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What Drives German Trend Output Growth? A Sectoral View

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  • Robert Lehmann
  • Lara Zarges

Abstract

In this paper, we outline material and capital linkages across sectors to quantify the role of the German production network in amplifying sectoral dynamics on aggregate trend gross domestic product growth. This allows us to study the impact of sectoral labor input and total factor productivity trend growth variation on the persistent decline in long-run output growth. Our estimation reveals that sector-specific developments have historically accounted for half of this long-term decline. Zooming into the reunification period, we find a pronounced decline of total factor productivity growth in Professional and Business Services together with a fall in labor input growth in the Construction sector to drive the sharp decline of German trend output growth over the 1990s. We further document significant changes regarding the sectors’ importance as input suppliers to the economy over the past decades. Our analysis identifies the labor-intensive Construction sector as a major input hub in the production network, its long-run amplification effect exceeding four times its share in value added. Given the impending demographic change, the low potential for automation in this sector may significantly reduce future German trend output growth.

Suggested Citation

  • Robert Lehmann & Lara Zarges, 2024. "What Drives German Trend Output Growth? A Sectoral View," CESifo Working Paper Series 11089, CESifo.
    • Handle: RePEc:ces:ceswps:_11089
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    References listed on IDEAS

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    1. Charles R. Hulten, 1978. "Growth Accounting with Intermediate Inputs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 45(3), pages 511-518.
    2. Comin, Diego & Quintana Gonzalez, Javier & Schmitz, Tom & Trigari, Antonella, 2020. "Revisiting Productivity Dynamics in Europe: A New Measure of Utilization-Adjusted TFP Growth," CEPR Discussion Papers 15402, C.E.P.R. Discussion Papers.
    3. Ulrich K. Müller & Mark W. Watson, 2008. "Testing Models of Low-Frequency Variability," Econometrica, Econometric Society, vol. 76(5), pages 979-1016, September.
    4. Andrew T. Foerster & Andreas Hornstein & Pierre-Daniel G. Sarte & Mark W. Watson, 2022. "Aggregate Implications of Changing Sectoral Trends," Journal of Political Economy, University of Chicago Press, vol. 130(12), pages 3286-3333.
    5. Klinger, Sabine & Weber, Enzo, 2020. "GDP-employment decoupling in Germany," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 82-98.
    6. Robert Lehmann, 2023. "The Forecasting Power of the ifo Business Survey," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 19(1), pages 43-94, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    trend GDP growth; sectoral multiplier; amplification effects; structural change;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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