A four-sector macroeconometric model for Greece and the evaluation of the community support framework 1994–1999

Abstract

This paper describes a macroeconometric model for Greece and its use for the evaluation of the effects that investment inflows from European Union in the form of the Community Support Framework (CSF) might have on the economy. The model consists of four sectors of economic activity, namely those of traded and non-traded goods, the public and agricultural sectors, and includes a detailed system of price formation, wage setting and public finances. The model is subjected to a number of stylised shocks in domestic and international variables, so that the dynamic properties and multipliers can be analysed. The evaluation of likely CSF effects is conducted by first constructing a benchmark forecast until 2010 and then assess the impact of CSF actions. CSF flows cause both a rise in total demand and in domestic supply through positive supply-side externalities and the evaluation distinguishes between a very low and a full degree of utilising the plausible opportunities. The universal conclusion is that, in the absence of externalities, CSF actions produce only a temporary rise in activity and employment. After the period of inflows expires, the economy will return to the course that would have been the case without the funds. However, if externalities are assumed to operate even at a moderate scale, the picture changes starkly: output, productivity, employment and the exporting capacity of the country improve significantly.