The study investigates how France and German’s economy differ in terms of GDP, consumption, employment, and public debt level.

The study compares the economies of France with Germany in terms of GDP, consumption, employment, and public debt. The objective for investigating the research issue is to comprehend how two Eurozone countries work and achieve economic growth and development. Furthermore, such data is useful in understanding how corporations manage production, investment, and resource allocation. In order to build a theoretical framework, the study evaluated other literature connected to the research issue. The theoretical framework serves as the foundation for research analysis. Labor productivity, trade balance, and foreign direct investment are among the topics discussed. The study found that outward and inward FDI in EU27 increased by 40% between 2009 and 2014 due to the increased globalization forced the countries to perform better in the competitive environment. The France stabilized its deficit at -2% in 2015 while the German’s trade balanced improved to +6% of the DGP. The average productivity per worker was 50 Euros per hour in France compared to German, which is at 55 Euro per hour. During the analysis, the study found that between 2005 and 2013, the GDP for German increased by 12% compared to France, which realized a 5% increase. German’s economy improved due to high investment in technology, which helps industries to produce quality and mass goods to meet the demand in the international market. France has been experiencing a slow economic growth between 2008 and 2013 because the country has not encouraged domestic consumption. For example, imports cost France $659.8 billion compared to exports of $578.6 trillion. The ratio or percentage of household debt to disposable income has reduced in German, unlike France who continues to expand the ratio leading to economic growth. Between 2000 and 2013, France encouraged a personal consumption, which drove economic growth although exports of goods and services showed weakness. Furthermore, steady growth in personal lending increased since the real estate was booming in the private sector as people went to banks to borrow in order to own properties. The unemployment rate in German is 5.3% whereas in France it is 10% by 2013. Large amounts of immigrants contribute to a high state of unemployment in France since they cause social disturbances, which affect the political and economic environment. The France president has placed strategies to reduce the rate of employment which include providing additional 500,000 vocational training, subsidizing companies with less than 250 employees to employ more, and reduce public spending. Approximate 13% of the people were aged between 0 and 14 and approximate 10.6% were aged between 15 and 24 in German while about 18.7% of people in France are aged between 0-14 years and approximate 11.9% are aged between 15 and 24 years. The public debt was 79.9% of the GDP in German and 93.4% of the GDP in France by 2013. Export surplus assisted German in meeting its budget and correct its balance of trade. The study concludes that both German and France should integrate to correct trade deficit and boost economic growth in Eurozone.

Key Words: Productivity, Consumption, Trade, Economic, Debt, Employment

Ways in Which German and France’s Economy Differ

The economic activities in France and German have been disappointing since 2002 due to low output. McCombie and Thirlwall (2016) noted that in 2001, the GDP of German was barely more than 0.6%. This implies that German had to develop strategies for quicker economic recovery. Since 1992, the economic analysts in German projected long period of economic recovery. This is because there was the need to establish strong institutions and fiscal policies to address the problem. As the German prepared to recover their economy, France was experiencing a flat economic wave. In other words, France encountered financial pressure making it difficult to achieve its national programs. Dustmann et al. (2014) noted that in 1997 and 1998, the economic turbulence in France was caused by the Asian crisis. As such, there were high oil prices and a sharp decline in the stock prices in the stock exchange market.This made the growth in German, Italy, and France to be parallel. Due to this experience, France separated with German to recover from the recession. Some of the strategies the France used were to increase export and protect its infant industries from international competition. Between 2000 and 2001, the France registered an average of 0.05% economic growth while German registered a growth of 0.4%. The fact that France promoted domestic consumption, it created more jobs. As such, the people’s living standards increased. The German wanted to ensure that the economic recovery process was slow and sure to achieve the long-term economic trajectories. Some of the parameters, which both German and France took into consideration, included regulating population, improving exports, creating jobs, and attaining quality health care.

