Why hasn’t investment picked up in Greece?

One statistic showed that between 2010 and 2016, Greece was the only country in the OECD to display negative productivity growth. This can be attributed to a factor in the Solow growth model- Fixed Capital formation, or investment.

Since 2008, Fixed Capital formation, or investment has nearly halved, as businesses have invested less, further hampering their competitiveness. Until 2018, greece’s FDI had been under the EU average, being below 2% of GDP until 2019. Greece has seen negligible growth in FDI since 2008.

This is in part due to high corporate taxes, which were until recently, among the highest in the EU. These high taxes combined with a lengthy bureaucracy has disincentivized the setting up of business.

Also, the instability of the Greek economy, whether it be due to protests, referendums on bailouts or being the first developed country to default on its IMF debt, acts as a catalyst to deter businesses from investing and has done so for the best part of the decade.

Another factor complementing investments, is savings. Savings are vital for economic activity as they help in increasing the capital stock. Savings can also be a proxy for investment, that is, one person’s savings can be used as capital for another person’s business.

Greece though, is plagued with the lowest savings rate in the EU. It was the only country in the EU to record a negative savings rate for the whole of the 2010s. However, this was not to fuel a lavish lifestyle, as some may think, but to compensate for the brutal wage cuts and high taxes greeks were facing. all this has had a severe impact on greece’s population.