## 1. Since the European Deb Crisis, amid large deleveraging and low investment, total

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### Context and motivation
- Since the European debt crisis, total factor productivity (TFP) in Greece declined until recently, while TFP in the euro area grew by 9.7 percent during the same period.
- Greece’s overall TFP is estimated to be still about 10 percent lower than in 2009, prior to the Greek sovereign debt crisis.
- Reforms (e.g., codifying business regulation frameworks, online one-stop company registration, risk-proportionality for licenses) coincided with new firm entry in 2023 rising by 33 percent compared to pre-pandemic levels, but firm entry rates remain below the euro area median.
- Surveys show Greece ranks among the highest in the share of firms citing business regulation as a major investment obstacle (EIB 2023).

### Data and coverage
- Firm-level dataset: Orbis, cleaned per Kalemli-Özcan et al. (2024).
- Sample period: 2009 to 2020.
- Sample composition and coverage:
  - 58,000 unique firms after cleaning.
  - Sectors analyzed: market economy sectors under NACE Rev. 2, excluding the financial sector (account for 56 percent of GDP).
  - Coverage vs national aggregates: about one-third of total employment and around 80 percent of total firm revenue.
  - Sample tilts toward medium and large firms:
    - Covers most medium and large firms (>49 employees) in employment and revenue (vintage 2020).
    - Covers about one-third of small-firm (10–49 employees) employment and three-fourths of small-firm revenue.
    - Minimal coverage of micro firms (<10 employees); omission likely underestimates resource misallocation, since misallocation is more concentrated in smaller firms.

### Empirical findings on dispersion and misallocation
- Marginal revenue product dispersion:
  - Dispersion of firms’ marginal revenue product of capital (MRPK) and of labor (MRPL) expanded quickly between 2009 and 2012 and remained elevated through 2020.
  - Expansion in dispersion is more pronounced among smaller firms; dispersion for larger firms peaked in 2013.
  - Construction sector experienced the largest MRPK dispersion before the pandemic; food and accommodation experienced the largest MRPL dispersion.
- Correlation between TFP and productive factors:
  - Since 2009, the correlation between firm-level TFP and capital has shown secular declines, indicating resources are not flowing to more productive firms.
  - Non-tradable service sectors (construction, professional services, food and accommodation) show weakest (around zero or negative) correlations between TFP and capital; some tradable sectors maintain generally positive correlations.
  - Correlations between TFP and labor decline across all sectors; tradable sectors show higher correlations than non-tradable sectors.
- Contribution of declining allocation efficiency:
  - Declining efficiency of resource allocation within sectors has contributed to rising MRP dispersion.
  - Non-tradable service sectors are the main contributors to allocation inefficiencies.

### Quantitative estimates of economic costs and counterfactuals
- Estimated cost of resource misallocation:
  - Resource misallocation cost Greece about 3 percent market-economy-sector GDP per year between 2009 and 2020.
  - Counterfactual framework (Klenow and Hsieh (2009) adaptation): efficient scenario assumes marginal revenue products equalized across firms within each sector.
  - Observed vs efficient TFP:
    - Actual TFP growth was close to zero from 2009 to 2020.
    - The log of efficient TFP would have grown by 30 percent during the period.
  - Main source of divergence: non-tradable service sectors (construction, professional services, food and accommodation).
- Role of young firms:
  - Entry of young firms accounts for about two-thirds of cumulative resource misallocation before the pandemic.
  - Young firms (<5 years) are generally more productive: median TFP of firms under five years of age is 10 to 20 percent higher than that of firms older than 15 years in most sectors.
  - Slow growth of young firms partly due to scarcity of bank credit; note that credit expansion does not automatically improve allocation efficiency (Spain example).

### Policy recommendations
- Accelerate regulatory reform with emphasis on non-tradable services:
  - Undertake a systemic ex-post evaluation of legacy regulations; prioritize sectors with the most significant regulatory distortions (non-tradable services).
  - Include opt-out provisions for certain laws to provide clarity and expedite reform.
  - Avoid firm size-based tax and regulatory incentives.
  - Narrowly target tax incentives to firms’ research and development (R&D) investments to support young, innovative firms.
  - Further reduce remaining barriers to entry in service sectors.
- Broaden and strengthen regulatory impact assessment:
  - Expand assessments to emphasize efficiency impacts, unintended costs, innovation and competition effects, and alternatives including a ‘do-nothing’ option.
  - Assess potential competition effects from subordinate regulations as well as primary laws.
  - Strengthen the Quality Evaluation Committee for the Drafting of Legislation (EAPND) focus on efficiency.
- Labor market and capital market reforms to support small and young firms:
  - Increase labor force participation, particularly among youth, women and the elderly (targeted support for childcare and elderly care to enable women to work outside the home).
  - Reduce the high tax wedge and phase out unemployment benefits within the eligibility period to incentivize job search.
  - Continue efforts to reduce non-performing loans to lower bank lending costs for small firms.
  - Further judicial system reforms to facilitate reallocation of resources from distressed firms to more productive ones.
- European-level actions:
  - Remove barriers within the single market and invest in infrastructure to strengthen economic integration and efficiency.