Today, France’s economy is the largest after German in the Eurozone. German continues to power ahead registering a growth of 0.8% in 2016 against 0.4% in 2015 (Jones, Carnegy, & Dinmore, 2014). This is because there was an increase in the domestic demand whereby both the households and businesses spend more. For example, there was a weather-related factor pushed for construction in 2016 forcing investors to demand construction materials. During the same period, France realized a growth rate of 0.1%. The growth was minimal because French household spending fell by 0.5% while the investment reduced by 0.9% (Jones, Carnegy, & Dinmore, 2014). This put a lot of pressure on President Francois Hollande to concentrate on the ways of accelerating reforms to increase the number of jobs and output. According to Harrison et al. (2014), the France president intends to recover the economy through tax cost from businesses and save public spending in order to meet its financial obligation.

The research question that helps to answer the research topic is how France and German’s economy differ in terms of GDP, consumption, employment, and public debt level. The research question helps the researcher to determine the economic parameters, which make German, achieve higher economic growth compared to France. The rationale for studying the research topic is to understand the way two countries in the Eurozone operate and achieve their economic growth and development. In addition, such information is useful in understanding the way the companies organize production, investment, and resource distribution. The paper argues that economic differences between France and German depend on GDP growth, consumption, employment, foreign trade, and public debt level.

Literature Review

Productivity in German and France

Labor productivity measures the Gross Domestic Product of a worker given the number of hours he/she worked. According to Hassel (2014), the productivity of labors in a country helps in determining the economic growth. This is because when people become efficient in a country, the productivity increases which directly affect the GDP. McCombie and Thirlwall (2016) conducted a survey in the manufacturing industry in France and found that in 2015, the average productivity per worker was 50 Euros per hour. This is almost the same as the productivity level in German (55 Euro per hour). However, the research never considered other countries within the Eurozone to determine the estimated productivity. The results show a great increase in labor productivity from the 1970s when it was below 25 Euros per hour. The fact that German’s economic structure is comprehensive, its labor productivity continues to increase unlike countries such as Italy or the United Kingdom. Gourevitch et al. (2016) argue that sometimes it is difficult to ascertain the level of labor productivity based on hours. In other words, countries have different hours allocated to workers every day. For example, in Japan, despite the eight hours set by the Labor Department, some employers force their employees to work for more than 60 hours per week. However, for the survey, McCombie and Thirlwall (2016) used the international set standard by America Federal Government Bureau of Labor Statistics. Maier (2015)also noted that experts mess when computing GDP since they tend to focus on the net domestic product. That is, they compute the figures after the deduction of consumption of fixed capital. However, the consumption or depreciation does not constitute to income of any person. Therefore, when determining the labor productivity, they should focus on a person’s gross output.

Balance of Trade Adjustments

Weeks (2014) asserts that balance of trade for many countries in the Eurozone has improved substantially by between 20 to 40%. Weeks (2014) applied qualitative research methodology during the survey and affirmed that German and Ireland registered an increase of 20% in export surplus. According to Dachs and Peters (2014), export surplus enables a country to increase its GDP and correct its balance of trade. This is because the country’s currency demand is high compared to the foreign currency. For example, the France stabilized its deficit at -2% in 2015 while the German’s trade balanced improved to +6% of the DGP. According to Weeks (2014), German achieved trade surplus by making products demanded by the foreign market. As such, trade surplus marks as the economic growth in German. Puetter (2016) noted that German achieved trade surplus due to the decline in euro currency by 20%. That is since German participates in the currency union, weak euro was underappreciated benefit due to its inflation adjustment exchange. Puetter (2016) conducted an economic survey in Italy, France, UK, and German and noted that the strong fiscal policies suppress a country’s domestic spending which contributes to trade surplus. Weeks (2014) affirmed that despite the German achieving trade surplus, some countries within the Eurozone experience deep depreciation with no fiscal space. The author further noted that the persistent imbalance within the euro zone is unhealthy since it contributes to unbalanced economic growth.

