Cambridge Journal of Economics 1979 3, 33-48

Foreign trade and industrial development: Greece and the EEC
Downloaded from http://cje.oxfordjournals.org at University of Warwick on April 22, 2010

John Papantoniou*

1. Introduction The recent applications of three Southern European countries, Greece, Spain and Portugal, for membership of the European Economic Community! appear to run counter to the protectionist trend which has become evident in the international economic recession. The fact that these three countries have all recently emerged from dictatorship and that they find themselves in an 'intermediate' stage of economic development invites a common approach to the study of this phenomenon. However, this paper is limited to a consideration of the implications of EEC membership for the future performance of the Greek manufacturing sector. The paper examines how external trade arrangements condition external demand, which has been, and will be, the most important determinant of the growth of manufacturing output, and hence the growth of the Greek economy as a whole. The approach rests on the notion that the manufacturing sector has a strategic importance in overall economic growth. In a comparative static sense, the growth of manufacturing output represents a net addition to the effective use of resources and not just a transfer of resources from one use to another: capital required for manufacturing production is largely self-generated; labour engaged in manufacturing has little or no opportunity cost outside the manufacturing sector, because of the prevalence of disguised unemployment in both agriculture and services.% In a dynamic sense, of the four main factors of productivity growth, namely (i) substitution of capital for labour, (ii) technical change, (iii) increasing returns to scale and (iv) improvements in the personal efficiency of labour, the first three at least are for the most part realised through investment in manufacturing. These factors seem to lie behind the remarkable correlation between the growth rate of the Gross Domestic Product (GDP) and the growth rate of manufacturing output that has been established in a number of studies. § They suggest a view of economic growth which is alternative to the neoclassical view,
* Department of Economics, University of Athens. I am grateful to P. Korliras, R. E. Rowthorn and the editors and referees of the Cambridge Journal of Economics for helpful comments and suggestions. An earlier and shorter version of this paper has appeared in Zachareas et al. (1978). I alone am responsible for any errors remaining. f The dates of application for each country are: Greece, 12 June 1975; Portugal, 28 March 1977; Spain, 28 July 1977. See CEC, Bulletin of the European Communities (various numbers). + This argument is made by Kaldor (1975), p. 894. § See Kaldor (1966, 1975), UNECE (1970), pp. 78-83 and Cripps and Tarling (1973). 0309-166X/79/010033 + 16 802.00/0 © 1979 Academic Press Inc. (London) Limited

Kaldor) 'economic growth is demand-induced. in particular. and not resource-constrained. 52-64 and 148-150. 67-74. pp. fairly high over the period: the average annual rate between 1958-60 and 1971-73 was 9-3%. pp. which offer most empirical data. i. also Roumeliotis (1975). output per employee). employment is defined to include wage and salary earners. the self-employed and unpaid family members. § See UNECE (1972A).oxfordjournals. The manufacturing growth rate was.000 in 1961 and 1. Post-war inflation did not subside until 1956—the cost of living index in Athens rose at an average rate of 31-9% per annum in the 1945-55 period. Over the 1961-71 period.000 in 1971 (NSSG.org at University of Warwick on April 22. that is up to the beginning of the international economic crisis. The broad conclusion is that neither full membership nor the existing association agreement will be conducive to continued rapid growth of Greek manufacturing industry. was low in relation to the growth of urban labour supply: the working population in the urban sector (cities with population of 10. start in 1958. 895). Papantoniou namely that (in the words of N.e. The period from 1958 to 1973 was characterised by remarkable price stability —except for the last year. 1973—as well as the absence of pronounced cyclical movements and radical changes in economic institutions. An analysis is presented in the next section of the post-war growth of the manufacturing sector in Greece. || The implicit annual rate of growth in potential urban labour supply would t The source is MC (1976).34 J. Section 3 considers sources of expansion of markets for Greek manufactures and evaluates the impact of Greece's existing association agreement with the EEC. p. Section 4 considers the probable effects of full membership of the EEC on the future progress of industrialisation. like many developing countries. for which there are employment data for the whole manufacturing sector. 1973A). the annual net number of emigrants is defined as the annual number of departures minus the annual number of arrivals of Greek citizens. overall.569. labour and capital. 1968. output growth of 10-1%I breaks down into 1*3% growth of employment and 8-8% growth of productivity (i. 1956 would be the ideal starting year for our analysis. focusing. Trends in Greek post-war manufacturing growth The reconstruction of war-damaged productive apparatus and restoration of the normal functioning of the fiscal and monetary systems took a disproportionate amount of time in Greece. The net number of emigrants between 1961 and 1971 was 543. 