Dissecting the German export miracle: Plant-level evidence

Wage moderation in Germany is often cited as a major cause of its recent export success. We construct competitiveness measures at both industry and plant level using OECD STAN data in order to confront this hypothesis with empirical evidence. Our results show that plants’ export intensity is positively correlated with German competitiveness. Exploiting a plant-level competitiveness measure, we use a corner solution model that enables us to decompose the total effect into its component effects at the intensive and extensive margins. Our results indicate a positive and significant effect of competitiveness at both margins, but this turns out to be insignificant before the introduction of the Euro. A one standard deviation increase in a plant's competitiveness (about 70%) is associated with a 2% higher probability to become an exporter. At the intensive margin, the same increase in competitiveness leads to a 0.49 percentage point increase in export intensity.