)