An analysis of key sectors of economic growth in Greece: A VAR testing approach

Abstract

The purpose of the study is to examine the relationship that exists between tourism, money supply and construction, on the one hand, and the economic growth in Greece, using a multivariate autoregressive model VAR. The long-term relation based on the Cointegration test results has shown the existence of a long run relation despite the prolonged economic recession. The analysis was carried out for the period from 1965 to 2015. The empirical results show that the economy of Greece can recover and return to long run equilibrium with a speed of adjustment reaching 3,60 % per year. The global economic crisis has undoubtedly affected the Greek economy. Long before the onset of the economic crisis, Greece applied a model of economic growth that relied on the growth of the manufacturing sector. In particular, the development of the construction sector was the engine of the Greek economy. However, through our analysis, it turns out that the engine for the development of the Greek economy is tourism rather than construction. The relationship between construction and the supply of money in Greece’s GDP is positive. However, the dynamics of the tourism industry stand out in comparison to the other areas examined.