The Challenge of Trade Adjustment in Greece
The Challenge of Trade Adjustment in Greece
Greece's trade deficit declined by 10 percent of gross domestic product (GDP) between 2007 and 2012, removing one of the great economic imbalances of the pre-crisis years. However, this reduction was achieved exclusively through import compression while exports fell over that period, thereby worsening the economic crisis. This chapter studies Greece's export underperformance in comparison to Ireland, Portugal and Spain as well as Greece's own pre-crisis experience. The main findings are that (1) given past performance, Greece's exports should have increased by 25 percent, rather than drop by 5 percent between 2007 and 2012; (2) labor markets have adjusted to the new economic environment; (3) product markets did not adjust, hindering the recovery of competitiveness; (4) export underperformance is responsible for a third of the decline in GDP since 2007. The chapter concludes that the business environment and firm size distribution in Greece are also hindering the necessary adjustment.
Keywords: trade adjustment, export growth, price rigidity, firm size, gross domestic product
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