Pa n ei e , Ch is o ; Kolho , Kla a; S einwä de , Laszlo; Obe s elle , Ch is ian
A icle
Une en de elopmen ins ead o complemen a i y: How
he epa ia ion o FDI-p o i s uels capi al accumula ion in
Ge many
ZFW - Ad ances in Economic Geog aphy
P o ided in Coope a ion wi h:
De G uy e B ill
Sugges ed Ci a ion: Pa n ei e , Ch is o ; Kolho , Kla a; S einwä de , Laszlo; Obe s elle , Ch is ian
(2025) : Une en de elopmen ins ead o complemen a i y: How he epa ia ion o FDI-p o i s uels
capi al accumula ion in Ge many, ZFW - Ad ances in Economic Geog aphy, ISSN 2748-1964, De
G uy e , Be lin, Vol. 69, Iss. 1, pp. 10-23,
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Ch is o Pa n ei e *, Kla a Kolho , Laszlo S einwä de and Ch is ian Obe s elle
Une en de elopmen ins ead o
complemen a i y: how he epa ia ion
o FDI-p o i s uels capi al accumula ion
in Ge many
h ps://doi.o g/10.1515/z w-2024-0065
Recei ed June 3, 2024; accep ed Oc obe 22, 2024;
published online No embe 14, 2024
Abs ac :Con en ional assump ions ha ou wa d Fo eign
Di ec In es men (FDI) is mo ing p ospe i y ab oad ha e
ecen ly been coun e ed by s udies showing how hey
igge p oduc ion and income g ow h in he ansna-
ional co po a ions’ (TNC’s) home coun y, albei egionally
une en. Wha has la gely been igno ed in hese and o he
deba es on FDI, bu ep esen s an essen ial benefi o i ,
is he epa ia ion o p ofi s. Ou analysis o FDI-induced
di idend paymen s be ween Ge man TNCs and hei o eign
subsidia ies shows he significance o hese p ofi e u ns.
Be ween 1990 and 2020, Ge man TNCs epa ia ed a ound
wo- hi ds o all p ofi s hey gene a ed ab oad, amoun ing
o AC900 billion (AC407 billion in ne e ms). The geog aphical
dis ibu ion o ne p ofi inflows o Ge many is cha ac e -
ized by he p ominence o ax ha ens and p o ide s o
cheap labo , pa icula ly China and he Eu opean pe iph-
e y. Sec o -wise, manu ac u ing is mos impo an . Beyond
empi ical conce ns, we a gue ha p ofi epa ia ion ig-
ge s une en de elopmen on wo scales: Globally, because
i wi hd aws in es men capi al om he p ofi -losing coun-
ies and adds i elsewhe e, e.g. in Ge many, whe e i has
he po en ial o spa k u he in es men ; and egionally,
i.e. wi hin Ge many, because economically s ong ede al
s a es, which a e home o mos FDI-sending TNCs, benefi
disp opo iona ely om he p ofi eflows.
Keywo ds: o eign di ec in es men ; geog aphical ans e
o alue; Ge many; p ofi epa ia ion; ansna ional co po-
a ions; une en de elopmen
*Co esponding au ho : Ch is o Pa n ei e , Uni e si y o Hambu g,
Hambu g, Ge many, E-mail: ch is o .pa n ei e @uni-hambu g.de
Kla a Kolho ,Laszlo S einwä de and Ch is ian Obe s elle ,Uni e -
si y o Hambu g, Hambu g, Ge many,
E-mail: kla a.kolho @uni-hambu g.de (K. Kolho ),
laszlo.s einwae de @uni-hambu g.de (L. S einwä de ),
[email p o ec ed] (C. Obe s elle )
1 In oduc ion
Regional inequali ies o , mo e gene ally, une en de elop-
men ha e become co e opics o economic geog aphy and
in e na ional business li e a u e as well as o ela ed disci-
plines. O he 3,762 pape s on hese opics lis ed on he web
o science (2024-09-18), almos 60 % ha e been published in
he las decade. Agains he backd op o he economic, social
and poli ical consequences o he c isis o he capi alis
wo ld-sys em on he one hand, and he success ul ca ch-up
p ocesses in pa s o Eas and Sou h Asia, pa icula ly China,
and he associa ed shi in global economic dynamics away
om he US, he UK and he EU on he o he , schola s wi h
di e en heo e ical app oaches ha e con incingly chal-
lenged he assump ions o he gene al equilib ium ame-
wo k o neoclassical economics by showing ha he e is
inc easing, and inc easingly mul i ace ed, socio-economic
di e gence a all possible scales (e.g. Ba hel e al. 2024;
Dieme e al. 2022;Iamma ino e al. 2019;Ko zeniewicz
and Mo an 2009;Milano ic and Roeme 2016;Pike y 2014;
S igli z 2012;S o pe 2013).
Nei he he wo ldwide economic es uc u ing no he
deepening o socio-spa ial dispa i ies, can be unde s ood
wi hou ecognizing he ise o ansna ional co po a ions
(TNCs) as key “mo e s and shake s” o he wo ld economy
(Dunning and Lundan 2008). Th ough hei o eign di ec
in es men s (FDI), which ha e inc eased by 710 % o e he
las 25 yea s (global ou wa d s ock) and which ha e inco -
po a ed a la ge numbe o coun ies in his p ocess (UNC-
TAD 2024), hey undoub edly ha e igge ed new geog a-
phies o economic de elopmen , e.g. in e ms o p oduc-
ion, knowledge c ea ion, jobs and income. The ela ionship
(and he di ec ion o he ela ionship) be ween FDI and
economic g ow h in he FDI-hos ing coun ies is a ma e o
deba e, al hough in mos cases a posi i e ela ionship is seen
(Hansen and Rand 2006;Iamsi a oj 2016;Sau a and Kuo
2020;Wo ld Bank 2009). This, in u n, has spa ked majo pol-
icy deba es, o en ollowing he line o a gumen a ion ha
he economic dynamiza ion in he hos coun ies h ough
FDI is paid o wi h nega i e e ec s in he sending egions
Open Access. ©2024 he au ho (s), published by De G uy e . This wo k is licensed unde he C ea i e Commons A ibu ion 4.0 In e na ional License.
