After outlining a fairly simple analytical framework for the examination of Greek imports in the previous post, the next logical step is to use that to look into exports and imports developments in the periphery and Germany. Calculating the corresponding imports/exports penetration and price changes yields the following results (imports and exports are for the goods category):
Since the penetration change is derived by comparing the volume change of trade (exports or imports) with GDP, it can be considered a measure of relative incomes. If GDP increases faster than exports then, if the exports and GDP deflator change by the same amount, the exports share will decrease. A few key observations by country:
- Germany: Germany was clearly able to increase its export penetration significantly compared to imports in the Euro period. This happened although its terms of trade worsened considerable, especially compared to the pre-Euro period. This pattern points to different growth rates of relative incomes between Germany and its trading partners, something evident in its stagnant internal demand.
- Greece: Greek terms of trade were roughly steady during the whole of 1992 – 2008 period, an observation quite contrary to the fall in competitiveness story (although it is the only country where export prices did not fall). The trade deterioration can be explained completely by exports – imports penetration, due most probably to higher income growth in Greece. That would suggest that any correction would be ‘automatic’ as long as the income growth fell closer to European levels.
- Spain: Spain shows a picture similar to Greece. Its terms of trade were rather constant while its exports – imports penetration figures basically reversed sign betwen 1992 – 1999 and 2000 – 2008. The credit/housing boom probably accounts for that.
- Italy does not really show any clear pattern. It did not lose in volume during the Euro period while it gained considerably in prices (the largest improvement in the sample equal to -13.9%).
- Portugal: Portugal is a peculiar case. Patterns between 1992 – 1999 and 2000 – 2008 are roughly the opposite. It improved its terms of trade (and lost volume) in the first period while the reverse happened in the Euro era.
Overall, each country has its own story to tell and no common explanation is relevant for all cases.