Growth models in a world of international trade and capital flows: A Schumpeterian, firm-centric analysis of European economic development

This research project blends comparative and international political economy to analyse economic development and change in the Eurozone between 1999 and 2018. It addresses the growth model literature, which struggles to capture the dimensions of time and change as well as the interdependencies between economies. The novelty of this approach is to use the transnational corporation (TNC) as an independent unit of analysis in a three-level model of (1) the TNC, nested in (2) the national economy, which, in turn, is part of (3) an international market. The study relies on a case study of the European automotive sector and compares the developments in the French and German economy. It shows that the expansion of the German manufacturers in Europe, which began in the mid-2000s, directly increased the pressure on the French firms via their losses of market shares and the concomitant pressure on margins. The higher competitiveness of German TNCs was due to a combination of three factors. First, wage repression at domestic sites as well as within the wider economic environment in Germany. Secondly, through cheap sourcing in Eastern Europe. Thirdly, through cheaper access to finance that was actively used to expand market shares. The French manufacturers, under pressure from financial markets, had to respond by outsourcing production entirely to low-wage economies and follow the German labour market reforms at home. Towards the end of this research period, French and German automotive producers find themselves at similar and continuously low levels of profitability, yet in both economies, working conditions deteriorated and wage growth did not pick up. The case study of the automotive sector vividly highlights the interdependence between economies due to the decisions made in TNCs’ headquarters and under pressure of financial markets. It furthermore explains the economic and technological stagnation in Europe and the increased dependence on combustion engines, as the destructive forces of European competition force companies to optimise their production, rather than to innovate.