C. Pa n ei e e al.: P o i epa ia ion o Ge many —11
wi h deindus ializa ion and ising unemploymen , which
in u n is used as an issue by igh -wing and adical igh -
wing pa ies in elec ion campaigns. Howe e , p ecisely he
asse ion ha ou wa d FDI (OFDI) we e mo ing “p ospe i y
ab oad” (Ba hel and Buchholz 2019, 442) is inc easingly
being called in o ques ion. The a gumen goes ha OFDI can
p o ide he sending egions wi h access o new ma ke s and
knowledge, he eby s imula ing p oduc ion, income and
some imes also employmen a home (Buchholz and Ba hel
2021;Can well and Mudambi 2005;Globe man e al. 2000).
The flipside o his addi ional economic de elopmen , how-
e e , is ha i is likely o deepen egional inequali ies in he
sending coun ies, because i benefi s p ima ily hose la ge
(global) ci y- egions ha a e s ongly ne wo ked globally
(Ba hel e al. 2023;Goe zen e al. 2013;Lo enzen e al. 2020).
We ie in wi h hese a gumen s, bu wi h wo ese a-
ions. Fi s , in addi ion o he gains o FDI-sending egions
men ioned in he OFDI li e a u e, we add wha we belie e
o be a key ac o in benefi ing hem, namely he epa-
ia ion o p o i s de i ed om he FDI- inanced ac i i ies
ab oad. This aspec is a ely add essed in oday’s deba e
on FDI’s po en ial de elopmen impac , al hough i has
been a majo issue in c i ical de elopmen heo y o he
1950s–1970s (see below) and al hough he epa ia ion o
p ofi s is by no means negligible: Wo ldwide, almos wo
hi ds o income om FDI a e epa ia ed (2005–2022), p i-
ma ily o co e coun ies such as he US, he Ne he lands,
and Ge many. I his geog aphical pa e n al eady indica es
a p onounced une enness, his finding is u he confi med
by he ac ha a la ge p opo ion o ne p ofi ou flows
(44.1 % be ween 2005 and 2022) o igina es om middle
income coun ies, especially hose ha a e in eg a ed in o
he wo ld economy as p o ide s o cheap na u al esou ces
(such as he Russian Fede a ion o Nige ia) o cheap labo
(such as he Czech Republic o Thailand) (IMF 2024; o
a mo e de ailed analysis see Pa n ei e e al. 2024). Fo
Ge many, pa allel wi h and as a esul o inc easing OFDI
and i s ising p ofi abili y (Hünnekes e al. 2019;Kne sch and
Nagengas 2017;UNCTAD 2024), he epa ia ion o p ofi s
has inc eased s eadily since he ea ly 2000s and has isen
sha ply in he las decade. Be ween 2018 and 2022 alone, $422
billion was shi ed back o Ge many, meaning ha o e e y
dolla ea ned h ough FDI ab oad, $0.60 was b ough home
(IMF 2024).
Ou second ese a ion a ises om his g ea , bu
mos ly dis ega ded impo ance o p ofi epa ia ion, bu
goes beyond he quan i a i e aspec . While we ecognize
ha FDI has been used o success ully d i e he economic
ca ch-up p ocess in Eas and Sou h Asia, pa icula ly in
China,1 he une en geog aphy o p ofi eflows cas s doub
on he no ion ha FDI se s in mo ion a p ocess ha bene-
fi s all s akeholde s equally, especially when i is ealized
be ween coun ies wi h significan socio-economic dispa i-
ies. We con end ha in such cases FDI is no complemen-
a y in he sense ha i c ea es addi ional alue o all
pa ies in ol ed. Ra he , i benefi s he FDI-sending egion
a he expense o he FDI-hos ing one, because h ough
p ofi epa ia ion he o me app op ia es o he la e
in es men capi al wi hou ha ing p oduced i . Pa aph asing
he Wo ld Bank (2024a, x –x i), which asc ibes a ce ain
“magic” o in es men accele a ions, we con end ha he
eal magic o FDI he e o e un olds in he home coun ies o
he TNCs: The e, accumula ion is addi ionally ueled wi h-
ou ha ing o wo k o i (and, o ha ma e , wi hou
ha ing o exploi domes ic labo and na u e). This is well
g aspedbyIljaNo hnagel,membe o heExecu i e Boa d o
he Ge man Chambe o Indus y and Comme ce,whopoin s
ou ha “ o eign in es men s by Ge man companies ha e
always benefi ed Ge many as a business loca ion” (DIHK
2024; own ansla ion).
Ou skep ical app oach o FDI is based on c i ical de el-
opmen heo y which has long seen FDI and subsequen
p ofi epa ia ion as d i e s o une en de elopmen , push-
ing economic de elopmen in some a eas a he expense o
o he s (Ba an [1957] 1973;Ba an and Sweezy 1966). How-
e e , al hough such no ions ha e become common g ound
in bo h dependency heo y and wo ld-sys ems analysis,
no comp ehensi e empi ical s udies on he epa ia ion o
p ofi s ha e been conduc ed in he pas o subs an ia e his
claim. Ou esea ch is beginning o fill his gap. Building on
ou wo k on global pa e ns o p ofi epa ia ion (Pa n e-
i e e al. 2024), his pape ocuses on Ge many’s ole in i .
Ge many lends i sel as a case s udy because he coun y
eco ds disp opo iona ely high p ofi eflows, ha ing he
eigh la ges ou wa d s ock o FDI in he wo ld (UNCTAD
2024), bu he fi h-highes p ofi inflows, and he hi d
highes ne p ofi inflows, a e he US and he Ne he lands
(2005–2022; IMF 2024). Rela edly, p ofi s gene a ed ab oad
a e o big, and inc easing, impo ance o domes ic in es -
men and accumula ion. En i e indus ies, and in pa icula
he au omo i e indus y, a e hea ily elian on he p ofi s
ha a e made ab oad hanks o local ma ke s and cheap
labo .