The research conducted by the Global Macro and Thematic Independent Research reveals that fiscal recovery process adopted by different countries affects their present economic status (Dustmann et al., 2014). That is countries such as German adopted fixed exchange rate to correct its balance of trade. Institutions such as International Monetary Fund (IMF) recommend that countries such as German should correct their trade surplus to help other countries within the euro area reduce the deficit.Dustmann et al. (2014) analyzed the economic trend between 2007 and 2015 and realized that investment in public infrastructure, raising employees’ wages, and increasing the domestic spending assist a country in correcting its balance of trade. However, the authors argue that the projects should be handled progressively to avoid deviating from the bigger picture.

Foreign Direct Investment

Foreign direct investment (FDI) involves international venture conducted by investors from foreign countries to earn interest in the host country. Bozio et al. (2015) used the Organization for Economic Co-operation and Development benchmark to determine the impact of FDI in Europe. The author found that outward and inward FDI in EU27 increased by 40% between 2009 and 2014. This is because increased globalization forced the countries to perform better in the competitive environment. Countries such as German perceived FDI as an alternative economic strategy to boost its economic performance. German ensured that the management of companies owned by foreigners should come from the domestic market. This ensured that they complied with the laws and regulations of the country. De Grauwe(2014) reported that the data collected from Eurostat revealed that Italy and German have invested in India and Russia which enables them to receive 1.1 and 0.7 Euro billion in 2014. This enables the countries to achieve economic growth by improving their infrastructure to facilitate movement of goods and services. On the other hand, France and the United Kingdom have inflexible financial policies making it difficult for the foreigners to invest in their country.

The market survey conducted by Dang (2013) in German and France indicated that FDI has improved real-estate business in France compared to German. The author asserts that since 2002, the population rate in France has been increasing steadily while it has been declining in German. As such, the country requires housing to accommodate the population. This encouraged the foreigners to venture into real-estate business. Bozio et al. (2015) argue that the past research has failed to show the relationship between income received from real estate and economic growth. That is, they tend to examine on the way housing assists to eradicate housing shortages indifferent countries.

Analysis: The Ways in Which German’s Economy Differ from France’s Economy

GDP in German and France

The economic growth rate has been increasing in both German and France since 1992 to 2012. According to McCombie and Thirlwall (2016), the GDP for France has increased by 35% whereas it has increased by 7% in German. France has achieved high GDP group based on the long-term basis compared to German. From 1992 to 1997, the German and France economies experienced dynamic performance achieving a GDP growth of 1.5%. This is because the countries were experiencing financial crisis caused by financial turbulence from Asian stock market. However, between 1998 and 2004, German lost the fair amount of GDP (10%) compared to France who lost only 4% (Puetter, 2016). This is because German was restructuring its fiscal policy to achieve future steady growth in GDP. In addition, the country faced demographic challenges to sustain future economic growth. McCombie and Thirlwall (2016) assert that between 2005 and 2013, the GDP for German increased by 12% compared to France which realized a 5% increase. This helped the country to achieve the budget surplus in 2013. De Grauwe (2014) asserts that German’s economy has improved due to high investment in technology which helps industries to produce quality and mass goods to meet the demand in the international market. For example, in 2012, German was the leading exporter of capital goods in many countries such as France, US, UK, Netherland, China, BELGIUM, Italy, and Austria. On the other hand, France has been experiencing a slow economic growth between 2008 and 2013 because the country has not encouraged domestic consumption. As such, there is no significant different between the country import and exports. For example, De Grauwe (2014) noted that the imports cost France $659.8 billion compared to exports of $578.6 trillion.

Contribution of Consumption between German and France

The ratio or percentage of household debt to disposable income has reduced in German, unlike France who continues to expand the ratio leading to economic growth. The stagnation of German consumer spending between 2002 and 2013 has a combining effect on the defamatory forces. That is, the population aging in German between 2000 and 2013 depressed the consumer spending. Consequently, it affected the real-estate and construction industries since foreign investors were not willing to venture into the business. Dang (2013) argues that between 2000 and 2013, France encouraged a personal consumption which drove economic growth although exports of goods and services showed weakness. The low consumption rate forced German to lose competitiveness, which directly hit the German industries. There was also the introduction of euro due to the overvaluation of Deutsche mark, which affected employment level. This led to higherannual wage rates in German compared to France. Hassel (2014) argues that due to high personal consumption in France, the domestic demand for goods and services produced within the country increased. As such, the prices became competitive enabling the infant industries to grow. Dang (2013) asserts that personal spending in German stagnated between 1992 and 2002. On the other hand, France experienced steady growth in personal lending since the real estate was booming in the private sector. People went to banks to borrow in order to own properties and become landlords.

