Globalization and Productivity in the United States and Germany

Abstract

This paper investigates the impact of globalization on productivity growth and the procyclicality of productivity growth in manufacturing industries in the United States and Germany. For U.S. industries, the analysis suggests that changes in international demand affects productivity growth differently from changes in exposure to international competition. An increase in foreign demand for U.S. exports raises trend productivity growth, but to a lesser degree than does a similar demand shock from domestic buyers. On the other hand, whereas an increase in U.S. imports reduces trend productivity growth of U.S. industries, a loss of market share to imports is associated with gains to productivity growth.

For Germany, neither international demand shocks nor exposure to international competition seem to be associated with productivity growth rates, perhaps because German industries experienced a smaller increase in exposure to international competition over the time period. Comparing the U.S. and German results suggests that "going global" may affect productivity growth rates more than simply "being global." As for the procyclical characteristics of productivity growth, the U.S. and German measures evidence different procyclical behavior. For many industries, both U.S. and German labor productivity growth rates exhibit some degree of procyclicality. For German industries, this procyclicality of productivity growth disappears with broader measures of productivity growth that include utilization of capital and intermediates inputs. For U.S. industries, the degree of procyclicality increases when productivity growth is measured on these broader bases. Moreover, in the United States, procyclicality appears to be accentuated by export demand growth and dampened by import demand growth.

JEL Classification: D24, E3, O4, F43