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The Politics of Too Much: Essays on the Emergence and Persistence of Current-Account Surpluses.

Nils Redeker


Large and persistent current-account imbalances are at the heart of most financial crises and constitute a major source of international political conflict. Yet we still know little about the institutional and political factors that contribute to the emergence of such imbalances. One factor limiting our knowledge is the fact research largely focuses on countries with current-account deficits. Though the buildup and maintenance of current-account imbalances depend on developments in both deficit and surplus states, political economists, so far, have mostly studied countries with negative current accounts. In contrast, this thesis investigates the political and institutional roots of large and persistent current-account surpluses.

This first part asks what domestic institutional factors lead some countries to accumulate large surpluses and focuses on the private sector. Using cross-country and firm-level panel data and instrumental variable regressions and regression discontinuity designs, it shows how domestic labor-market institutions affect both the profit shares of private firms and the question whether firms reinvest these profits or stash them on financial markets, thus, contributing to aggregate savings and capital exports. These findings do not only help to explain the emergence of large current-account surpluses but also shed new light on some important drivers for rising inequality and stagnating growth in many advanced economies.

The second part of the thesis studies political factors that impede or facilitate current-account adjustment in surplus countries during balance-of-payment crises. It focuses on surplus countries in the Eurozone crisis and builds on original survey data from economic interest groups, elite interviews, and qualitative case studies. It shows that non-adjustment in surplus countries is driven by distributional conflicts about specific adjustment policies. Though most economic groups support some policies to increase domestic demand, conflicts about which policies should be used to prevent current-account adjustment, especially in the absence of strong public pressure for domestic expansion. These findings show that sustained surpluses are partly rooted in politics and have important implications for our understanding of the persistence of global imbalances.

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