Employment Level in German and France

The unemployment rate in German is 5.3% whereas in France it is 10% by 2013 (Dachs & Peters, 2014). This implies that unemployment rate in France is increasing despite the economic recovery. President Francois Hollande has the ambitions to reduce the rate of unemployment since it is affecting economic growth. The survey carried out by Labor Ministry found that by the year 2016, the country registered over 3 million unemployed people (Harrison et al., 2014). This is a worrying population given the competitive nature of countries in the Eurozone. Jäger and Schmidt (2016) argue that a large amount of immigrants contribute to a high state of unemployment. This is because immigrants cause social disturbances, which affect the political and economic environment. In fact, it leads to uncertainty in the economic climate of France. Dachs and Peters (2014) argue that if the labor demand is low that the supply, the manufacturers tend to reduce wages per hour. In the long-run, it affects the labor productivity in the country. For example, Jäger and Schmidt (2016) noted that due to low labor productivity in France, the country achieved a real growth rate of 0.3% in 2013. However, the president has placed strategies to reduce the rate of employment. Some of the strategies include providing additional 500,000 vocational training, subsidizing companies with less than 250 employees to employ more, and reduce public spending.

On the other hand, the unemployment rate in German is 5.3%. The unemployment rate in German continues to decrease German performs better than France because they ensured that they reduced the working hours instead of laying off the employees. Jäger and Schmidt (2016) assert that short work hour’s program provided an alternative solution to unemployment insurance. As such, when the employers cut the working hours, others get the opportunity. Moreover, since 2007, the country has been encouraging FDI especially in the manufacturing sector and subsidizing agriculture. According to Maier (2015), agricultural and industrial sector reduced the unemployment rate by 1.6% and 24.6% respectively. The divergent trend experienced in the German economy leads to economic growth and labor productivity. For example, the labor productivity of German reached 55 Euros per hour, which directly increased real growth rate by 0.5%.

Demographic Structure and Economic Growth

Demographic composition affects or influences the economic development of a country. This is because the demography composition is related to the labor market, social spending, and productivity capacity. France is characterized by demographic dynamism while the German experience stagnation and the decline in labor force. Gourevitch et al. (2016) assert that France has maintained satisfactory fertility rate since 2007, unlike German which has sluggish demographic composition. Sufficient fertility rate ensures that the country has long-term population stability. For example, the census that was carried out in 2013 in German, approximate 13% of the people were aged between 0 and 14 and approximate 10.6% were aged between 15 and 24 in German (Jäger & Schmidt, 2016). On the other hand, about 18.7% of people in France are aged between 0-14 years and approximate 11.9% are aged between 15 and 24 years. This justifies that France has stable future labor market since they have a higher percentage of people aged below 25 years. Gourevitch et al. (2016) noted that the birth rate in France is about 12.49/1000 population and 8.42/1000 population by 2014. This is a clear indication that France’s economic growth will improve in the future. This is because the laborers would be available if the demand increases. Jones, Carnegy, & Dinmore (2014) assert that German has realized that in future they would perform poorly in relations to labor supply. As such, the country decided to introduce German’s family policy, which includes parental leave to encourage women to give birth. However, this would take the time to reach France’s demographic composition.

