Competitiveness and the external trade performance of Greece in the 1990s: a cross-sectoral investigation.

Abstract

We examine Greece’s external trade following accession to the EU, placing particular emphasis on the 1990s. A large part of our analysis is based on unpublished, disaggregated data sets. Our main findings are: (i) in the 1990s Greece sustained heavy competitiveness losses in those sectors where she traditionally held a comparative advantage; (ii) Greek trade becomes increasingly intra-industry, especially in those sectors where Greece holds a comparative advantage; (iii) regarding imports, EU participation has caused mutually offsetting, stable over time, trade creation for the EU and trade diversion for third countries; (iv) EU participation has not boosted Greek exports. A negative structural break in exports to the Netherlands and Germany (Greece’s most important exporting market) has occurred in the 1990s (v) Demand for Greek exports is highly sensitive to movements of the real exchange rate and presents high income-elasticity. Hence, the deterioration of Greece’s trade deficit in the 1990s is related to the strong-drachma policy and unfavourable external conditions. Overall, our findings indicate that the real sector of the Greek economy has not yet closed the performance gap dividing it from the EMU’s hard core. JEL Classification: F02, F10, F15 Keywords: Greece, EU, trade, competitiveness, 1990s. We would like to thank Christos Ioannidis, Yannis Georgellis and Kul Luintel for useful suggestions and comments. The usual disclaimer applies. *Corresponding author: Michael Arghyrou, Department of Economics and Finance, Brunel University, Uxbridge, London, UB8 3PH; United Kingdom. – e-mail: Michael.Arghyrou@brunel.ac.uk