Executive Summary

The Internationalisation Monitor describes trends in internationalisation and the consequences thereof for the Dutch economy and society. It is published quarterly as part of the Globalisation programme at Statistics Netherlands (CBS), which is commissioned by the Dutch Ministry of Foreign Affairs. In this edition of the Internationalisation Monitor, we focus on the economic relations between Germany and the Netherlands with respect to trade, the characteristics of existing and starting exporters to Germany, export-induced earnings and employment, direct investments, the establishment of new enterprises and the mobility of people who live, work and study across the border.

Germany and the Netherlands have closely linked economies. The two countries are mutually important trading partners in goods as well as service trade. Bilateral exports, in turn, generate value added and employment through direct exports and via indirect exports to other countries. Exports, however, vary by industry, location and export duration. The strong link between Germany and the Netherlands is also evident from the bilateral direct investments, multinationals, enterprise births and takeovers. Aside from these links between Dutch and German companies, there is also cross-border mobility of people who work, live and/or study on the other side.

Listed below are some of the main findings presented in this edition:

Economic profile of Germany

• Germany is the world’s fourth largest economy, the Netherlands is the 17^th largest. The German economy recovered much faster from the 2008 financial crisis than the Dutch.
• Germany and the Netherlands are different in their economic structure. Whereas in Germany in 2018, the service sector accounted for 69 percent of the economy, this was 78 percent in the Netherlands. On the other hand, the manufacturing sector constituted 30 percent of the German economy, versus only 20 percent in the Netherlands.
• Germany is the world’s third largest exporter of goods as well as services.
• Worldwide, Germany ranks fifth in terms of outward foreign direct investment (FDI) stock and seventh in terms of inward FDI. The Netherlands ranks second in outward FDI stock and fourth in inward FDI.
• Germany’s expenditure on research and development in the period 2005–2017 amounted to an average 2.9 percent of GDP; for the Netherlands this was 2.0 percent.

Chapter 1: Trends in bilateral trade with Germany

• The Netherlands is an important trade partner for Germany. It is the second largest foreign supplier of goods to Germany and the fourth largest destination for German goods exports.
• The trade in goods between the Netherlands and Germany is unevenly distributed over the various German federal states. North Rhine-Westphalia, Baden-Württemberg, Lower Saxony and Bavaria receive more than three-quarters of all Dutch goods exports and supply more than 70 percent of all Dutch imports from Germany. North Rhine-Westphalia has the largest share in Dutch exports to Germany (30 percent), however, this share has declined since 2002. On the other hand, the share of Baden-Württemberg increased by 8.2 percentage points over the period 2002–2018.
• Germany is also an important trade partner for the Netherlands. It is by far the largest export destination for Dutch goods and also the most important country of origin for Dutch imports. In 2018, 22.7 percent of Dutch exports had a German destination and 17.6 percent of Dutch goods imports came from Germany. However, in recent years the German share in Dutch exports and imports has declined slightly. In 2018, the Netherlands’ surplus in bilateral goods trade with Germany stood at +35.4 billion euros.
• In 2018, Dutch exports of goods to Germany amounted to almost 113 billion euros, of which 59 billion consisted of re-exports. The province of Zuid-Holland exports the most goods to Germany; more than half are re-exports. The same holds true for Noord-Holland and Utrecht. Between 2008 and 2018, the share of domestically produced exports from the Netherlands to Germany declined by 4.2 percentage points and the share of re-exports increased by 1.3 percentage points.
• As for services, Germany is also a major trade partner for the Netherlands. Germany received the largest share of Dutch service exports and is the second largest supplier of services to the Netherlands. In 2018, the Netherlands’ surplus in bilateral service trade with Germany amounted to +4 billion euros.
• Part of the Dutch exports to Germany is transported by road. One-third of the 137 million tonnes of weight carried to Germany by road, inland waterway or railway in 2018 was carried by lorries. More than 40 percent of the cargo had North Rhine-Westphalia as its destination. The further the destination, the more energy efficient the lorries are.
• In Germany, more than 1.7 million employees work in the high-tech sector, of which more than 1 million in North Rhine-Westphalia, Baden-Württemberg, Lower Saxony and Bavaria. In the Netherlands, only 300 thousand employees are active in the high-tech sector.
• Of all German federal states, Baden-Württemberg invests the most in research and development per inhabitant.