1The s a is ical co ela ion be ween ne FDI inflows and g oss domes-
ic p oduc g ow h can no longe be p o en i China is excluded om
he da a. Such a hough expe imen may be jus ified as China is “a
sui gene is case wi hou p eceden ” (Hudson 2016, 284) due o i s e y
unique poli ical cons i u ion.
12 —C. Pa n ei e e al.: P o i epa ia ion o Ge many
We begin his pape by e iewing li e a u e on FDI and
p ofi epa ia ion, ou lining ou heo e ical amewo k,
and discussing he da a. We hen o e an o e iew o global
p ofi eflows, be o e we u n ou a en ion o he Ge man
case and p o ide he fi s comp ehensi e analysis o he
scope, geog aphy, and sec o al dis ibu ion o p ofi epa i-
a ion. We hen discuss he po en ial impac o p ofi eflows
on he dynamics o accumula ion and g ow h in Ge many by
ela ing i o o al su plus and in es men . We pay pa icula
a en ion o p ofi epa ia ion in he manu ac u ing sec o ,
and he e in he au omo i e sec o , due o i s impo ance o
he Ge man economy. In he conclusion, we summa ize key
poin s and highligh a eas o u he esea ch.
2 Li e a u e e iew
The de elopmen po en ial o FDI is subjec o a ious aca-
demic fields. Pa icula ly schola s om economic geog a-
phy and in e na ional business and economics ha e long
explo ed he s a egies, de e minan s and impac s o mul i-
na ional c oss-bo de in es men s o sending and ecei -
ing egions (e.g. Beugelsdijk e al. 2010;Dunning and Lundan
2008;Villa e de and Maza 2015). Deba es e ol e, among
o he hings, a ound he inno a i e po en ial and echno-
logical spill-o e e ec s o FDI-induced knowledge ans e
(e.g. B ans e e 2006;Jha e al. 2024), inwa d and ou wa d
FDI’s impac on income o expo s (e.g. Sahoo and Dash
2022;Yang and Ba hel 2023) and he o ma ion o egion-
alized indus ial clus e s (e.g. Ba hel and Li 2014). Despi e
he gene ally posi i e iew on FDI exp essed he ein, he
li e a u e is inc easingly conce ned wi h he downsides o
mul ina ional ac i i ies, mo e specifically, wi h he esul ing
ep oduc ion o socio-spa ial inequali ies a di e en scales
(e.g. Ba hel e al.2023;Pa línek 2022).
Wha is la gely neglec ed in his li e a u e, howe e ,
is an in es iga ion o he epa ia ion o p ofi s gene a ed
h ough FDI. Whe e discussed, s udies on he e ec s o
hese p ofi ou flows mos ly ocus on he cu en accoun
balance o he coun ies ecei ing FDI and o en a i e
a he conclusion ha he ou flows o p ofi lead o fiscal
challenges ha weaken he supposedly posi i e FDI e ec s
(e.g. Mencinge 2008;Zéli y 2022). A sys ema ic empi ical
analysis o FDI-induced p ofi epa ia ion and i s influence
on une en de elopmen is, howe e , limi ed o a small num-
be o s udies (Akke mans 2017;A ne 2017;Pa n ei e e
al. 2024). While Akke mans (2017) desc ibes he “d ain o
weal h” om non-co e coun ies h ough cen ipe al global
p ofi flows, A ne (2017) conc e izes his p ocess o he
CEE-coun ies, con ending ha he exploi a ion o cheap
labo ia FDI he e and he subsequen epa ia ion o
p ofi s p omo e de elopmen in Eu ope’s co e a he
expense o i s pe iphe y.
The li e a u e in which p ofi epa ia ion ecei es
mos a en ion, bu which is only o ma ginal ele ance o
ou pu pose, comes om finance and accoun ing. I dis-
cusses TNC’s in e nal s a egic de e minan s o p ofi epa-
ia ion as well as ex e nal poli ical ones, such as accoun ing
ules and axa ion (e.g. Al shule and G ube 2003;G a-
ham e al. 2011;Hasegawa and Kiyo a 2017). Special a en ion
was paid o wo majo US “ ax holidays” in 2004 and 2017
(policy e o ms which allowed o b ing p ofi s om ab oad
back o he US a a educed ax a e o wi hou ax paymen ),
when he use o epa ia ed p ofi s was analyzed wi h he
esul ha mos o hese we e paid ou o sha eholde s
(Blouin and K ull 2009;Gale and Haldemann 2021).
Fo he case o Ge many, p ofi epa ia ion is
some imes add essed in he con ex o FDI d i e s
(Cama e o e al. 2019), bu ba ely discussed in isola ion.
The ew exis ing s udies add ess he influence o di idend
axa ion on he epa ia ion beha io o Ge man TNCs
(Bellak and Leib ech 2010) and he impac o FDI income
on he Ge man cu en accoun (Fiedle e al. 2018;Kne sch
and Nagengas 2017). Beyond ha , Jungblu h e al. (2023)
analyze he impac o Ge man in es o s’ p ofi s om China
on he domes ic economy. Besides confi ming a g owing
ele ance o he Chinese ma ke , he au ho s no e a lack
o empi ical e idence on he ques ion o he ul ima e
use o epa ia ed p ofi s a home. Al hough his pape
canno emedy his sho coming, we can a leas show he
po en ial influence o p ofi epa ia ion o Ge many on he
accele a ion o in es men and accumula ion he e.