### Technical appendix — model and identification (key assumptions)
- Market structure and production:
  - Monopolistic competition within each sector; sector output aggregates differentiated products with a CES function.
  - CES parameter assumed: σ = 3 (consistent with Klenow and Hsieh (2009), Gopinath et al. (2017), IMF (2024)).
  - Firm production function: Cobb-Douglas using capital and variable costs (COG) due to data limitations.
  - αs calibrated using one minus sectoral medians of cost of goods sold divided by total revenue.
- Distortions and measured objects:
  - Allow for output distortion (τYsit), capital distortion (τKsit), and cost-of-goods distortion (τCOGsit).
  - Define firm-level revenue-based TFPR (TFPRsit) proportional to (Psit/Ysit) Ksit^αs COGsit^(1−αs).
  - Efficient TFP and aggregate efficiency measures constructed following Hsieh and Klenow (2009) framework; aggregate output ratio Yt/Yt^e measures allocation efficiency over time.
- Data mapping:
  - Because of absent wage data, personnel expenditure is proxied by number of employees for MRPL calculations.
  - Sectoral TFP and efficient counterfactuals computed from firm-level TFPR, firm-level A_sit, and sectoral aggregates as specified in equations (6)–(12).

*IMF staff estimates and analysis from sipea2025058 (selected issues paper).*

### 1. Since the European Deb Crisis, amid large deleveraging and low investment, total

### sipea2025058 - 1. Since the European Deb Crisis, amid large deleveraging and low investment, total

### Context and motivation
- Since the European debt crisis, total factor productivity (TFP) in Greece declined until recently, while TFP in the euro area grew by 9.7 percent during the same period.
- Greece’s overall TFP is estimated to be still about 10 percent lower than in 2009, prior to the Greek sovereign debt crisis.
- Reforms (e.g., codifying business regulation frameworks, online one-stop company registration, risk-proportionality for licenses) coincided with new firm entry in 2023 rising by 33 percent compared to pre-pandemic levels, but firm entry rates remain below the euro area median.
- Surveys show Greece ranks among the highest in the share of firms citing business regulation as a major investment obstacle (EIB 2023).

### Data and coverage
- Firm-level dataset: Orbis, cleaned per Kalemli-Özcan et al. (2024).
- Sample period: 2009 to 2020.
- Sample composition and coverage:
  - 58,000 unique firms after cleaning.
  - Sectors analyzed: market economy sectors under NACE Rev. 2, excluding the financial sector (account for 56 percent of GDP).
  - Coverage vs national aggregates: about one-third of total employment and around 80 percent of total firm revenue.
  - Sample tilts toward medium and large firms:
    - Covers most medium and large firms (>49 employees) in employment and revenue (vintage 2020).
    - Covers about one-third of small-firm (10–49 employees) employment and three-fourths of small-firm revenue.
    - Minimal coverage of micro firms (<10 employees); omission likely underestimates resource misallocation, since misallocation is more concentrated in smaller firms.

### Empirical findings on dispersion and misallocation
- Marginal revenue product dispersion:
  - Dispersion of firms’ marginal revenue product of capital (MRPK) and of labor (MRPL) expanded quickly between 2009 and 2012 and remained elevated through 2020.
  - Expansion in dispersion is more pronounced among smaller firms; dispersion for larger firms peaked in 2013.
  - Construction sector experienced the largest MRPK dispersion before the pandemic; food and accommodation experienced the largest MRPL dispersion.
- Correlation between TFP and productive factors:
  - Since 2009, the correlation between firm-level TFP and capital has shown secular declines, indicating resources are not flowing to more productive firms.
  - Non-tradable service sectors (construction, professional services, food and accommodation) show weakest (around zero or negative) correlations between TFP and capital; some tradable sectors maintain generally positive correlations.
  - Correlations between TFP and labor decline across all sectors; tradable sectors show higher correlations than non-tradable sectors.
- Contribution of declining allocation efficiency:
  - Declining efficiency of resource allocation within sectors has contributed to rising MRP dispersion.
  - Non-tradable service sectors are the main contributors to allocation inefficiencies.

