The misallocation of resources has cost the Greek economy dearly, as the International Monetary Fund emphasizes in a new report, even speaking of significant missed opportunities.
As it points out, the main cause of Greece’s low productivity – the economy’s great thorn – is not a lack of resources but their misallocation, which has significantly limited growth.
The report notes that since the debt crisis in the 2010s, and amid major deleveraging and low investment, the productivity growth of the Greek economy has remained stagnant, while in the eurozone total productivity increased by 9.7% in the same period. The main reason for the sluggish productivity growth in Greece is the incorrect distribution of resources, the IMF says.
During this period, Greece has implemented many reforms to improve the efficiency of the economy, but the actual impact of these reforms on productivity has been mixed. Surveys show that the proportion of businesses citing the regulatory environment in Greece as a major obstacle to investment is among the highest in the EU, while empirical evidence from the IMF points to incomplete product market reforms. “Most importantly, overall productivity in Greece is still about 10% lower than in 2009,” the Fund notes.
The IMF examines data on Greek businesses and finds that resource misallocation worsened from 2009 to 2020, particularly in non-tradable services – namely construction, professional services, and food and accommodation – and among smaller businesses. According to the Fund’s findings, resources have not been directed to more productive companies.
At the same time, while a significant number of firms have become more productive and many new, high-potential companies have entered the market, they have not grown fast enough to increase the productivity of the entire economy. This is also due to the lack of bank credit, while many firms may choose to remain small, as their growth requires more control from regulators.
As the IMF concludes, despite the bold reforms implemented, regulatory burdens continue to weigh on firms’ decisions to invest and productivity growth has stagnated over the past 15 years, obstructing growth. This excessive regulation undermines competitiveness and hinders the efficient allocation of resources, leading to a significant shadow economy.