3 Une en de elopmen h ough
su plus ans e s
While we ecognize ha FDI has been used o success ully
d i e he economic ca ch-up p ocess in Eas and Sou h Asia,
pa icula ly in China, we also no e ha he geog aphies o
ne p ofi flows show p onounced une enness (Pa n ei e
e al. 2024). We he e o e con end ha FDI, especially when
made be ween coun ies wi h significan socio-economic
dispa i ies, c ea es asymme ic ela ionships ha deepen
global inequali y because i allows p ofi -app op ia ing
coun ies o d i e economic g ow h a home h ough he
exploi a ion o labo and na u e elsewhe e.
This iew is based on a long adi ion o analyses o
su plus ans e s ac oss space (o which p ofi epa ia ion
is an impo an componen ) as d i e s o une en de el-
opmen , albei usually wi h li le co esponding empi ical
C. Pa n ei e e al.: P o i epa ia ion o Ge many —13
e idence. Ba an and Sweezy (1966, 104) insis ed, o
example, ha FDI is, because o he e lows i gene -
a es, “a me hod o pumping su plus ou o unde de el-
oped a eas”. Building on such no ions, dependency heo y
and wo ld-sys ems analysis a ibu ed o su plus ans e s
a cen al ole in he pola izing dynamics o capi alism.
While F ank (1969, 9) con ended ha he “de elopmen o
unde de elopmen ” occu s because “ he me opolis exp o-
p ia es economic su plus om i s sa elli es and app op i-
a es i o i s own economic de elopmen . The sa elli es
emain unde de eloped o lack o access o hei own
su plus”, Walle s ein (1983, 30, emphasis added), main-
ained ha su plus ans e s ha e “led o an e e g ea e
pola iza ion be ween he co e and pe iphe al zones o he
wo ld-economy, no only in e ms o dis ibu i e c i e ia
( eal income le els, quali y o li e) bu e en mo e impo -
an ly in he loci o he accumula ion o capi al”. F om a
mo e adi ional Ma xis pe spec i e, Hadjimichalis (1984,
338) a gued ha p ofi epa ia ion is a di ec mechanism o
he geog aphical ans e o alue which occu s when alue
p oduced by wo ke s a one locali y is ealized he e, bu
he esul ing p ofi s a e geog aphically shi ed and “added
o he accumula ion p ocess enjoyed by o he capi alis s in
o he a eas”.
Acco dingly, p ofi epa ia ion se es o geog aphi-
cally sepa a e he wo cen al elemen s o he expanded
ep oduc ion o capi al, namely he ex ac ion o p ofi s
om wo ke s and he ein es men o hese p ofi s o
u he accumula ion. P ofi epa ia ion s e ches accumu-
la ion o e space – he g ow h ha g ow h bege s occu s
elsewhe e. As a esul , capi alis ela ions o p oduc ion
assume a specific “spa ial p oblema ic” (Soja and Had-
jimichalis 1979, 4; emphasis added) – he class an ago-
nism be ween capi al and labo is expanded and ein o ced
by a geog aphical an agonism be ween co e and pe iph-
e al a eas. Exploi a ion is o ganized e ically h ough he
“app op ia ion o he su plus- alue by an owne om a
labo e ”, and ho izon ally, ac oss space, h ough “ he app o-
p ia ion o su plus o he whole wo ld-economy by co e
a eas” (Walle s ein 1974, 401).
Fi s ly, p ofi epa ia ion d i es une en de elopmen
by wi hd awing su pluses om ce ain egions, which
means ha he p ofi s gene a ed he e a e no a ailable nei-
he o accumula ion no o social de elopmen . This se s
a p ocess o pe iphe aliza ion in mo ion o keeps i going,
all he mo e so as a conside able pa o he wi hd awn
p ofi s o igina e om p oduc ion ela ions in which labo
and na u e a e ex emely exploi ed. By his we mean ha
wages a e lowe ela i e o hose in he co e coun ies han
he co esponding p oduc i i y di e ences (and o en e en
so low ha hey a e no su icien o ensu e he ep oduc-
ion o he wo k o ce), which is why addi ional o excess
p ofi s can be app op ia ed by he fi ms employing hese
wo ke s. As s udies on he impe ialis na u e o con empo-
a y capi alism sugges , he sha p inc ease in FDI in egions
ou side he adi ional cen e s (i.e. mainly in middle-income
coun ies, bu also in some high-income coun ies, such as
Eas e n Eu ope) is la gely due o he sea ch o (and finding
o ) pools o cheape and disen anchised labo . The high
p opo ion o epa ia ed p ofi s wo ldwide ha we no e
(Pa n ei e e al. 2024) is p ecisely ela ed o his – o FDI
in o egions “whe e hey [wo ke s] can be supe exploi ed”
(Suwandi 2019, 95; emphasis added).
Secondly, p ofi epa ia ion d i es une en de elop-
men because he wi hd awn p ofi s a e used in TNCs’ home
o hi d coun ies, ei he as addi ional in es men unds
(which can be used domes ically o e-expo ed as FDI) o
o dis ibu ion o he owne s and sha eholde s o TNCs.
They se e, hus, as means o “co ifica ion” (A ighi 1990,
14). While an analysis o he exac ou es and final ecipien s
o he epa ia ed p ofi s is s ill pending, he ac ha he six
la ges ne p ofi ecipien s ( he US, he Ne he lands, Ge -
many, Japan, F ance and he UK) ha e long been pa o he
“co e o he co e” o he wo ld-sys em poin s o he c i ical
ole ha geog aphical su plus ans e s ha e played and
con inue o play in he pola iza ion o he wo ld economy
(c . Ba an [1957] 1973;Cope 2019;Hickel e al. 2021). This is an
aspec ha , e en i i is heo e ically amed di e en ly, ies
in well wi h he OFDI li e a u e: OFDI may, a fi s glance,
shi weal h ab oad, bu as a esul weal h is shi ed back.