### Quantitative estimates of economic costs and counterfactuals
- Estimated cost of resource misallocation:
  - Resource misallocation cost Greece about 3 percent market-economy-sector GDP per year between 2009 and 2020.
  - Counterfactual framework (Klenow and Hsieh (2009) adaptation): efficient scenario assumes marginal revenue products equalized across firms within each sector.
  - Observed vs efficient TFP:
    - Actual TFP growth was close to zero from 2009 to 2020.
    - The log of efficient TFP would have grown by 30 percent during the period.
  - Main source of divergence: non-tradable service sectors (construction, professional services, food and accommodation).
- Role of young firms:
  - Entry of young firms accounts for about two-thirds of cumulative resource misallocation before the pandemic.
  - Young firms (<5 years) are generally more productive: median TFP of firms under five years of age is 10 to 20 percent higher than that of firms older than 15 years in most sectors.
  - Slow growth of young firms partly due to scarcity of bank credit; note that credit expansion does not automatically improve allocation efficiency (Spain example).

### Policy recommendations
- Accelerate regulatory reform with emphasis on non-tradable services:
  - Undertake a systemic ex-post evaluation of legacy regulations; prioritize sectors with the most significant regulatory distortions (non-tradable services).
  - Include opt-out provisions for certain laws to provide clarity and expedite reform.
  - Avoid firm size-based tax and regulatory incentives.
  - Narrowly target tax incentives to firms’ research and development (R&D) investments to support young, innovative firms.
  - Further reduce remaining barriers to entry in service sectors.
- Broaden and strengthen regulatory impact assessment:
  - Expand assessments to emphasize efficiency impacts, unintended costs, innovation and competition effects, and alternatives including a ‘do-nothing’ option.
  - Assess potential competition effects from subordinate regulations as well as primary laws.
  - Strengthen the Quality Evaluation Committee for the Drafting of Legislation (EAPND) focus on efficiency.
- Labor market and capital market reforms to support small and young firms:
  - Increase labor force participation, particularly among youth, women and the elderly (targeted support for childcare and elderly care to enable women to work outside the home).
  - Reduce the high tax wedge and phase out unemployment benefits within the eligibility period to incentivize job search.
  - Continue efforts to reduce non-performing loans to lower bank lending costs for small firms.
  - Further judicial system reforms to facilitate reallocation of resources from distressed firms to more productive ones.
- European-level actions:
  - Remove barriers within the single market and invest in infrastructure to strengthen economic integration and efficiency.

### Technical appendix — model and identification (key assumptions)
- Market structure and production:
  - Monopolistic competition within each sector; sector output aggregates differentiated products with a CES function.
  - CES parameter assumed: σ = 3 (consistent with Klenow and Hsieh (2009), Gopinath et al. (2017), IMF (2024)).
  - Firm production function: Cobb-Douglas using capital and variable costs (COG) due to data limitations.
  - αs calibrated using one minus sectoral medians of cost of goods sold divided by total revenue.
- Distortions and measured objects:
  - Allow for output distortion (τYsit), capital distortion (τKsit), and cost-of-goods distortion (τCOGsit).
  - Define firm-level revenue-based TFPR (TFPRsit) proportional to (Psit/Ysit) Ksit^αs COGsit^(1−αs).
  - Efficient TFP and aggregate efficiency measures constructed following Hsieh and Klenow (2009) framework; aggregate output ratio Yt/Yt^e measures allocation efficiency over time.
- Data mapping:
  - Because of absent wage data, personnel expenditure is proxied by number of employees for MRPL calculations.
  - Sectoral TFP and efficient counterfactuals computed from firm-level TFPR, firm-level A_sit, and sectoral aggregates as specified in equations (6)–(12).

