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  • The Legacy of Fortress Europe

    Evidence on trade diversion from Nazi Germany's

    confidential wartime foreign trade statistics

    Tams Vony

    University of Groningen

    Groningen Growth and Development Centre

    The paper is work in progress. Please do not circulate and consult the author prior to

    making any reference in published material.

    ABSTRACT

    The paper investigates trade diversion caused by the political reorganisation of Europe

    under Nazi occupation during World War II and its impact on the development of West

    German foreign trade after 1950. The confidential trade statistics of the Third Reich report

    data on both the geographical and commodity structure of German exports and imports that

    can be directly compared with interwar and post-war patterns. I test simple models of trade

    diversion for both the interwar and war years and determine econometrically to what extent

    and for how long pre-existing patterns of trade shaped the regional distribution of West

    German exports and imports during the 1950s and 1960s. In the early 1940s, the German

    economy became more eastward oriented with the eastward expansion of the Third Reich

    and the eastbound thrust of the German war effort. However, the legacy of Fortress Europe

    was short lived, as interwar trade patterns were by and large restored until the mid-1950s.

    The establishment of the EEC marked a new structural break in West German trade

    expansion. In appendix, I report a new constant-price dataset on the commodity structure of

    German/West German exports and imports between 1928 and 1970.

    JEL code: N14, N44, F14, F15

  • 1

    1. Introduction

    World War II represents a watershed in the history of Germany and has long been regarded as an important episode by economic historians. There is a vast literature on the Nazi war economy: on the growth of armaments production, on the reorganisation of labour and resource allocation, and on the financing of Hitlers preposterous quest for world domination.1 Particular attention has been devoted to the exploitation of occupied lands for their natural resources, their labour and their produce, which was estimated at 210 billion Reichsmark. This sum is 50 percent larger than the average annual GNP of the Third Reich during the war.2 It is another long-established notion that Germany exploited smaller nations in its backwater in South-East Europe through bilateral trade agreements, and tied them increasingly to the German war economy.3 This view was questioned by Ritschl, who argued that the much emphasised eastward shift of Germanys external trade from the late 1930s onward has been a sheer myth. In spite of all ideological commitment to the contrary, and in spite of the eastbound thrust of the Nazi war effort, the German war economy was in fact westward oriented.4

    A common characteristic of these investigations is that they relied on scattered

    quantitative evidence. Until recently, Germanys external economic relations have been studied

    on the basis of the Third Reichs clearing balances, as the publication of the official foreign

    trade statistics was terminated after 1940. The clearing accounts give a good indication to the

    extent to which foreign lands were economically exploited by Nazi Germany. However, they do

    not provide an accurate picture on the structure and balance of German exports and imports,

    mainly due to the fact that the foreign balances incorporated a long list of items other than

    commodity trade. Fortunately, the confidential trade statistics of the Third Reich for the years

    1941-1944 survived in the archives. They had been compiled for internal use only; their

    publication and further distribution was strictly forbidden.5 The quantitative analysis of this

    material makes an important contribution to the historiography of the Nazi war economy and

    thus constitutes the main task of this paper.

    Measuring trade diversion during the war is important also because of its implications

    for the development of West German foreign trade after 1950. It is widely agreed that trade

    expansion was instrumental in the growth miracles of the post-war Golden Age, particularly in

    West Germany, where exports grew twice and three times as fast as industrial production and

    national income respectively.6 Thus, the German Wirtschaftswunder has been interpreted by many

    as the outcome of an even more extraordinary export miracle.7 The most popular explanations

    The following abbreviations are used in footnotes: StDR = Statistik des Deutschen Reichs; Auenhandel = Der Auenhandel der Bundesrepublik Deutschland. References with no speficied author are publications of the Statistisches Bundesamt or Statistisches Reichstamt. 1 See Milward (1965), Zilbert (1981) and Tooze (2006) among others. For an extensive bibliography of the

    earlier German literature, see Volkmann (1984). 2 Eichholtz (1978), pp. 150-151. Also see Buchheim (1986). 3 See Hirschman (1945), Rnki (1983), and Grenzebach (1988) among others. 4 Ritschl (2001), p. 340. 5 Der Auenhandel Deutschlands, Ergnzungshefte (1941, 1942, 1943); for 1944, see BArch R 3/1626a, pp.