4 Da a and me hod
Fo an o e iew o global p ofi flows we use da a on dis-
ibu ed di idends and wi hd awals om income o quasi-
co po a ions unde he di ec in es men income in he cu -
en accoun o he IMF’s (2024) Balance o Paymen s a is-
ics. The IMF da a a e de i ed om he espec i e cen al
banks, o which, in u n, TNCs wi h subsidia ies ab oad as
well as subsidia ies o o eign TNCs based in he coun y
mus epo di idend dis ibu ions. O e all da a co e age is
good, al hough he e a e some coun ies, mos impo an ly
China, ha do no p o ide (comple e) in o ma ion. Fo he
analysis o p ofi epa ia ion by Ge man TNCs, we d aw
on bila e al (1990–2020) and sec o al (2010–2020) da a on
di idends (analogous o global da a) om he Balance o
Paymen s a is ics o he Bundesbank (2022). Fi ms based in
Ge many ha in es ab oad o in which a o eign in es o
holds a sha e o 10 % o mo e, a e obliged o epo all c oss-
bo de di idend paymen s abo e he epo ing exemp ion
14 —C. Pa n ei e e al.: P o i epa ia ion o Ge many
limi o h ee million eu os. Bundesbank da ase s we e p o-
ided o us on eques and a e no publicly a ailable.2
Ou ocus on di idends implies a na ow unde s and-
ing o p ofi epa ia ion, which inc eases he consis ency
o he da a bu also leads o an unde es ima ion o he
phenomenon: fi s , TNCs o en eso o mo e ax- iendly
mechanisms o b inging p ofi s home such as oyal ies,
ans e p icing, o se ice ees and he eby make some
p ofi s disappea om he s a is ics. Second, he geog aph-
ical and sec o al dis ibu ion o he p ofi flows is dis o ed
–o obep ecise,made opaque – as FDI and i s p ofi
eflows a e o en di e ed h ough holding fi ms in hi d
coun ies wi h ax- iendly ju isdic ions (see below). Thi d,
he e a e g ey a eas in da a p esen a ion. Some coun ies,
o ins ance, ea excep ional paymen s made ou o accu-
mula ed ese es (“supe -di idends”) as equi y wi hd awals
a he han di idends. In Ge many, his is he case o
all p ofi s ha we e gene a ed mo e han wo yea s ago.
Finally, some alues a e missing in he da ase s, ei he
because hey a e classified as confiden ial o because hey
a e below he epo ing limi .
Bo h IMF and Bundesbank da a a e only a ailable a
he na ional scale. Acco dingly, capi al and p ofi flows ha
c oss bo de s, bu wi hin a co po a ion’s ne wo k, a e p e-
sen ed as i hey we e an in e s a e phenomenon. While we
ecognize ha his p oblem ha bo s he dange o me hod-
ological na ionalism, we a gue wi h Ba an (1973 [1957]) and
Hadjimichalis (1984) ha he fi m le el is insu icien o ully
cap u e he ole o epa ia ed p ofi s in une en de elop-
men . While i is ue ha p ofi s a e owned by a fi m and
no a coun y, he momen in which hey a e ein es ed,
hey con ibu e o egionalized accumula ion p ocesses, i.e.
o wha is no mally e e ed o as “na ional g ow h”. This
hen goes beyond he scale o indi idual fi ms, a ec ing, o
example, o he companies’ in es men beha io , he labo
ma ke , o s a e ax e enues. The same applies, only he
o he way a ound, o he coun ies ha a e losing p ofi .
Acco dingly, wo king wi h da a on he na ional le el is no
only jus ified by da a a ailabili y easons bu also by heo-
e ical eflec ions.
Howe e , he OFDI li e a u e d aws a en ion o he ac
ha une en de elopmen h ough FDI can ake place a se -
e al scales, and especially a he egional one, whe e he e
is g ea e pola iza ion be ween s ongly ne wo ked global-
ci y egions and mo e cu -o egions (Ba hel e al. 2023;
2IMF da a a e in $, hose o he Bundesbank in AC. Bundesbank’s
sec o al da a a e classified acco ding o NACE Re . II and we e p o ided
o 64 coun ies ha ep esen o e 90 % o he Ge man o eign ade.
The classifica ion is based on he main economic ac i i y o he in es o
and no he in es men objec in he FDI hos coun y.
Lo enzen e al. 2020). Consequen ly, we assume ha p ofi
epa ia ion is likely o deepen asymme ic co e-pe iphe y
ela ionships wi hin na ions, because he e ec o addi-
ional in es men unds desc ibed abo e does no occu a
he scale o en i e na ion s a es, bu a he in economically
s ong ci ies, and in pa icula hose in which he TNCs ha e
hei headqua e s. Al hough b eaking down he analysis
o he subna ional and e en ci y would be wo hwhile, he
a ailable da a do no allow o an analysis a his scale.
5 Global p o i lows
P ofi epa ia ion is a phenomenon o significan economic
impo ance, because o i s size and he cen ipe al pa e ns
ha global ne p ofi eflows adop . Be ween 2005 and 2022,
TNCs epa ia ed $18.6 illion in p ofi s. This is equi alen
o 1.4 % o global g oss domes ic p oduc , 72.6 % o FDI ou -
flows, and 46.7 % o he FDI ou wa d s ock in 2022. Mo e-
o e , epa ia ed p ofi s amoun o 172.1 % o ein es ed
ea nings, implying ha o e e y dolla ea ned h ough FDI,
$0.63 a e aken ou (IMF 2024;UNCTAD 2024;Wo ld Bank
2024b). While a majo i y o g oss p ofi s, simila o FDI, a e
shi ed be ween co e coun ies, he issue’s high ele ance
comes om he une en dis ibu ion and di ec ion o ne
p o i lows: as illus a ed in Figu e 1,ne p ofi ismainly
app op ia ed om non-co e, in pa icula middle-income
coun ies and shi ed o a ew high-income coun ies. Jus
six co e coun ies cap u e 87.6 % o he o al ne amoun ,
wi h he US alone accoun ing o 41.2 % (Ne he lands 14.4 %,
Ge many 8.8 %, Japan 8.3 %, F ance 8.0 %, and UK 6.9 %).
