The problem of adjustment in West Germany's balance of payments

Abstract

Whatever the ultimate solution of West Germany’s balance of payments problem, the surpluses of recent years have been an interesting test of the process of balance of payments adjustment. The present paper examines the causes of the “favourable” imbalance, one of the most striking in recent decades, and the various methods by which it might have been corrected. The author first reviews the modern theory of balance of payments adjustment and relates it to the German experience. The factors responsible for the strength of the balance of payments are then considered. Those of a structural nature, the longer-run aspects which have influenced the German demand for imports and the supply of and demand for German exports, are first examined. Those factors resulting from current economic policies, and in particular the way in which the Federal government’s tax receipts exceeded expenditure, the outstanding feature of German public finance during the years 1952-56, are then dealt with. The author concludes by considering the extent to which alternative methods were used and the problems which they involved. JEL: F31, F32, F38