piraeus bank group


Structural Reforms, Competitiveness and Greek Exports 2010-2017

One of the key debates throughout the Greek crisis period has been the need to transform the structure of the Greek economy from a closed, consumption-based type to a dynamic, export-oriented one. In order to achieve that, a series of structural reforms were introduced, specifically at the early stages (i.e., 2010-2014) of the economic adjustment programme. These reforms targeted the improvement of both the cost and non-cost competitiveness of the Greek economy and tried to accelerate the reallocation of resources (both labour and capital) to export-oriented sectors of the economic activity.

In retrospect, Greek merchandise exports did increase from 6.7% of the GDP in 2010 to 10.7% of the GDP in 2017, allowing all parties involved to claim victory in Greece’s attempt to adopt an export-led model of economic development. Yet, despite the increased focus on the performance of Greek merchandise exports, very little analysis has been conducted on the drivers of Greek external trade performance, especially on the effectiveness of this concerted effort that took place between 2010 and 2014 to improve the Greek export competitiveness.

Despite popular belief, not all increases in a country’s exports are related to improved competitiveness. Furthermore, in a totally counterintuitive way, increased competitiveness may not always translate to improved exports when other factors are pushing external trade “the wrong way”.  For these reasons, it is very important to have a well-specified taxonomy of the factors that affect external trade, their relative effect and how this changes through time.

In reality, for a small economy such as Greece, a large part of its exports move in tandem with the ebbs and flows of global trade. So, the first effect that should be investigated is the “Global effect”. Furthermore, the structure of each country’s exporting goods (of high or low technology) and destination (according to regional or income criteria) also affect changes in export market shares. If, by design or accident, you happen to export goods to countries that grow faster than average or you export goods for which demand grows faster than average, then your export growth will accelerate but for reasons unrelated to your competitiveness. The combination of the bundle of exported products and the mix of trading partners comprise the so-called “Structure effect”.

Finally, once you account for changes in global trade and the geographical, income and technological level of your exports bundle, the remaining change can be attributed to positive or negative changes in competitiveness or, more formally, to the “Competitiveness effect”.

The evolution of Greek exports and, subsequently, the changes in the Greek export market shares during the period of the Greek Economic Crisis has been anything but smooth and linear. In terms of value (expressed in US dollars), the change has been trivial—from $20.1bn in 2010 to $21.7bn in 2017. Yet, given the sharp decline in Greek output over the period, as a percentage of GDP, the exports increased from 6.7% of the GDP to 10.7% of the GDP. Even more volatile has been the intra-period evolution of exports with years of both very strong (i.e., 2011) and very weak (i.e., 2015) performance.

This volatility makes any assessment of the exporting performance of the Greek economy and of the structural measures that have been introduced to assist its exporting performance, extremely difficult and subjective.

Our results provide some unexpected and counterintuitive conclusions about both the ability of the Greek economy to export, as well as the factors driving this export performance. As such, they also serve as a word of caution against any stereotypical analysis and “back of the envelope” judgment of Greece’s exporting ability.

More specifically, our results indicate that the strong export performance of the first period was the result of an extremely favourable global economic environment. The period of 2010-2014 was a period of speedy recovery of the global economy from the Great Financial Crisis of 2008-2009, supported by expansionary monetary and fiscal policies in China and the US. As a result, the “Global effect” proved to be a major tailwind for Greek exports. In fact, if Greece was exporting the “typical” bundle of goods, the “Global effect” alone would have allowed Greek exports to have grown 3.2 times more than what they actually grew.

The reason why Greece underperformed versus the world can be attributed to:

  1. the “structure effect”, or the fact that we trade with Europe & Central Asia area which underperformed, and the fact that our exported resource-based manufactured products and primary goods also lagged behind other product categories; and
  2. the  negative contribution of the “Competitiveness effect”.

On the contrary, the stagnation of the second period was actually a rather good result, given the negative impact of the “Global effect” due to increased worries about protectionism and deglobalisation. Furthermore, the economic performance of our main trading partners continued to lag that of global growth and, of course, the mix of our exporting goods is difficult to change in the short-run. So, the “Structure effect” also had a negative impact on Greek exports. Against that, the “Competitiveness effect” made a positive contribution to the total change in Greek exports between 6 and 9 times the level of its realized exports over the relevant period.