C ucially in e ms o une en de elopmen is ha his p ofi
app op ia ion allows hem ei he o expand hei in es ible
unds ( epa ia ed p ofi s amoun o 7.5 % o hei g oss
ope a ing su plus [GOS]) and hei ac ual in es men (9.9 %
o hei g oss fixed capi al o ma ion [GFCF]) o o inc ease
he weal h o he owne s and sha eholde s o TNCs (IMF
2024;UNSD 2024;Wo ld Bank 2024b).3
The geog aphical concen a ion o ne p ofi ou flows
is less p onounced bu s ill ema kable as 30 coun ies
accoun o 84.0 % o he losses wo ld-wide. The e a e clea -
cu pa e ns ega ding he ne p ofi expo ing coun ies’
in eg a ion in o he wo ld economy, unc ionally and in
3GOS is g oss ou pu less he cos o in e media e goods and se ices
o gi e g oss alue added, and less compensa ion o employees and
axes and subsidies on p oduc ion and impo s; GFCF consis s o es-
iden p oduce s’ in es men s, deduc ing disposals, in fixed asse s and
in angible asse s (Eu os a 2024). GOS and GFCF show how much capi al
is po en ially a ailable o an economy o in es men and how much is
ac ually in es ed.
C. Pa n ei e e al.: P o i epa ia ion o Ge many —15
Figu e 1: A e age ne p o i lows pe yea in $ billion be ween 2005 and 2022 (g ey =no da a; WGS84 – EPSG 4326 p ojec ion); own illus a ion
based on IMF (2024).
e ms o hei hie a chical posi ion (Pa n ei e e al. 2024).4
The main p ofi expo ing coun ies can be classified in o
h ee g oups: fi s , p o ide s o cheap na u e, i.e. na u al
esou ces such as oil, gas, ag icul u al aw ma e ials, o es
and me als. This g oup accoun s o 44.2 % o all ne p ofi
ou flows be ween 2005 and 2022 and includes uel and gas
supplie s such as he Russian Fede a ion (8.8 %) and Nige-
ia (4.5 %), mining coun ies such as Chile (3.0 %) and Aus-
alia (2.2 %), and coun ies wi h a p onounced ag a ian
economy such as B azil (7.3 %). The second g oup o p ofi
losing coun ies a e p o ide s o cheap labo (18.1 % o all
ne ou flows), i.e. ex ended wo kbenches in eg a ed in o
global commodi y chains mainly h ough he manu ac u e
o indus ial p oduc s and low-skilled se ices. This g oup
includes Eas e n Eu opean coun ies such as he Czech
Republic (3.7 %), Poland (3.2 %), o Hunga y (1.6 %), as well
as “newly indus ialized coun ies” such as Thailand (3.6 %)
o Mexico (1.9 %). Wi h ega d o une en de elopmen , i
is impo an o no e ha he coun ies in hese wo g oups
ha e in common ha he ela ions o p oduc ion a e cha -
ac e ized by poo labo igh s, low wages and highly en i-
onmen ally damaging condi ions o esou ce ex ac ion.
Acco dingly, he p ofi s made he e exceed he “s anda d”,
because he di e ences wi h he co e coun ies a e g ea e
in e ms o wages han in e ms o p oduc i i y. This is
di e en o he hi d g oup o ne -p ofi sende s, which o
he sake o a uni o m e minology we call p o ide s o cheap
money (20.7 % o all ne ou flows). These a e ax ha ens
h ough which p ofi s (pa ly gene a ed in coun ies belong-
ing o he fi s o second g oup) a e di e ed. This g oup
consis s o well-known ax ha ens such as I eland (11.3 %) o
4No global da a a e a ailable o China.
Hong Kong (3.1 %) and o he ax- iendly ju isdic ions such
as Mal a (3.2 %) o Belgium (2.5 %).
6 Geog aphies o p o i lows
o Ge many and hei sec o al
dis ibu ion
Ge man fi ms a e s ong p ofi epa ia o s: wi h he eigh h-
la ges ou wa d s ock o FDI in he wo ld, he coun y
has he fi h-highes p ofi inflows (g oss), implying ha an
abo e-a e age amoun is shi ed back home. P ofi inflows
amoun ed o AC900 billion be ween 1990 and 2020, which
is equi alen o 1.0 % o Ge many’s g oss domes ic p od-
uc , 39.0 % o i s FDI ou flows, and 64.5 % o i s 2020 FDI
ou wa d s ock. Ge man fi ms’ epa ia ion s a egy is e en
mo e isible in ne p ofi flows: wi h a o al o AC407 billion (a
majo i y o which in he las decade), Ge many is he wo ld’s
hi d-la ges ne p ofi app op ia o , behind he US and he
Ne he lands. Acco dingly, he coun y’s epa ia ion a e
( epa ia ed p ofi s as sha e o all FDI-gene a ed income on
equi y, i.e. epa ia ed and ein es ed) is wi h 72.1 % also
well abo e he global a e age o 63.2 % (Bundesbank 2022;
2024;DeS a is 2024a;IMF 2024). These figu es a e all he
mo e ema kable gi en ha in he case o Ge many, p ofi
epa ia ion is nei he influenced by ex ao dina y e en s,
as is he case wi h he US, which had wo ax holidays in
2004 and 2017, no by he ac ha being a ax ha en (as he
Ne he lands) c ea es a special cons ella ion.
