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IMF Working Paper
European Department
Greece’s Investment Gap1
WP/22/13
Shiqing Hua, MarÃa Méndez, and Xin Cindy Xu
Authorized for Distribution by Dennis Botman
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
Greece’s investment rate plunged following the Sovereign Debt Crisis (SDC) and remained one of the lowest in the world in 2019. This paper explores recent investment dynamics and compares them against estimated benchmarks. Our results suggest that Greece has been under-investing since the SDC, with private investment notably lagging behind. The estimated investment gap ranges from 1.6–8 percent of GDP in 2019. Structural impediments have constrained corporate investment, while business cycle and balance sheet developments have held back household investment. Structural reforms are recommended to remove bottlenecks to corporate investment, improve efficiency of public investment, and boost household investment.
| JEL Classification Numbers: | E22;H54;O16 |
| Keywords: | Investment gap, capital stock, structural reforms |
| Author’s E-Mail Address: | shua@imf.org;mmendez@imf.org;xxu2@imf.org; |
| JEL Classification Numbers: | E22;H54;O16 |
| Keywords: | Investment gap, capital stock, structural reforms |
| Author’s E-Mail Address: | shua@imf.org;mmendez@imf.org;xxu2@imf.org; |
Table of Contents
Abstract
A. Background
B. Capital Stocks and Investment: Where Does Greece Stand?
C. Is Greece Under-investing? What is the size of the Investment Gap?
D. Sectoral Drives of Investment
E. Conclusion and Policy Recommendations
Figures
1. Capital Stock and Output
2. Selected Infrastructure
3. Investment Rate
4. Investment by Industry
5. Investment by Economic Sector
6. Benchmark Investment Rates and Investment Gap
7. Determinants of the Investment Gap
8. Other Drivers of Low Business Investment
9. Drivers of Household Investment
10. Transport, ICT, & Health Infrastructure Gap
Tables
1. Estimating Benchmark Investment Rates: Three Analytical Approaches
2. Investment Gap Estimates under different Model Specifications
Appendix
I. Investment Gap Estimations
References
Ritzy Dumo and Daniel Murphy Pineda provided assistance. The paper benefitted from comments from Dimitris Malliaropulos, Marianthi Anastasatou, and Filippos Petroulakis (all BoG) and the Greek Council of Economic Advisers.