*IMF staff estimates and analysis from sipea2025058 (selected issues paper).*

### References

### References

### Types of sources cited
- IMF Selected Issues Paper: "Recent Trends of Informality in Greece – Evidence from Subnational Data. IMF Selected Issues Paper (SIP/2024/009)."
- IMF Selected Issues Paper: "Reforms, Labor Market Dynamics and Competitiveness. IMF Selected Issues Paper (2019)."
- IMF book/working paper entries: "World Economic Outlook— Steady but Slow: Resilience amid Divergence. Washington, DC. (2024)."
- Journal articles in economics and law journals:
  - The Quarterly Journal of Economics
  - American Economic Journal: Macroeconomics
  - Statute Law Review
- OECD publications:
  - "Greece: Review of the Central Administration. OECD Publishing. (2011)."
  - "OECD Economic Surveys: Greece 2024. OECD Publishing, Paris. (2024)."
- CEPR Press publication: “A Growth Strategy for the Greek Economy” (2023).

### Geographic and topical focus represented by the references
- Greece-specific policy, institutional, and labor-market analysis:
  - "Unlocking the Work Force Potential: Empowering Women to Boost Economic Growth and Greek Prosperity" (2025).
  - "Recent Trends of Informality in Greece – Evidence from Subnational Data. IMF Selected Issues Paper (SIP/2024/009)."
  - "Reforming Judicial System Efficiency in Greece. Drivers and Economic Impact" (2025).
  - "Reforms, Labor Market Dynamics and Competitiveness. IMF Selected Issues Paper (2019)."
  - "Pissarides, C, C Meghir, D Vayanos and N Vettas (2023), “A Growth Strategy for the Greek Economy”, CEPR Press, Paris & London."
  - "OECD (2024), OECD Economic Surveys: Greece 2024, OECD Publishing, Paris."
  - "OECD (2011), Greece: Review of the Central Administration, OECD Publishing."
  - "Petrakis, Panagiotis E. 'The legislative process and regulatory interventions in the Greek democracy: Deep-rooted weaknesses and recommendations for improvement.' Statute Law Review 45, no. 1 (2024)."
- Broader macroeconomic and productivity themes:
  - "World Economic Outlook— Steady but Slow: Resilience amid Divergence. Washington, DC. (2024)."
  - "Capital allocation and productivity in South Europe." The Quarterly Journal of Economics 132, no. 4 (2017): 1915-1967.
  - "Misallocation and manufacturing TFP in China and India." The Quarterly Journal of Economics 124.4 (2009): 1403-1448.
  - "How to Construct Nationally Representative Firm-Level Data from the Orbis Global Database: New Facts on SMEs and Aggregate Implications for Industry Concentration." American Economic Journal: Macroeconomics 16, no. 2 (2024): 353-374.

### Key authors and institutions appearing repeatedly
- International Monetary Fund (IMF)
- OECD
- Notable individual contributors and coauthors:
  - Capell, Júlia Cots; Larry Qiang Cui; Diego Gomes; Duncan MacDonald; Céline Thévenot; Katherine Dai
  - Cui, Larry Qiang; Jiaxiong Yao
  - Dai, Katherine; Mariusz Jarmuzek; Ritong Qu; Amira Rasekh
  - Gopinath, Gita; Şebnem Kalemli-Özcan; Loukas Karabarbounis; Carolina Villegas-Sanchez
  - Kalemli-Özcan, Şebnem; Bent E. Sørensen; Carolina Villegas-Sanchez; Vadym Volosovych; Sevcan Yeşiltaş
  - Kalimeri, Maria; Maria Mendez; Sebastian Weber
  - Hsieh, Chang-Tai; Peter J. Klenow
  - Petrakis, Panagiotis E.
  - Pissarides, C; C Meghir; D Vayanos; N Vettas

### Format and citation details preserved (selected entries)
- Gopinath, Gita, Şebnem Kalemli-Özcan, Loukas Karabarbounis, and Carolina Villegas-Sanchez. "Capital allocation and productivity in South Europe." The Quarterly Journal of Economics 132, no. 4 (2017): 1915-1967.
- Kalemli-Özcan, Şebnem, Bent E. Sørensen, Carolina Villegas-Sanchez, Vadym Volosovych, and Sevcan Yeşiltaş. "How to Construct Nationally Representative Firm-Level Data from the Orbis Global Database: New Facts on SMEs and Aggregate Implications for Industry Concentration." American Economic Journal: Macroeconomics 16, no. 2 (2024): 353-374.
- Hsieh, Chang-Tai, and Peter J. Klenow. "Misallocation and manufacturing TFP in China and India." The Quarterly Journal of Economics 124.4 (2009): 1403-1448.
- Pissarides, C, C Meghir, D Vayanos and N Vettas (2023), “A Growth Strategy for the Greek Economy”, CEPR Press, Paris & London.

*References as listed in the content unit "sipea2025058 - References."*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025058.pdf_