Domestic demand and global production in the Eurozone: A multi-regional input-output assessment of the global crisis

This paper studies the effects of domestic and foreign demand impulses in euro area economies following the Great Recession of 2008–2009 and the Eurozone crisis of 2011-2012. Using a global Input-Output framework we apply a set of metrics to assess spillover effects of international trade in intermediates triggered by the dynamics of final demand. Our findings suggest that while cross-country trade spillovers have played a crucial role during the Great Recession, they have had a moderate impact when compared with the role of domestic sources of final demand during the Eurozone crisis. Hence, a strategy of coordinated fiscal austerity cannot be sustained by empirical evidence.