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The Challenge of Trade Adjustment in Greece

39 Pages Posted: 12 Nov 2015  

Costas Arkolakis

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Aristos Doxiadis

OpenFund

Manolis Galenianos

Royal Holloway, University of London

Date Written: November 12, 2015

Abstract

Greece’s trade deficit declined by 10% of 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%, rather than drop by 5% 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. We find 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

JEL Classification: A00, F00

Suggested Citation

Arkolakis, Costas and Doxiadis, Aristos and Galenianos, Manolis, The Challenge of Trade Adjustment in Greece (November 12, 2015). Available at SSRN: https://ssrn.com/abstract=2689545 or http://dx.doi.org/10.2139/ssrn.2689545

Costas Arkolakis

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8264
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Aristos Doxiadis

OpenFund ( email )

Greece

Manolis Galenianos (Contact Author)

Royal Holloway, University of London ( email )

Horton Building
Department of Economics
Egham, Surrey TW20 0EX
United Kingdom

HOME PAGE: http://https://sites.google.com/site/galenian/

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