1-3%. these numbers obviously include people of non-working age.X The rate of productivity growth was high by international standards. but unfortunately the Annual Industrial Surveys of the National Statistical Service of Greece (NSSG). 2010 2.e. which has manifested itself in Greece in the familiar way—recession combined with high rates of inflation. that it is to be explained by the growth of demand which is exogenous to the industrial sector and not by the (exogenously given) growth rates of the factors of production. % These estimates are based on data contained in NSSG (1968. The cause lies mainly in the fact that Greece. || The source for this figure is NSSG (1974). but their proportion in the net number is unlikely to be high.000 and over) was 1. 1973A).348. combined with some (exogenously given) technical progress over time' (1975.000. The period reviewed in detail below therefore stretches from 1958 up to 1973. growth rates are computed from the exponential formula X. Downloaded from http://cje. § On the other hand the rate of employment growth. imported technology from the advanced countries through foreign investment and imports of intermediate and capital goods. . because of the five-year civil strife that followed the Second World War. on the relative importance of supply and demand factors.

|| by 1967— 69 it was 48-3% in Greece compared with 70-6% in industrial Western Europe and by 1971-73 the share in Greece had fallen as low as 43-0%. tax payments and profits due abroad. the Federal Republic of Germany. but because of the limited demand for productive investment' (1964. $ Internal investible funds may be defined as gross profits less interest.2. residential construction. 194). Such was the abundance of bank finance that. Nor did the manufacturing sector suffer from shortages of finance or foreign exchange. i. Downloaded from http://cje. acquisition of financial assets and real estate. Italy. p.2. France. it is net of the cost of the nonindustrial services. Although the trade balance was always in heavy deficit. Zolotas. From 1957 the Currency Committee required the commercial banks to use a minimum percentage of their deposits for medium.e. 1976.and long-term lending to manufacturing at subsidised interest rates. 41^14 and Appendix B. The source for Greece is the Annual Industrial Surveys of NSSG and the figures cover largescale manufacturing. ^1 The value added concept is the 'National Accounts value added'. pp. Finally. no restrictions were imposed on expenditure of foreign exchange for imports of capital goods during the period under consideration. para. by the end of 1964 only half of the funds earmarked for long-term credit had been borrowed for fixed investment by manufacturing and mining enterprises (Halikias. The ample availability of internal funds was reflected in an exceptionally low share of the remuneration of labour in manufacturing value added: in 1958-60 the labour share was 54-2% in Greece compared with 63-4% in 'industrial Western Europe'.oxfordjournals. t The same result is reached through a slightly different procedure in Fakiolas (1975). or labour. 2010 . suggests that manufacturing growth was not constrained by shortage of labour.§ the greatest part of the internal funds generated by Greek manufacturing was put to other uses. (c). such as consumption. 33-37 and Appendix B. or capital export. Netherlands. according to the Bank of Greece estimates.org at University of Warwick on April 22. X. In the words of the Governor of the Bank of Greece. paras. Sweden and the UK. E.Greece and the EEC 35 be about 4%. Finland. The source for industrial Western Europe is UNECE (1972B) and the figures cover the whole of manufacturing. The Greek statistical series do not exactly correspond to these concepts. these estimates are based on the Annual Industrial Surveys of the NSSG. Norway. For further information on the method of estimation see Papantoniou (1977). and on the basis of data from the Annual Industrial Surveys of the NSSG. the share of internal funds used for investment in large-scale manufacturing (establishments with average annual employment of 10 people and over)J was only 36% over the 1961-73 period. The labour remuneration is defined as wages. the current deficit was limited by invisible receipts (arising mainly from shipping. investment goods. salaries and the employers' social security contributions. tourism and workers' remittances) and was itself offset by an autonomous inflow of private capital. (c) and (d). it was a major aim of state policy to provide ample finance on easy terms for fixed investment in manufacturing. The share of the value added of these establishments in the total value added of the manufacturing sector rose from 635% in 1958-60 to 78-3% in 1971-73. so that the official foreign debt remained low. Denmark. Belgium. not because the funds which have been disposed were insufficient. pp. || Industrial Western Europe comprises Austria. §For the method of computation see Papantoniou (1977). on the assumption that the wage component of self-employment incomes is equivalent to average earnings of employed persons.f This. Iceland. who had inspired this policy. p. The availability of investible funds in a country with an under-developed stock market like Greece means availability of internal funds and of long-term bank credit. Ireland. 112). After making some simplifying assumptions.^ As for external funds. and more particularly the large net emigration. 'the result of the efforts which have been made for the provision of investment finance has not been entirely satisfactory. The conclusion is that manufacturing investment was not constrained by lack of finance.

