Introduction

IntroduCtIon

“For the only way in which a durable peace can be created is by world-wide restoration of economic activity and international trade”. These words were once said by Forrestal (1892–1949), an American economist whose words especially gained their relevancy after World War II when the world’s economy lay in ruins. Since then, the importance of globalisation and internationalisation has been growing. Companies stopped being national entities and transformed into multinational corporations with branches in more than just one country (Juneja, 2021).

This development became most notable in 2020, starting with the COVID-19 outbreak in March: Supply chains all over the world were disrupted because of production stoppages in China which struggled with the virus initially (Seric et al., 2021). Subsequently, the World Health Organization (2021) declared the virus outbreak a pandemic. As a result, companies were advised to re-consider their supply chain model and transfer at least parts of their production processes more locally, becoming less dependent on one area which up to then was China (Shih, 2020).

It is not a secret that China and the United States of America are the leading industrial nations with significant influence on the world trade, as is Germany (World Trade Organization, 2020, p. 80). The topic of trade has been the research focus for many economists. One of the outcomes is the gravity model of trade which will be the focal point of this monograph. The aim of this monograph is to examine Germany’s trade structure and whether the assumptions of the gravity model can be applied. As a further research objective, the monograph will examine whether there are any local differences and peculiarities in trade for the federal states and how they relate to the results obtained on the federal level. Germany will have high trade volumes with China and the USA due to their positions in the overall world trade (Statistisches Bundesamt (Destatis), 2022). Furthermore, it will have a significant trade exchange with its neighbours: the Netherlands (Deutsch-Niederländische Handelskammer, 2022) and Poland (Wilczewski & Bryk, 2020, p. 40) as the traded goods can be quickly transported back and forth. Going down to the federal state level, the relative trade significance compared to the results on the federal level will change. Based on the research conducted by Bremer (2018), it can be deduced that the relative trade significance of foreign countries will increase if the federal state is adjacent to them and decrease when they do not share a common border. Since Tinbergen (1962) discovered that the setup of the Commonwealth is a trade promoter (p. 266), so

might be the setup of occupied zones in Germany after the Second World War in relation to the respective Allies. Another research objective is to find out how trade with China and the USA will be reflected on the federal state level.

Providing a short overview on what is gathered in the following monograph, the first chapter deals with the topic of trade, its progress in history and its evolution from an economic perspective. Within this chapter, different attitudes – from the far protectionist to the far libertarian – will be presented. It will also outline the first models of trade which were created. In the second chapter, the aforementioned gravity model of trade will be discussed, focusing on its basic assumptions and how it has been refined. The chapter will also give first insights which factors may influence trade and to what extent. As an introduction to the second part of this monograph, the last part of chapter two will discuss the applicability of the gravity model of trade based on a literature review and two conducted studies which examine this model for two German federal states.

The second part of the monograph is dedicated to Germany. Chapter three provides an outline of events which led to Germany’s current economic and political situation. It aims to give its readers the opportunity to fully understand the reasons behind Germany starting two world wars and why, despite having lost them, is a leading world trader 60 years later. The answer to this question can be found in the 19th century when the foundations were laid down which enabled Germany to recover quickly after a series of events in the 1950s and 1960s had taken place. Chapter three will also focus on the German federalism – why Germany is divided into federal states nowadays, what impact it has had on its politics and economics, especially on trade, and what kind of responsibilities are derived from this setup for both the federal and federal states’ government. The fourth and last chapter examines the actual research objective. First of all, a rough overview will be given on Germany’s current position in the world trade. Afterwards, the trade structures will be examined and analysed, first on the federal level and in the next step on the federal state level. The analysis covers the last five years available, which are 2016 to 2020. Both sections include a brief introduction of essential economic characteristics. In the last part of this chapter, the identified results will be interpreted.

In order to obtain the relevant theoretical background knowledge, the literature used is mainly composed of books and articles/papers published in journals or magazines. Since trade is affected by current political and economic events, sources of governing authorities and/or institutions formed by official reports and their online presences have been added to this selection. The dataset analysed is provided by the German Federal Statistical Office and supplemented with datasets published by the Federal Statistical Office and the Land Statistical Offices

and the World Bank. For the analysis itself, a model created by the author has been applied, which will assess the correctness and reliability of the discussed gravity model of trade in relation to Germany’s ten most important trading partners, both on the federal level and on the federal state level. This model is based on a point system. Trade relations have been allocated points each time they met a criterion that was previously identified as influencing trade between two countries. The higher the criteria a trade relation met, the greater the number of points it received. The total number of points allocated equate to these trade relations being comparable in order to draw relevant conclusions.

The motivation for this topic results from particular interest in international trade and previous research dedicated to the subject of export and import relations and trade structures. It will thus be treated as an enrichment of already existing knowledge and research with a new emphasis1 .

1 In the course of her studies, the author has already written two papers regarding foreign trade and trade structures of which one can be found in: Wilczewski & Bryk, 2020, pp. 35–54.