    38-39. In the summer of 1944, aggregate trade statistics were made public at a government press conference and some extracts were later published in Statistisches Handbuch, p. 390 ff.

    6 L. von Delhaes-Guenther, (2003), p. 17, and Giersch et al. (1992), p. 164. 7 See Michalski (1970), Boltho (1982), pp. 479-485, and Wallich (1955), pp. 228-229, among others.

  • 2

    of the latter can be organised into three camps. The first argues that new international

    institutions promoting trade liberalisation and market integration in Europe made conditions

    conducive for export-led growth.8 The second assumes that favourable domestic production

    costs and monetary protectionism enhanced the competitiveness of West German firms.9 The

    third sees the development of Germanys external trade as path-dependent and, therefore, claims

    that both the commodity structure and the regional composition of West German exports

    reflected patterns, or followed trends, that had been established long before the post-war Golden

    Age.10 Ritschl went even further to argue that the continental division of labour was further

    intensified under the Nazi New Order during the war, which laid the foundations for the main

    pillars of European market integration in the 1950s.

    In this paper, I test simple models of trade diversion to explain both the reorientation of

    Germanys external trade in the course of World War II and to measure how large and persistent

    an impact it had on post-war developments. I argue that the German economy actually became

    more eastward oriented with the eastward expansion of the Third Reich and the eastbound drive

    of the Nazi war effort, contrary to the revisionist view. By contrast, the legacy of Fortress

    Europe was rather short lived as the expansion of West German trade in the 1950s by and large

    restored the trade patterns of the interwar period. The regional distribution and the commodity

    structure of German exports and imports began to deviate from long-established trends only

    after the launching of the European Economic Community (EEC). The forceful reorganisation

    of intra-European trade after 1940 was not the origin of trade integration in the post-war era.

    The paper is structured as follows. Section 2 presents an overview on the geography of

    German foreign trade, including a discussion of the confidential wartime statistics. In Section 3,

    I test simple models of trade diversion, both for the interwar period and for the early 1940s,

    focussing on intra-European trade. In Section 4, I test for alternative causes of trade expansion

    in West Germany after 1950, particularly the presence and persistence of a reconstruction

    dynamic. I aim to determine econometrically to what extent and for how long the restoration of

    pre-existing trade patterns shaped the structure of West German exports and imports and how

    large an impact the new trade promoting institutions, especially the European Payments Union

    (EPU) and the EEC, generated. Section 5 shifts focus onto the commodity structure of

    Germanys external trade based on a constant-price dataset that I constructed, which is reported

    in the Appendix. Section 6 concludes.

    2. The geography of German foreign trade: an overview

    For the purpose of my analysis, I constructed a dataset on country-shares in total German

    exports and imports, based on values expressed in current prices, for several benchmark years

    during both the interwar and post-war periods and the actual war years. For 1950, 1955, 1960,

    1965 and 1970, data have been drawn from the annual foreign trade statistics.11 The 1950

    8 See Milward (1987), Buchheim (1990), and Eichengreen (1995). 9 Carlin (1989), pp. 60-5, and Giersch et al. (1992), pp. 108-16, 176-84. 10 Advocated most strongly in Abelshauser (2001), pp. 510-22, and in Delhaes/Guenther (2003), pp. 85-86. 11 Auenhandel, Teil 1 (1951), pp. 12-13; Ibid (1956), pp. 34-36; Ibid (1961), pp. 32-33; Fachserie G, Teil 1

    (1966), pp. 36-37; Ibid (1971), pp. 42-43.

  • 3

    volume also reports equivalent figures for 1936 (according to 1936 national borders), which

    represents a good benchmark for the post-depression years, but it is not yet too strongly

    influenced by war preparations. To demonstrate how much regional patterns of trade were

    distorted by the impact of the Great Depression, I also collected data for 1928.12

    Unfortunately, we cannot adjust for border changes invoked by the post-war settlement

    in Europe, and within that the partition of Germany. The impact of the more substantial

    redrawing of maps overseas as a consequence of decolonisation is neutralised by adhering to the

    territorial units reported in the interwar trade statistics, which reflect colonial boundaries. As a

    result, my dataset includes regions such as the Arab Middle East that covers modern-day

    Jordan, Iraq and the countries on the Arab Peninsula, or French, British, Portuguese and Spanish

    West Africa, the Union of Rhodesia and the Nyassaland, French Indochina or British Malaya.