i = ISIC branches 20 to 29.I and B.4. The regression was of the form To = b0 X._X i?2 = 0815 (5-97) (3-43) (4-07) (3-54) where //. for details on sources and statistical methods. for a high growth rate of demand for home-produced manufactures. the income elasticity of employees was found to be higher than that of employers. Appendix Tables B. Downloaded from http://cje. sources and methods see Papantoniou (1977). see ch.. The regression results were as follows ((-ratios are given in parentheses and the 15 intercepts are omitted): / . || The fall characterised both urban and rural households. which partly reflects the fact that in construction and services the average annual rate of productivity growth was only 3-l%.. |] For data.4. or (iii) rapid growth of manufactured exports (as measured by the ratio of exports to home production). In urban households. B. as well as a discussion of the significance of the results.+0119 J//. 2010 .. clothing and footwear and household durables) or mainly (food) of manufactures.bl (independent variable: total consumption).36 J. the sources are MC (1976) and NSSG (1968. ch. (ii) substantial substitution of home production for manufactured imports (as measured by the ratio of imports to home supply).org at University of Warwick on April 22.2 and Appendix B.2 paras. _i-i-0-435 J£. section 6.. is consistent with the alternative hypothesis that the rate of manufacturing investment was determined by home and export demand. 7 and Appendices B. . Demand for manufactures and Greece's association with the EEC We distinguish between home and foreign demand for home-produced manufactures. which was concluded on 9 July 1961 and took effect on 1 November 1962.3. the fall seems to have been the outcome of the combination of differential income elasticities in different social classesif and the decline in the share of labour income mentioned in the preceding t The data used for this regression cover 15 ISIC (International System of Industrial Classification) branches of manufacturing which accounted for 64-8% of the gross investments of large-scale manufacturing over the 1961-73 period. and (c) the behaviour of the share of imports in national expenditure on manufactures. t= 1961-73. at least one of the following should hold: (i) an income elasticity of demand for manufactures significantly above unity. 1973A).+0-463 AE. The difference was striking in the case of household durables.2.J 3. 35 to 37 and 39. § This estimate is based on data covering the 1961-71 period. X The official text appears in Communautes Europeennes (1963). which accounted for about two-thirds of total household expenditure. = 0-198 AH. f A notable aspect of the regression results is that the accelerator coefficient on exports is much higher than the coefficient on home sales.3 and B. 33. = gross investments in branch i at time t. This finding suggests that expansion of foreign markets played a greater role in accelerating the rate of manufacturing investment than expansion of the home market. 6. The next section examines this proposition with reference to the operation of Greece's association agreement with the EEC.. (i) Expenditure on manufactured consumer goods as a share of total consumers' expenditure fell from 44% to slightly over 37% over the period under consideration.§ Therefore. Growth of home demand is a function of: (a) growth of Gross National Income (GNI). The data appear in Papantoniou (1977). using an accelerator model. Table 6.oxfordjournals. 1976). = difference between exports of branch i at time t and t— 1. "i In all consumption categories composed entirely (drink and tobacco. AEU.Papantoniou c Econometric analysis of investment behaviour. (b) the income elasticity of demand for manufactures.. We shall consider these in turn. . The average annual growth rate of GNI at constant prices was 6-8% between 1958-60 and 1971-73 (MC. AHl:t = difference between home sales by home enterprises in branch i at time t and /— 1. for further information see Papantoniou (1977). (b) and (d).