Chapter 2: Which companies export to Germany and who are the entrepreneurs behind these companies?

• The number of Dutch companies exporting to Germany is increasing each year. There were nearly 50 thousand goods exporters trading with Germany (in 2018) and over 30 thousand service exporters trading with Germany (in 2017). In addition, over 8 thousand Dutch companies exported both goods and services to Germany (in 2017).
• The median export value of companies with exports in goods or services to Germany is typically higher than that of companies that do not export to Germany. Companies exporting to Germany are relatively often large enterprises (at least 250 employed persons), which explains the high median export value of these companies.
• Relatively many goods exporters trading with Germany are located along the border with Germany.
• In goods exports to Germany, nearly 35 thousand companies are structural exporters, i.e. they exported to Germany in three out of the last four years. This group makes up 47 percent of all goods exporters to Germany. There are around 19 thousand structural service exporters, representing 35 percent of all service exporters to Germany. We have also identified around 40 thousand occasional goods exporters, i.e. they exported to Germany for a minimum of one and a maximum of two years over the period 2015–2018, and almost 35 thousand occasional service exporters.
• Over 90 percent of the value of goods exports to Germany is generated by structural exporters. For service exporters to Germany, this is over 80 percent.
• Over 10 thousand companies which started exporting goods to Germany in 2018 had no exports to Germany over the previous two years. These companies as well are mainly located along the border with Germany and mostly micro-enterprises (less than 10 employed persons). The largest sector in which they are active is wholesale and retail trade, with almost 4 thousand companies exporting to Germany for the first time in 2018.
• Most starting exporters to Germany are entrepreneurs aged between 46 and 65 years. In 2018, there were 2,455 starting exporters to Germany with a female entrepreneur. Three percent of the starting exporters to Germany had an entrepreneur of German origin.

Chapter 3: Dutch-German trade in global value chains

• In 2018, the value added generated by the Dutch economy as a result of goods and services exports to Germany stood at around 50.3 bn euros, equivalent to 19 percent of total Dutch export earnings and accounting for slightly over 6.5 percent of the Dutch gross domestic product. This makes Germany not only the most important export partner in terms of gross export value, but also in terms of export revenue.
• Most of the revenue from exports to Germany is generated from the exports of Dutch domestically produced goods (23.8 bn euros), followed by exports of services (17.6bn euros) and earnings from re-exports (8.9 bn euros).
• In 2018, a large share of earnings from exports to Germany was generated in wholesale trade, followed by agriculture and holdings and management consultancy activities. Looking specifically at manufacturing industries, the chemical industry and the food industry generated the highest revenue from exporting activities to Germany.
• In 2018, 470 thousand full-time equivalent jobs (FTEs) were related to export activities from the Netherlands to Germany, which takes up 20 percent of total export-related employment in the Netherlands. Of these FTEs, 203 thousand were related to domestic exports, 82 thousand FTEs to re-exports and 185 thousand FTEs to exports of services. The male/female ratio in employment due to export activities to Germany was 70/30.
• Besides direct exports to Germany, the Netherlands also earns from exports to Germany via other countries, in which Dutch intermediate goods and supporting services are further processed and used in the exports of these other countries, with Germany as the final destination. As such, the Netherlands earned 6.1 bn euros from indirect exports to Germany in 2016. In the same year, the Netherlands earned 45.1 bn euros from direct and indirect exports to Germany, which is 6.7 percent of the Dutch GDP.
• Approximately three-quarters of the entire Dutch export earnings in trade with Germany are due to final consumption expenditure in Germany. The remainder of the export earnings result from intermediate goods and supporting services that were used as inputs in the production of German exports. 63 percent of these German exports with Dutch inputs are eventually consumed in markets outside the European Union. The UK, France and China are the main final destinations of these German exports with Dutch inputs.
• Germany earns less from exports to the Netherlands than the other way around. In 2016, total revenues from German exports to the Netherlands amounted to 32.6 bn euros. This is 12.6 bn euros less than what the Netherlands earned from exports to Germany in the same year. Direct and indirect exports to the Netherlands account for 1.1 percent of the German GDP.
• Around 70 percent of German export revenue to the Netherlands in 2016 was due to Dutch final expenditures. The remaining export revenue was due to the incorporation of German value added in Dutch exported goods and services. The main final destination of these Dutch goods and services with German inputs was Germany itself, followed by the United Kingdom and the United States.