The high endency o Ge man TNCs o epa ia e p o -
i s sugges s a pa icula p ofi abili y o o eign in es men
compa ed o domes ic in es men . In ac , eal e u ns on
FDI ha e isen cons an ly since he mid-1990s and ha e
16 —C. Pa n ei e e al.: P o i epa ia ion o Ge many
become mo e p ofi able han domes ic in es men since
a ound 2008 (Hünnekes e al. 2019;Kne sch and Nagen-
gas 2017). Agains his backg ound, i is no su p ising ha
since he 1990s, Ge man fi ms a e shi ing e e mo e in es -
men ab oad (including FDI), in absolu e e ms, and, mo e
ema kably, in ela ion o domes ic in es men . Acco d-
ingly, Ge many has u ned om being Expo wel meis e
(wo ld’s leading expo e o goods) in o he wo ld’s la ges
expo e o capi al. Since 2011, Ge many’s financial accoun
shows capi al expo s o almos $3,100 billion, o 8 % o i s
g oss domes ic p oduc (Wo ld Bank 2024b).
The geog aphical pa e n o ne p ofi eflows o Ge -
many as shown in Table 1,ischa ac e izedbyahighp o-
po ion o EU coun ies (39.7 % o all ne inflows) and by
he p ominen ole o China as he mos impo an single
p ofi -sending coun y (15.9 %, excluding Hong Kong). Se -
e al hings s and ou : Fi s , economies ha on he global
le el a e ne ecipien s o p ofi s a e p ofi expo e s o
Ge many, such as G ea B i ain (9.8 %),5 he US (6.5 %) and
he Ne he lands (5.1 %). While he di e ences be ween he
global and Ge man pa e ns a e pa ly due o he di e en
geog aphical le els o analysis,6 hey can, a leas in he
cases o G ea B i ain and he US, also be explained by he
ac ha hese coun ies a e among Ge many’s mos impo -
an ade and in es men pa ne s. The Ne he lands se e
as impo an in es men loca ion, oo, hough mainly o ax
easons. Second, he high impo ance o ax ha ens and u -
he ax- iendly ju isdic ions as p ofi sende s o Ge many
is s iking. Almos a hi d o ne inflows s ems om hem,
wi h Luxembou g (9.3 %), Aus ia (6.5 %), he Ne he lands
and I eland (3.2 %) being he mos impo an ones. These
coun ies se e as loca ions o holdings h ough which Ge -
man TNCs edi ec FDI and he co esponding p o i e lows
(Min z and Weichen iede 2010;Schanz e al. 2017). Because
such owne ship chains a e used o make opaque capi al
flows, bo h ac ual FDI des ina ions and he o igins o epa-
ia ed p ofi s a e di icul o de e mine. P esumably, how-
e e , many o he p ofi s epa ia ed om ax- iendly ju is-
dic ions ac ually o igina ed elsewhe e, pa ly in he coun-
ies classified as p o ide s o cheap labo and cheap na u e
(Pa n ei e e al. 2024).
Thi dly, coun ies ha a e in eg a ed in o he global
and Eu opean di isions o labo as p o ide s o cheap labo
o manu ac u ing and he supply o low-skilled se ices
a e o c ucial impo ance o Ge man TNCs as sende s o
ne -p ofi s. This applies in pa icula o China (15.9 % o
5IMF da a e e o he UK, Bundesbank da a o G ea B i ain.
6Bila e al flows canno ma ch he o e all global pic u e because hey
a e no balanced ou by flows o o om o he coun ies.
Table 1: Top20 o igins o Ge man ne p o i in lows (1990–2020) and
sha e in o al ne in lows; own calcula ions based on Bundesbank (2022).
Coun y Ne p o i in lows Sha e in all ne
in AC billion in lows in %
China 61.7 15.9
G ea B i ain 37.9 9.8
Luxembu g 36.3 9.3
Aus ia 25.4 6.5
Uni ed S a es 25.3 6.5
Ne he lands 19.8 5.1
Russian Fede a ion 17.3 4.4
Poland 12.8 3.3
I eland 12.3 3.2
Belgium 11.7 3.0
Spain 11.6 3.0
Czech Republic 11.6 3.0
Singapo e 10.8 2.8
Hong Kong 8.0 2.1
B azil 8.0 2.1
Hunga y 7.7 2.0
Aus alia 7.3 1.9
Canada 5.9 1.5
Ko ea 5.1 1.3
Po ugal 5.0 1.3
all ne inflows), bu also o coun ies o he Eas e n and
Sou he n pe iphe y o he EU, which oge he accoun o
almos as much epa ia ed p ofi as China (12.6 %).7Wi hin
he EU, i is abo e all he o me COMECON economies
ha a e impo an p ofi sende s (e.g. Poland 3.3 % and he
Czech Republic 3.0 %). Al hough nei he China no Eas e n
o Sou he n EU coun ies a e pu e ex ended wo kbenches
wi h exclusi ely low-skilled labo , hey a e s ill low-wage
coun ies compa ed o Ge many (see below). China in pa -
icula plays an ou s anding ole o Ge man fi ms, espe-
cially in manu ac u ing, wha is illus a ed by he ac ha
jus ou Ge man TNCs accoun ed o 34.0 % o Eu opean
(he e EU +UK) ou wa d FDI o China be ween 2018 and
2021, namely he au omo i e gian s Volkswagen, Daimle ,
and BMW and he chemical fi m BASF (K a z e al. 2022).
The eno mous impo ance o China o Ge man fi ms s ems
om he high p ofi s and high p ofi eflows om he e.
P ofi e u ns om China ha e g own s eadily in he las
wo decades, o inc ease e en mo e in ecen yea s. Due
o geopoli ical ensions, Ge man TNCs began o wi hd aw
7The ac ual olume o p ofi eflows pa icula ly om Eas e n
Eu ope, is mos likely highe as Ge man TNCs o en use holding con-
s uc ions in Aus ia o go “ ea y shopping” in he Ne he lands o
e ou e FDI and p ofi s (Min z and Weichen iede 2010;Ne udo á e al.
2020).
C. Pa n ei e e al.: P o i epa ia ion o Ge many —17
a he han ein es la ge pa s o he p ofi s made. The e-
o e, p ofi e u ns om China ha e exceeded Ge man FDI
flows o China by a ac o o h ee be ween 2017 and 2020
(Bundesbank 2022;2024).