see MC (1978A). In terms of these groupings only basic metals experienced fairly substantial import substitution. 1-5. metal products and non-electrical machinery as engineering goods. p. For comparative purposes we include in the EEC only the initial six members (France. wood. § See Bank of Greece (1971. Annual Industrial Survey (various years). Netherlands and Luxembourg). the fall seems to have been due t( monetisation and urbanisation of the farm economy. Federal Republic of Germany. The question arises as to the impact of the association agreement with the EEC on the behaviour of manufactured imports. rubber. 2010 Ratio of imports to home supply (%) 1961 1. printing. 2. 153. 5. as well as to technological changes favouring the increased use of such inputs. the overall expansion of the home market for manufactures was not sufficient for a high rate of output growth. non-metallic minerals and transport equipment (consisting mainly of ship-building) as other producer goods. It will be useful to group manufacturing branches as follows: food. Note: Total home production is estimated on the basis of large-scale production.oxfordjournals.org at University of Warwick on April 22. basic metals on their own. NSSG (1961. transportation and trade. 36). electrical machinery and miscellaneous as modern consumer goods. engineering and other producer goods. which account for most of the intermediate consumption outside manufacturing. construction. most of the fall in the share of manufactures in the rural budget is due to the sharp increase in housing expenditure. 1973B). Greece Downloaded from http://cje. furniture and leather as traditional consumer goods. Italy. X Inspection of the input-output tables shows that the coefficients of manufactured inputs for agriculture. So far as rural households are concerned. Belgium. chemicals. for modern consumer goods. see Papantoniou (1977). Thus the overall degree and pattern of import dependence remained broadly the same over the period. clothing. Traditional consumer goods Modern consumer goods Basic metals Engineering goods Other producer goods 9-6 61-8 170-4 115-3 41-8 33-6 1973 12-2 58-1 87-9 96-3 36-9 36-6 Sources: NSSG. 1976. (ii) The relationship of imports to home supply did not undergo any significant change over the 1961-73 period: imports as a proportion of home supply were 33-6% in 1961 and 36-6% in 1973 (see Table 1). 3. In traditional consumer goods the import ratio showed a small rise. tobacco. textiles. EEC imports of manufactures represented about half of total manufactured imports over the period under consideration § and they have been subject io a gradual reduction of tariffs. T a b l e 1. increased by from one-sixth to one-fourth between 1958 and 1970. and finally. but its absolute level remained low. The association agreement set two timetables for tanff reduction. representing about two-thirds of total EEC manufactured imports (Zolotas. f On the other hand. while the second applied to competitive | In fact. expenditure on intermediate manufactured goods grew faster than total final expenditure in the economy.Greece and the EEC 37 section. . p. paper. the import ratios showed a slight decline. 4. the first applied to manufactured imports which were not competitive with Greek products. J However. due to growth of sectors which are heavy users of manufactured inputs (especially construction). Imports of manufactures. 1974). drink.

remained about two-and-a-half times as high as consumption taxes levied on home-produced manufactures. Greece (at constant 1970 prices) As % of total manufactured exports 1961 1. were not significantly affected. 1976. The respective dates for complete elimination of tariffs were 1 November 1974 and 1 November 1984. tariff rates on non-competitive imports had been reduced to 10% of their level in the base year. Exports by manufacturing branches. 3. where the rate of protection remained unchanged. Very limited use was made of this facility (CEC. 1973B).org at University of Warwick on April 22. 4. if we define the rate of protection as the sum of tariff and consumption taxes as a percentage of taxed value. 5. average consumption taxes levied on imported manufactures. The fall in the overall level of protection by 1973 that resulted from the association agreement was not particularly drastic. the reduction in protection was from 31-3% in 1961 to 25-6% in 1973. By the end of our period. 1957. the gradual alignment of Greek duties with the basic duties of the Common Customs Tariff (CCT) was to proceed under a similar timetable. Greece also undertook to remove progressively by 1 November 1984 quantitative restrictions and other non-tariff barriers (e. Table 6. 6.oxfordjournals. which are often close substitutes for homeproduced goods. while non-tariff barriers.6. f In fact. but on competitive imports they had only been reduced to 72% of their 1957 level. With regard to third countries. see NSSG (1963. which were quite important for certain parts of home production. the import deposit scheme) to EEC imports. December 1973. 7 and 8 of the SITC (Standard International Trade Classification)—which broadly correspond to the branches of the ISIC except food. Table 2. 2010 Sources: NSSG (1961. implied any adoption of preferential agreements concluded between the Community and third countries. 