Chapter 4: Bilateral investments, multinationals, enterprise births and takeovers

• The Netherlands was the second most important outward investor in 2018, preceded only by the United States. With regard to inward FDI, the Netherlands ranked fourth after the United States, China and the United Kingdom.
• Germany is also a major investor worldwide. In 2018, it ranked seventh in terms of inward FDI and fifth in terms of outward FDI. In terms of outward FDI, even larger investors are the United States, the Netherlands, China and the UK.
• Apart from investment through Special Purpose Vehicles, Germany is the fifth largest investor in the Netherlands with 116 bn euros in direct investments. Only the UK, Luxembourg, the US and Switzerland were larger investors in 2018.
• Vice versa, Germany is the fourth largest destination for the Netherlands’ outward FDI apart from investments through SPVs. The US is the largest recipient of Dutch FDI, followed by Switzerland and the UK.
• North Rhine-Westphalia is the largest investor among all German federal states. In 2017, this state had more than 267 billion euros worth of investment abroad, of which around 35 billion in the Netherlands. The Netherlands received the highest total amount of investment from Bavaria, namely 45 billion.
• North Rhine-Westphalia was also the largest recipient of Dutch outward FDI in 2017. In 2017, this state had 173 billion euros in inward investment, of which 30 billion came from the Netherlands. In relative terms, Bremen is the state receiving the largest amount of FDI from the Netherlands. Approximately 72 percent of all inward FDI in Bremen comes from the Netherlands.
• In 2017, there were around 13.5 thousand foreign multinationals in the Dutch business economy, of which 2,200 were German-owned, i.e. approximately 16 percent of all foreign-owned multinationals in the Netherlands. US-owned multinationals are even more prevalent in the Netherlands.
• Over 40 percent of the German multinationals in the Dutch business economy are active in wholesale trade (880 enterprises). A distant second is the retail trade sector (130 enterprises). German multinationals are better represented in these two sectors than any other foreign multinational.
• German multinationals employ approximately 155 thousand people in the Netherlands, which comes down to 15 percent of all employment at foreign multinationals.
• Most German enterprise births occur in the sectors of wholesale and retail trade.
• Inflow of personnel in newly born German enterprises is often from other foreign enterprises in the Netherlands.

Chapter 5: Cross-border mobility of people

• In 2018, more than 17 thousand migrants moved from Germany to the Netherlands, while nearly 14 thousand people left the Netherlands to settle in Germany.
• At the start of 2019, around 77 thousand people of German nationality were residing in the Netherlands. A large part were living in the neighbouring province of Limburg, but also the provinces of Noord-Holland and Zuid-Holland are popular destinations among German migrants.
• Considerably more Dutch nationals live in Germany than vice versa. At the beginning of 2019, around 151 thousand migrants of Dutch nationality were residing in Germany. Many Dutch people live in the neighbouring states of North Rhine-Westphalia and Lower Saxony.
• The German and Dutch labour markets are not very different in terms of labour market participation and unemployment rates. However, there are differences regarding the flexibility of the labour market: there are relatively many self-employed persons and temporary employment contracts in the Netherlands. Working part-time is also considerably more common.
• The total number of cross-border workers in the Netherlands coming in from Germany stood at around 40 thousand in 2017, including around 17 thousand Dutch nationals, around 14 thousand German nationals and around 9 thousand other nationals. The number of people commuting from the Netherlands to Germany for work is considerably lower than vice versa, due to greater flexibility of the Dutch labour market and more favourable living conditions in Germany.
• Compared to all employees in the Netherlands, German cross-border workers are less likely to work in the sector of government, healthcare and culture, but are found more often in the business services sector. In 2017, approximately one-third of the German cross-border workers were working in the business services sector.
• German labour migrants in the Netherlands are people of German nationality who live and work in the Netherlands. Incoming cross-border workers from Germany are employees in the Netherlands who live in Germany. They may be German but also Dutch or other nationals of other countries.
• The majority of international students in Dutch higher education come from Germany. These 22.6 thousand German students make up more than a quarter of the total number of international students in the Netherlands. Most German students are enrolled in Dutch higher education institutions along the border with Germany.
• In the 2018/’19 academic year, there were 1.7 thousand students with the Dutch nationality who followed an entire educational programme in Germany but had not completed their prior education there. The majority are studying in the adjacent state of North Rhine-Westphalia.