Along wi h he desi e o Ge man manu ac u ing TNCs
o ap in o he Chinese ma ke , he high p ofi s due o he
a ailabili y o cheap labo (and, as a esul , he high p ofi
epa ia ion) a e impo an easons o he high le el o
FDI in China. A e age annual wages in 2019 co esponded
o a ound a qua e o hose in Ge many (NBS 2024;OECD
2024a) and labo s anda ds a e e y poo (ITUC 2023). Fo
he coun ies o he Eu opean pe iphe y, and in pa icula
he o me COMECON economies, i is also ue ha hey
se e as a sou ce o cheap labo . In manu ac u ing, mean
nominal hou ly labo cos pe employee a e be ween 37 %
(Spain) and 59 % (Hunga y) lowe han in Ge many (in 2022,
in pu chasing powe pa i ies $; ILO 2024), and wo ke s’
igh s a e, a leas in he CEE coun ies, significan ly wo se
(ITUC 2023). Labo p oduc i i y, howe e , is, a leas in high-
ech sec o s such as he au omo i e indus y, high – Ge man
manu ac u ing fi ms can hus sou ce skilled labo a lowe
cos s han a home (Pa línek 2020). As a esul o compa able
p oduc i i y bu lowe wages, p ofi abili y (sha e o GOS
in alue added) in many FDI- ecei ing coun ies is signifi-
can ly highe han in Ge many: In China, o e all p ofi abil-
i yis1.5 imeshighe haninGe many(UNSD 2024), while
in he Eas e n EU-pe iphe y, namely in Hunga y, he Czech
Republic, and Poland, p ofi abili y in he manu ac u ing
sec o is wice as high (OECD 2024b).
The high impo ance o cheap labo p o ide s o p ofi
eflows o Ge many is also e idenced by hei sec o al dis-
ibu ion. TNCs om only h ee sec o s accoun o 87.5 %
o all p ofi inflows (2010–2020): manu ac u ing (29.9 %),
financial and insu ance ac i i ies (29.0 %), and p o essional,
scien ific and echnical ac i i ies (28.6 %).8The la e wo
sec o s also include holding fi ms, which is significan in
ha hey o en make indus ial in es men s, which a e,
howe e , conside ed o be non-indus ial “in he books”
(Bundesbank 2023). Acco dingly, he impo ance o he man-
u ac u ing sec o in p ofi eflows bo h in ela ion o o he
sec o s and o he coun ies9is e en highe han he 30 %
e iden om he da a. To pu i di e en ly: A significan
pa o he p ofi s epa ia ed o he sec o s o financial
and insu ance and o p o essional, scien ific and echnical
8F om he e on we use g oss da a o da a a ailabili y easons.
9In he US, o example, manu ac u ing accoun s o only 11.4 % o
p ofi eflows (2000–2022; BEA 2024).
ac i i ies do no come om hei o eign coun e pa s, bu
om wo ke s in manu ac u ing.10
Howe e , e en wi hou conside ing hese p ofi s made
opaque by a dis o ed p esen a ion, Ge man manu ac u ing
TNCs epa ia ed a o al o AC170.6 billion be ween 2010 and
2020, wi h a doubling o annual e u ns o e ime. Geo-
g aphically, hey epa ia ed mos p ofi s om China (29.3 %
o all epa ia ed p ofi s o manu ac u ing), om whe e
eflows g ew 4.6- old be ween 2010 and 2020. Second come
o he EU coun ies (28.3 %), wi h ax ha ens such as he
Ne he lands (7.5 %) o Luxembu g (4.3 %) being pa icula ly
p ominen , al hough hey ha e li le manu ac u ing ele-
an o Ge many. Significan p ofi eflows in manu ac u -
ing also come om he US (7.5 %), he Russian Fede a ion
(6.6 %), and G ea B i ain (4.5 %; Bundesbank 2022). Once
again, he impo ance o China as p ofi sende indica es
ha Ge man manu ac u ing TNCs seek no only sales ma -
ke s wi h hei FDI, bu also cheap labo in o de o gene a e
ex a high p ofi s o subsequen epa ia ion. Wi hin he
manu ac u ing sec o , he p oduc ion o au omobiles s ands
ou . I s o al eflows o AC70.4 billion ansla e in o 41.3 %
o he manu ac u ing sec o ’s and 12.3 % o all eflows.
Mo e han hal o hese p ofi inflows come om China
(52.7 %), which a ou s ips bo h he EU (17.9 %) and he
US (11.5 %).
7 Repa ia ed p o i s’ impac
Ou a gumen ha p ofi epa ia ion d i es une en de el-
opmen is in o med by he no ion ha he app op ia ed
and geog aphically shi ed p ofi s push economic de elop-
men in some a eas a he expense o o he s (A ighi 1990;
Ba an [1957] 1973;Ba an and Sweezy 1966;Hadjimichalis
1984). The si ua ion is somewha di e en o Ge many,
howe e , in ha i s economy has los g ound o he US,
he OECD and China since he 1990s. Key economic me ics
such as g oss domes ic p oduc (in cons an 2015 US$), g oss
domes ic p oduc pe capi a, expo s o goods and se ices
(in cu en US$) and GFCF as pe cen age o g oss domes ic
p oduc ha e been g owing mo e slowly (o , as in he case o
in es men s, dec eased) han hose o compe ing economic
powe s (Wo ld Bank 2024b). We he e o e concep ualize
10 Tha his is highly plausible is shown by a b eak-down o he
da a. When Ge man FDI a e classified acco ding o he sec o o he
in es ing fi m in Ge many, manu ac u ing would accoun o 26.8 % o
all s ocks ab oad. Howe e , when classi ying FDI acco ding o he fi ms
in he FDI-hos ing coun ies, manu ac u ing’s sha e goes up o 33.5 %
(2010–2020; Bundesbank 2024). Acco dingly, a ound a qua e o FDI in
manu ac u ing “disappea s” om he FDI accoun s.