5. The adoption by Greece of the CCT has not so far. J The source for the rate of protection is NSSG (1963. Traditional consumer goods Modern consumer goods Basic metals Engineering goods Other producer goods 49-2 28-6 3-2 10-5 8-5 1000 1973 52-5 18-2 22-5 2-8 40 100-0 22-7 18-5 38-4 111 16-1 22-3 Annual growth rate (1961-73) Downloaded from http://cje. The reduction was similar for each commodity group except basic metals. Papantoniou imports. 1-5. nor of tariff reductions within the Community's Generalised System of Preferences (to be reviewed in the following section).g. however. 1975). which is quite moderate. . for further information see Papantoniou (1977). 1975). p. Tariff changes on competitive manufactures had not gone very far.38 J. tobacco and petroleum products—represented 11-2% of the taxed value in 1961 as against 4-4% of the turnover tax on home-produced manufactures. 12). Moreover. M C (1975). J t Consumption taxes on goods imported under sections 4. drink. though under very restrictive conditions regarding the value of the imports which may be affected and the level and duration of the protective measures. Finally. in 1973 the former was 13-3% and the latter 5-2%. 2. the association agreement permitted protection of 'new manufacturing activities not existing in Greece'.

p. The causes of the minor changes that did occur. Processed mineral exports were mainly the consequence of vertical foreign investment. A disaggregated analysis by Roumeliotis establishes a correlation— although not particularly strong—between foreign investment and import substitution (Roumeliotis. which also appears to be for LDCs. Most of the chemical exports mentioned above are to the 'rest of the world'. should rather be sought in the operations of multinational firms which have invested in Greece. and 'rest of the world' exports. (iii) The average annual rate of growth of manufactured exports was 22-3% (see Table 2).§ and finally. The share of modern consumer. a subsidiary of Republic Steel Corp. 2010 . namely labour-intensive goods and processed minerals. SA. See also Roumeliotis (1975). pp. §For evidence and analysis of this new strategy of multinational corporations. traditional consumer goods and mineral processing constituted the main fields of manufactured export expansion in Greece. basic metals were one of the areas of concentration of foreign investment.J processing their raw materials. specialising in labour-intensive processes and component production within vertically integrated international industries .org at University of Warwick on April 22. || Evidence for this road to expansion is provided by Murakami (1968). Downloaded from http://cje. Eastern Europe. accounted in 1973 for about one-third of the exports of basic metals (see NSSG. 1975. || As shown in Table 2. chemicals. home production neither lost nor gained ground to imports overall. 1973B). Foreign investment over the 1958— 73 period was concentrated in rubber. i.Greece and the EEC 39 Thus the reduction in the level of protection was not important enough to induce any dramatic changes in the growth pattern of manufactured imports. a French company. there are four avenues for expansion of manufactured exports from the less developed countries (LDCs): exploiting comparative advantage in unskilled-labour-intensive goods such as traditional consumer goods . (USA). 139-143. 144).oxfordjournals. produced by Aluminium de Grece. see Helleiner (1973). a subsidiary of Pechiney. and the Annual Industrial Surveys of the NSSG. tf t The sources for the shares in home production are NSSG (1961.. SA. trading technologically more sophisticated goods among themselves. in the direction of import substitution in modern consumer goods and producer goods. which appear to be going to LDCs. But the contribution of these to the overall export expansion was minor compared to the two main sources. 1973B). 11 Exports of aluminium. As already mentioned. basic metals and transport equipment. accounted for no more than 4-8% of total manufactured exports in 1973. These branches. petroleum. 7 The Bulletin of External Transactions of Greece of the Bank of Greece distinguishes among EEC. We conclude that the association agreement with the EEC and the operations of multinational firms interacted in such a way that the broad effect of manufactured imports on home production was neutral. a large part of the remaining two-thirds appear to be accounted for by the Hellenic Steel Co. however. Exports of technologically more sophisticated goods are evidenced by the rise in exports of 'other chemical and pharmaceutical products'.e. while their share in home production of manufactures rose from 2-3% in 1961 to 10-6% in 1973 (the starting date for the rise was 1966).t Generally speaking. { For a good survey of the literature on the impact of technology on the structure of the trade in manufactures see Hufbauer (1970). USA.^f the increase in exports of other producer goods consists for the most part of cement. Component specialisation within vertically integrated industries would be reflected in electrical machinery and 'miscellaneous' manufactured exports. engineering and other producer goods attests to the significant but limited contribution of the other two avenues of export expansion.

