German Exports: Impact on the Selected EU Countries

Abstract

This research focuses on the impact of German exports on exports of the other selected EU countries. We used the Global VAR approach to build a robust trade model between 23 EU countries, the USA, and China. By stressing this model with different shocks, we were able to observe how exports of the EU countries react to German loss of competitiveness and decline of demand from Germany. Based on our simulation, we could identify countries which i. are Germany’s competitors and would benefit from German loss of competitiveness, ii. are tied with German trade so tightly that loss of German competitiveness would negatively affect their exports.

Modelling CESEE Countries Export Dynamics: Global Vector Autoregressive Approach

“…That is, in countries where the role of domestic variables is larger, and the role of the German economy smaller in comparison to other CESEE countries. Juráček (2021) found similar results and postulated it as a confirmation of strong trade ties of Baltic countries with Scandinavian countries and Russia. A one standard error shock in the German real exchange rate corresponds to an increase of the German real exchange rate by 0.2% on impact.…”

“…When comparing figures 8 and 9, one can notice that the effect of a shock in imports is two to three times stronger than the effect of a shock in the real effective e rate for all CESEE countries. Moreover, although Juráček (2021) found that the shoc German real exchange rate is more important than a shock to German exports and GDP, it should be noted that his paper uses quarterly data and cumulative impacts.…”

“…GVAR methodology turned out to be a particularly convenient methodology for modelling trade flows in a globalised setting. Following Bussière et al (2012) it was applied to study CESEE countries' trade flows in several papers (Jakšić & Žmuk, 2014, Khan, 2020aKhan, 2020b;Juráček, 2021). Building upon conclusions from the first application of the GVAR methodology to CESEE countries' exports (Jakšić & Žmuk, 2014), this article enriches the dataset with three more countries (the Baltic countries) and extends the analysed period by another eight years to get a complete picture on the consequences of the 2008 global economic and financial crisis and adjustments that followed.…”

“…In comparison to previous GVAR contributions in studying CESEE countries' trade, this paper adds further insight by using monthly instead of quarterly data (Khan, 2020a;Khan, 2020b;Juráček, 2021). Hence, besides employing a larger data set, this paper employs monthly data, which are better suited for capturing the dynamics in a globalised environment in which shocks transmit rapidly.…”