The article introduces a decomposition of trade flows that allows to measure expenditure-growth effects (changes in domestic and foreign final demand) and expenditure-switching effects (changes in the allocation of demand across domestic and foreign producers). The decomposition is applied to 11 euro members 1990-2013. Most countries, including Germany, recorded unfavorable expenditure-switching effects (demand shifted from domestic to foreign producers); expenditure switching was most unfavorable in Finland, France, and Italy. There is no correlation between unit labor cost growth and expenditure switching.
Schröder, E. (2016) Euro Area Imbalances: Measuring the Contribution of Expenditure Growth and Expenditure Switching. Working Paper No. 1604, New School for Social Research, Department of Economics.