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Economic Growth in Greece: Past Performance and Future Prospects

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  • Bosworth, Barry
  • Kollintzas, Tryphon

Abstract

This Paper examines the past growth performance of the Greek economy and examines the outlook for future growth in light of the macroeconomic stabilization that was achieved over the last half of the 1990s and following Greece's admission to the Euro currency zone. The Greek economy performed very poorly over the quarter century from 1970 to 1995, during which it was the poorest country in the European Union. We develop a set of growth accounts that attribute part of the deteriorating performance to a falloff in capital formation, but the most dramatic factor is a sharp deterioration in multi-factor productivity, or the efficiency of the economy. Part of the explanation lies with the collapse of macroeconomic policy that took the form of large fiscal deficits and very high rates of inflation; but the Greek economy also fares poorly in other dimensions of its economic institutions, such as competitiveness of its tradable goods sectors, a highly constrained labor market, and a reputation as an unattractive market for foreign capital. Over the last half of the 1990s, Greece undertook a successful program to restore fiscal and monetary stability – by the end of 2000, it had qualified for admission to the Euro currency system. The restoration of rational macroeconomic policies also led to an improvement in economic growth to the extent that Greece matched the performance of the rest of the EU over the 1995-2000 period. It also appears that these growth rates are sustainable and consistent with current rates of capital accumulation. The next step would be for Greece to attain an accelerated path of growth that would allow it to catch up with the rest of EU in future years, following perhaps the experience of Ireland. We conclude, however, that Greece still lacks a strategy to achieve a further acceleration of growth. It lacks a strong export sector comparable to that of Ireland; and, while it continues to be an unattractive destination for foreign direct investment, domestic rates of saving are insufficient to finance higher rates of capital investment. It needs to institute a faster past of reform of domestic economic institutions if it hopes to promote innovation and entrepreneurship.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2852.

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Date of creation: Jun 2001
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Handle: RePEc:cpr:ceprdp:2852

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Keywords: economic institutions; Greek economy; reforms; structural funds package;

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References

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  1. Susan M. Collins & Barry P. Bosworth, 1996. "Economic Growth in East Asia: Accumulation versus Assimilation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 135-204.
  2. Tsakalotos, Euclid, 1998. "The Political Economy of Social Democratic Economic Policies: The Pasok Experiment in Greece," Oxford Review of Economic Policy, Oxford University Press, vol. 14(1), pages 114-38, Spring.
  3. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  4. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
  5. Barro, Robert J. & Lee, Jong-Wha, 1994. "Sources of economic growth," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 1-46, June.
  6. Kollintzas, Tryphon & Vassilatos, Vanghelis, 2000. "A small open economy model with transaction costs in foreign capital," European Economic Review, Elsevier, vol. 44(8), pages 1515-1541, August.
  7. Dimitri G. Demekas & Zenon Kontolemis G., 1996. "Unemployment in Greece," IMF Working Papers 96/91, International Monetary Fund.
  8. Eichengreen, Barry, 1994. "Institutions and Economic Growth: Europe After World War II," CEPR Discussion Papers 973, C.E.P.R. Discussion Papers.
  9. Koedijk, C.G. & Kremers, J., 1996. "Market opening, regulation and growth in Europe," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3108676, Tilburg University.
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Cited by:
  1. Dimitrios P. Louzis & Aggelos T. Vouldis & Vasilios L. Metaxas, 2010. "Macroeconomic and bank-specific determinants of non-performing loans in Greece: a comparative study of mortgage, business and consumer loan portfolios," Working Papers 118, Bank of Greece.
  2. Gogos, Stylianos G. & Mylonidis, Nikolaos & Papageorgiou, Dimitris & Vassilatos, Vanghelis, 2014. "1979–2001: A Greek great depression through the lens of neoclassical growth theory," Economic Modelling, Elsevier, vol. 36(C), pages 316-331.
  3. Neumann, Michael, 2006. "Do Larger Nations Have Higher Unemployment Rates?," Wirtschaftswissenschaftliche Beiträge 85, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
  4. Bitros, George C., 2012. "From Riches to Rags or What Went Wrong in Greece," MPRA Paper 43504, University Library of Munich, Germany.
  5. Michaelides, Panayotis G. & Papageorgiou, Theofanis & Vouldis, Angelos T., 2013. "Business cycles and economic crisis in Greece (1960–2011): A long run equilibrium analysis in the Eurozone," Economic Modelling, Elsevier, vol. 31(C), pages 804-816.
  6. Antonopoulos, Christos & Sakellaris, Plutarchos, 2009. "The contribution of Information and Communication Technology investments to Greek economic growth: An analytical growth accounting framework," Information Economics and Policy, Elsevier, vol. 21(3), pages 171-191, August.
  7. Athena Belegri-Roboli & Aggeliki Demertzi & Maria Markaki & Panayotis Michaelides, 2011. "An Input-Output Analysis of Environmental Effects of Infrastructure Investments in the Greek Economy: The Case of - Attiki Odos - motorway (refereed paper)," ERSA conference papers ersa10p481, European Regional Science Association.

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