The Public Debt in German and France

The public debt was 79.9% of the GDP in German and 93.4% of the GDP in France by 2013. According to Weeks (2014), the national debt in France has decreased by 10,254 million euros by 2016. On the other hand, German’s national debt declined by 7,270 million euros. These figures reveal that each country tries hard to correct their balance of payment. According to Bozio et al. (2015), German invested in industrial and service sector as well as reduces public expenditure to correct their balance of payment. For example, in 2016, the company encouraged exports more than import leading to an export surplus. This enabled the country to reduce borrowing since there was capital accumulation. On the other hand, the national debt for France continues to increase due to an influx of immigrants and low reserves of foreign exchange. Weeks (2014) argues that both German and France should strike a deal to reduce further their national debt since they are the two well-performing countries in Eurozone.

Conclusion

When studying how France and German’s economy differ, it is important to examine economic parameters such as GDP, consumption, employment, and public debt level. The research study was crucial since it helps the readers to understand the way two countries in the Eurozone operate and achieve their economic growth and development. In addition, it reveals the way each country is unique in relations to GDP, consumption, employment, and public debt level. It was worth noting that outward and inward FDI in EU27 increased by 40% between 2009 and 2014 due to the increased globalization forced the countries to perform better in the competitive environment. nonetheless, the France stabilized its deficit at -2% in 2015 while the German’s trade balanced improved to +6% of the DGP. This implies that France encouraged its population to work hard and consume locally produced goods. Between 2005 and 2013, the GDP for German increased by 12% compared to France, which realized a 5% increase. German’s economy improved due to high investment in technology, which helps industries to produce quality and mass goods to meet the demand in the international market. However, France experienced a slow economic growth between 2008 and 2013 because the country has not encouraged domestic consumption. The unemployment rate in German is 5.3% whereas in France it is 10% by 2013. A lot of immigrants contribute to a high state of unemployment in France since they cause social disturbances, which affect the political and economic environment. The public debt was 79.9% of the GDP in German and 93.4% of the GDP in France by 2013. Therefore, German and France should integrate to correct trade deficit and boost economic growth in Eurozone.

References

Bozio, A., Emmerson, C., Peichl, A., & Tetlow, G. (2015). European Public Finances and the Great Recession: France, Germany, Ireland, Italy, Spain and the United Kingdom Compared. Fiscal Studies, 36(4), 405-430.

Dachs, B., & Peters, B. (2014). Innovation, employment growth, and foreign ownership of firms: A European perspective. Research Policy, 43(1), 214-232.

De Grauwe, P. (2014). Economics of monetary union. Oxford, MA: Oxford university press.

Dustmann, C., Fitzenberger, B., Schönberg, U., & Spitz-Oener, A. (2014). From sick man of Europe to economic superstar: Germany’s resurgent economy. The Journal of Economic Perspectives, 28(1), 167-188.

Gourevitch, P., Markovits, A., Ross, G., Bornstein, S., & Allen, C. (2016). Unions and Economic Crisis: Britain, West Germany and Sweden. New York, NY: Routledge.

Harrison, R., Jaumandreu, J., Mairesse, J., & Peters, B. (2014). Does innovation stimulate employment? A firm-level analysis using comparable micro-data from four European countries. International Journal of Industrial Organization, 35, 29-43.

Hassel, A. (2014). The paradox of liberalization-Understanding dualism and the recovery of the German political economy. British Journal of Industrial Relations, 52(1), 57-81.

Jäger, P., & Schmidt, T. (2016). The political economy of public investment when population is aging: a panel cointegration analysis. European Journal of Political Economy, 43, 145-158.

Jones, C., Carnegy, H. & Dinmore, G. (15, May, 2014). German’s economy power ahead as France and Italy fall behind. The Financial Times. Web. 18 April, 2017.

Maier, C. S. (2015). Recasting bourgeois Europe: stabilization in France, Germany, and Italy in the decade after World War I. Boston, MA: Princeton University Press.

McCombie, J., & Thirlwall, A. P. (2016). Economic growth and the balance-of-payments constraint. New York, NY: Springer.

Puetter, U. (2016). European Policy Studies: Eurogroup: How a Secretive Circle of Finance Ministers Shape European Economic Governance. Manchester, MA: Manchester University Press.

Weeks, J. (2014). Euro Crises and Euro Scams: trade not Debt and Deficits tell the tale. Review of Political Economy, 26(2), 171-189.