The role of Germany in international trade

Germany is the largest exporter in the world and second largest importer. Germany net export accounts for about 8% of its GDP. The economy of Germany is highly dependant on its exports, where the exports account for more then one third of its national outputs. 2. 3 The role of Germany in world FDI The overall drift of the Foreign Direct Investment (FDI) has been on a decreasing trend in the past years. This decline is due to the overall slump in the economies of the major countries of OECD (Organization for Economic Co-operation for Development).

Despite the decline in the Foreign Direct Investment, it does not indicate any decrease in the overall Foreign Direct Investment. “FDI to and from the OECD countries continued to decline in 2003. FDI into the OECD area dropped from 535 billion US dollars (USD) in 2002 to an estimated USD 384 billion in 2003 – a decline of around 28 per cent” (Trends and Recent Developments in Foreign Direct Investment, 2004) Germany is the eighth largest receiver of world’s FDI which accounts for about 7% of its gross fixed capital formation (GFCF).

This shows that FDI is not as important source of investment in Germany as it is for example in the Czech Republic, where it accounts for 34% of GFCF. On the other hand, Germany is the fifth biggest source of world’s FDI. Germany has the fifth largest inward stock of FDI accounting for 18% of its GDP. The country accumulated the third largest outward FDI stock, which makes up almost 35% of its GDP. Both of the inward and outward flow of Foreign Direct Investment is very beneficial for the country involved.

An inflow indicates the prosperity and future growth of the country along with the faith of outsider in the country’s future health. On the other hand, the outflow indicates the financial soundness of the country, that is, it has the find to invest in other parts of the world. Germany also offers outward Foreign Direct Investment insurance “from the public sector against political risks in the host country dates back to 1960.

It has, however, been increasingly used by enterprises over the last decade. ” (Insurance of Outward FDI in Germany, 2003, p. 1). Federal Ministry of Economic and Labor hold the responsibility of the insurance. The insurance involves the risk factors, eligibility criteria and the loss compensation. Germany does not only invest in established countries but have its sufficient amount of share of Foreign Direct Investment in developing countries as well that have a future of a growing nation.

Germany has its investment in India who are considered to be the under-performers in the sectors of Industrial Machinery, Electrical Equipment, Chemicals and Pharmaceuticals, Automobiles and Transportation, Computer Software, Machine Tools, Metallurgical Industries, Trading, Hotels and Tourism, Rubber and Plastic Goods, Paper and Pulp Goods, Glass and Ceramics, Prime Movers Household Appliances, Industrial Instruments, Food and Beverages, Cargo Shipping and other service.

(Share of Germany in sector wise investment in India, 2003) The German economy possesses high inward FDI potential, it being the third largest economy of the world. However, the current inward FDI received by Germany is below the potential that its economy possesses.