    This approach is made appropriate by the fact that I aim to test for the impact of multilateral

    trade agreements on the structure of actual trade flows. The extent to which the former colonial

    possessions of European nations were incorporated into preferential trade zones or currency

    blocs was determined primarily by the relationship of their erstwhile masters to the particular

    institutional frameworks. Furthermore, it is useful to group several entities together that alone

    accounted for negligible shares of Germanys external trade. These adjustments yielded a

    dataset of 95 countries or regions, for which I was able to construct by and large territorially

    consistent figures over time.

    For the early 1940s, the confidential foreign trade statistics report detailed data on both

    the commodity structure and the geographic distribution of exports and imports. The nomenclature

    of commodity groups is perfectly compatible with the official peacetime statistics. Regional

    data is affected to a large but non-quantifiable extent by the border changes that took effect

    between 1938 and 1941. Until 1939, the statistics are based on 1937 national borders. The

    wartime data refer to the Greater German Empire that included Austria, the Sudetenland, the

    Protectorate of Bohemia and Moravia as well as the annexed territories of Luxembourg,

    Malmedy and Eupen, Alsace-Loraine, Posen, Upper Silesia, the city of Danzig, and most of

    modern-day Slovenia. Nonetheless, this material constitutes the only source on actual wartime

    trade flows that allows for a direct comparison with interwar and post-war patterns.

    Figures 1 and 2 report the share of continents and the major regions of Europe in

    German or West German exports and imports respectively. In order to begin my investigation

    from a long-term perspective, I also included figures for 1913.13 The literature has frequently

    advocated the view that the development of West German foreign trade during the post-war

    Golden Age followed a path established in the first era of globalisation.14 The data demonstrate

    that World War I invoked hardly any changes in the regional composition of Germanys

    external trade, particularly on the export side. The structure of imports shows one significant

    12 StDR, vol. 366.2 (1929), pp. 4-7. 13 Own calculations based on data from StDR, vol. 366.2 (1929), pp. 4-7. 14 I had to make two adjustments on the 1913 data to assure its comparability with aggregate figures in my

    dataset: (1) I assumed that Austria within her post-1919 borders accounted for 25 per cent of German trade with the Austro-Hungarian Empire, which equals her approximate share in GDP, Maddison (2006), pages 426 and 476.; (2) Turkish possessions in the Middle East are assigned 30 per cent of German trade with the Ottoman Empire, based on the actual trade patterns in the interwar period.

  • 4

    shift: the sharp decline in agricultural imports from Russia, replaced mainly by imports from the

    Netherlands. The relative weight of intra-European trade remained exactly the same. There is

    clearly no need to incorporate pre-1914 data to demonstrate the influence of long-established

    patterns on Germanys external trade, since the former had survived World War I unwounded.

    The volume of export and imports declined considerably after 1914, but their regional

    composition remained remarkably stable.

    Figure 1: The geographical composition of German exports (%)

    Note: Figures for the EEC refer to member states only, excluding their overseas possessions. Asia

    includes New Guinea and Polynesia. The appellation Western Offshoots refers to the United States, Canada, Australia and New Zeeland.

    On the export side, we can also observe a stable pattern for the interwar period, despite

    the Great Depression separating my two benchmarks. Between 1928 and 1936, the share of

    Western Europe in German exports remained practically the same. The minor shift away from

    future EEC member states reflects economic stagnation during the mid 1930s in the Gold Bloc

    countries and strong growth in Scandinavia. Outside of Europe, exports to the Western Offshoots

    contracted more rapidly than exports in total, but this resulted solely from diminished import

    demand in the United States. By contrast, Asia, Latin America and Africa became more important

    export markets. Primary producing economies achieved significant Terms-of-Trade gains and

    thus could import a larger volume of manufactures with the revenue earned from a given

    volume of exports. The composition of German imports was shaken up more significantly. The

    shares of the United States and France fell sharply because Germany lacked the necessary har...

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