however. the Netherlands and Luxembourg. Unit labour costs by manufacturing branches (annual growth rates from 1958-60 to 1967-69) Greece" 1. as suggested above. (The rates of increase in the 1960s for certain groups of manufacturing branches which broadly correspond to our definition of traditional consumer goods appear in Table 3. under which duties on imports from Greece were gradually reduced and eventually abolished. The share of the EEC market in the increase of manufactured exports over the 1967-73 period appears in Table 4. France.40 J. The export increase outside the EEC. consisted for the most part of basic metals which. Textiles.oxfordjournals. ||. see Papantoniou (1977). we may distinguish three contributory factors. Traditional consumer goods Modern consumer goods Basic metals Engineering and other producer goods 65-2 43-6 5-6 29-6 48-5 Sources: Bank of Greece (1971. and which gave Greece a distinct competitive advantage vis-a-vis LDCs without such an agreement. 3. The second factor was Greece's association agreement with the EEC. leather Sources: NSSG. p. Papantoniou So far as the rapid expansion of exports of traditional consumer goods is concerned. The EEC contribution was particularly pronounced in traditional consumer goods. 1-4. The first is. Food. furniture. printing. of course. 1974). A third factor was state policy. 1967-1973" 1. This. ° Large-scale manufacturing. The EEC contributed about half of the total increase in manufactured exports. were the consequence of foreign investment. 4.org at University of Warwick on April 22.) Table 3. Table 4. for which price competitiveness matters most. wood. 2010 1-1 0-9 UNECE (1972B). Italy. This advantage was reinforced by the very low average annual rate of increase in Greek unit labour costs compared with Western European unit costs. Annual Industrial Survey (various years) Industrial Western Europe6 4-6 3-7 Downloaded from http://cje. the competitive advantage Greece enjoyed as a low-wage country vis-a-vis the developed countries. Manufactured export increase to the EEC as % of total export increase. * No more than rough comparability is ensured between the Bank of Greece's classification and the ISIC code on which the classification employed here is based. combined with the fact that the share of EEC exports in total manufactured exports remained about half—47-1% in 1967 and 48-3% in 1973—implies that the rate of increase in exports outside the EEC was as high as the rate of increase in exports to the EEC. Belgium. * The countries of industrial 'Western Europe' are listed in n. Appendix B. tobacco 2. paper. " Including the Federal Republic of Germany.I. drink. Incentives for exports (consisting of various fiscal concessions as well as interest rate subsidies for export enterprises) were not as systematic and massive as the packages introduced in South Korea and Taiwan in the . 2. 35. Greece. in 1968. clothing.

This question assumes a more urgent character in the face of the recent performance of the Greek manufacturing sector. which. that is. 62-63). 12). 'seems incompatible with full membership' (CEC. 1976.f The share of EEC exports in total manufactured exports fell from 48-3% to about 39% in 1977. involve (a) the complete elimination of tariff and non-tariff protection vis-a-vis the nine EEC countries. and (b) the full application of the CCT and of the terms of preferential agreements concluded between the EEC and third countries. in the judgment of the Commission of the European Communities. Portugal. 1973—77. for lack of appropriate export price indices. § (ii) Up to the end of 1977 the EEC had concluded agreements containing provisions for industrial trade with 13 Mediterranean countries. At any rate by 1962 an impressive array of incentives was already in force. The timetables for tariff dismantling for Iceland and Portugal extend up to 1 January 1980 for some products and up to 1 January 1985 for others. broadly. .oxfordjournals. 1971. which are excluded for comparative purposes. and 1969-70. Switzerland. is the rate of output price increase given above. 2010 4. over the period of the international economic crisis. while the average annual rate of growth of exports fell from 22-3% over the 1961-73 period to 9-7%. Iceland (22 July 1972). Industrialisation and the prospect of EEC membership The question now arises as to how membership of the EEC would affect future prospects for net export growth. Norway (14 May 1973). except for a limited number of products and for two countries (Iceland and Portugal) for which a longer tariff dismantling period was stipulated. output prices rose at a rate of 13-2% (MC. These arrangements will. The growth of markets for Greek manufactures in the event that Greece accedes to the Community will largely depend on the arrangements concerning trade in manufactures which membership will bring about. Sweden. Trading agreements or arrangements between the EEC and third countries fall into five main categories. 