Why is Germany’s Manufacturing Industry so Competitive?

The German economy has been outperforming other member countries of the European Union

during the recent Great Recession and the still ongoing European debt crisis. What are the

determinants of this outcome? This paper sets out to empirically analyze the trade and

technology specialization and the price/cost performance of the German economy over the

period 1990–2011. Furthermore, we apply the unit value approach to determine whether the

competitiveness of German manufacturing products is related to price or quality advantage.

Also, we estimate the degree of vertical specialization characterizing the German export sector

in order to assess the role global value chains play in strengthening Germany’s position in

manufacturing. All indicators are calculated for Germany, the Republic of Korea, the People’s

Republic of China, Japan and the United States. Our results confirm that Germany is

specialized in medium-range technology products and show that quality is the main driver of

Germany’s international success, that price and cost advantage determines competitiveness in

some product groups and that R&D efforts have contributed to develop and maintain German

competitiveness in manufactured products