OECD Economic Surveys: Greece 2018

OECD

• Publisher: OECD
• Year: 2018
• eBook ISBN: 9789264292567
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Thematic chapters

Chapter 1. Boosting investment

Aggregate investment has declined markedly over the crisis and has yet to recover. Reviving domestic and foreign investment is crucial to supporting the economic recovery, deepen Greece’s integration into global value chains and raising living standards. This will hinge primarily on improving the business environment by lifting barriers to product market competition and enhancing the quality of regulation. Other key policies involve fully implementing the recent insolvency reforms, building an innovation system, overcoming problems in the banking sector and enhancing the quality of public investment through a long-term strategy.

Note by Turkey:

The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union:

The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

The collapse in investment during the crisis has reduced Greece’s stock of productive capital. The fall in the productive capital stock is one of the main factors, along with lower total factor productivity (TFP), behind weak potential output growth. Potential GDP growth started declining in the early 2000s, due to diminishing TFP and employment growth (Figure 1.1 – Panel A). The collapse of investment in the wake of the crisis has been such that the productive stock capital is now shrinking as the capital’s deprecation rate exceeds the investment rate, dragging down potential GDP growth. Weak capital accumulation is also holding back labour productivity growth, hurting living standards (Figure 1.1 – Panel B).

Figure 1.1. Low investment is dragging potential output and labour productivity growth

Source: OECD (2018), OECD Economic Outlook: Statistics and Projections (database).

StatLink http://dx.doi.org/10.1787/888933713973

In Greece the fall in real investment was larger and more prolonged than in other euro area countries. This large fall is attributable to both residential and non-residential investment (Figure 1.2). In 2017 non-residential real investment was 35% below its 2003-07 average while residential real investment was about 90% below it. The marked drop in residential investment reflects the disproportionate role it traditionally had in the Greek economy. Though Greece did not experience a housing boom in the years immediately preceding the crisis, residential investment (as a share of GDP) had been consistently higher than in most OECD countries for several decades before the crisis. Housing investment accounted for about half of total investment between 1995 and 2007, a much larger share than in other EU countries. The deep rooted perception of housing as a safe asset and the dearth of alternative investment opportunities in productive activities have contributed to this phenomenon, curbing the growth of the productive capital stock and productivity.

Figure 1.2. Investment dropped more than elsewhere

1. Real gross fixed capital formation.

2. Includes Euro area countries that are OECD members.

Source: OECD (2018), OECD Economic Outlook: Statistics and Projections (database).

StatLink http://dx.doi.org/10.1787/888933713992

Greece also lags in investment in knowledge-based capital (KBC) including software and databases, new product development and organisational capital (Figure 1.3). In OECD countries, KBC accounts for up to a third of labour productivity growth and in some countries it has outpaced investment in physical capital (Andrews and Criscuolo, 2013; Corrado et al., 2012; Roth and Thum, 2013). Investment in KBC components, such as business processes and organisational capital, significantly contribute to productivity growth in many service industries (Dabla-Noris et al., 2015). Also, for a given level of research and development (R&D) expenditure, manufacturing companies investing heavily in software generate more patents (Branstetter et al., 2015).

Figure 1.3. Business investment in fixed and knowledge-based capital (KBC) is low

% of business sectors’ gross valued added, 2013

Note: KBC comprises computerised information, like software and databases; innovative property, including research and development (R&D) and new product development in financial services (among other things); and economic competencies, including firms’ human and structural resources such as firm-specific training, brand equity, and organisational capital.

Source: OECD (2015), OECD Science, Technology and Industry Scoreboard 2015: Innovation for growth and society.

StatLink http://dx.doi.org/10.1787/888933714011

Greece faces several barriers to raise investment. A recent survey by the European Investment Bank (EIB, 2017) reports that the high level of uncertainty, complex business regulation and taxation, lack of finance and energy costs are the most significant obstacles to raise corporate investment (Figure 1.4). Also, Greek firms report more often ...

Table of contents

• Title page
• Legal and rights
• Introduction
• Executive summary
• Assessment and recommendations
• Annex Progress in structural reforms
• Thematic chapters
• About the OECD