1978). The adjustment was necessary only for manufactured food and drink exports. including the preferences accorded via the Generalised System of Preferences.J which indicates that the rate of increase of exports to the EEC was substantially lower than the rate of increase of exports outside the EEC. The terms of the agreement with Portugal have been modified by an additional protocol. since the export expansion did not get under way until after 1966. Finland (10 October 1973). p. 1978B). But the effectiveness of this policy is questionable. Further. as well as the suppression of the right to protect infant industries. t The 1977 figure (the source is Bank of Greece. this combination was largely the outcome of the interplay of the association agreement with the EEC and the operations of multinational firms.org at University of Warwick on April 22.Greece and the EEC 41 early 1960s (see Balassa. manufacturing output grew at an annual rate of only 2-5%. The overall conclusion of this analysis of the growth of demand for home-produced manufactures up to 1973 is that the main source of expansion was a combination of stability in the import ratio and rapid growth of exports (especially after the middle 1960s). See CEC. Ireland and the UK. (i) Full free trade in manufactures was established by 1 July 1977 with all seven European Free Trade Association (EFTA) countries. Downloaded from http://cje. § The EFTA member-countries and the dates of signature of the agreements are as follows: Austria. 1978) is adjusted for the manufactured exports of Denmark. with all except Albania t This is an estimate based on current-price figures for the years 1973 and 1977 taken from Bank of Greece (1974. the deflator used. pp. Bulletin of the European Communities (various numbers). Concessions were granted in 1954. 1961-62.

including textile items covered by the Multifibre Arrangement (MFA) and handicraft products. From this brief survey of the external trade relations of the EEC § two broad implications for a new member stand out. although only Turkey has so far negotiated the timetable for cutting tariffs and eliminating other barriers (periods of 12 and 22 years starting from 1971). 1976). thefiguresfor total imports are taken from Eurostat (1977). manufactured exports of nine of these countries. See also Murray (1973). § For comprehensive and relatively recent surveys of the external economic relations of the EEC see Coffey (1976) and Twitchett (1976). 4 and 5) and with nine countries exporting handicraft products (the list appears in European Community. Relations with the Mediterranean countries up to the end of 1973 are surveyed in Shlaim and Yannopoulos (1976V Downloaded from http://cje. 2-1975 and 3-1976). the Community has granted free access to its market for all exports of 53 African. Cyprus and Spain. while getting only most-favoured-nation treatment in return (see CEC. pp. while Spain has reduced tariffs by between 25% and 60% subject to a list of exceptions. Papantoniou and Libya. For a critique of the Community's GSP scheme see Cooper (1972). Malta.42 J. the Community has gained preferential access to the markets of only five countries. Community exports only get most-favoured-nation treatment. Lebanon. 1-1975. nos. Algeria. 1978. already enjoy free access to the EEC market subject to minor exceptions. It is not particularly generous. Yugoslav manufactured exports to the Community enjoy only most-favoured-nation treatment. Israel has undertaken to remove tariff and other barriers vis-a-vis the EEC by 1985. (iii) Under the Lome. preferential access to three and most-favoured-nation treatment to one country. Egypt. In three associated countries (Turkey. by joining the Community the new member t The GSPfiguresare taken from CEC (1977). Tunisia.) To sum up: of the 13 Mediterranean countries with which the Community has agreements it has granted free access to its market to nine. 2010 . in eight countries there is no reciprocity. Syria. As concerns concessions on the part of the Mediterranean countries. Bulletin of the European Communities. (Portuguese and Spanish arrangements will be superseded in the event of accession of these countries to the Community. which was signed on 28 February 1975 and took effect on 1 April 1976. * The Community had concluded by the end of 1977 agreements with 27 countries exporting low-cost textile products (see Communaute Europeenne. Convention. (iv) Overall trade relations between the Community and the Third World are arranged under the Community's Generalised System of Preferences (GSP). Cyprus and Malta) Community exports enjoy preferential access and the agreements provide for eventual dismantling of tariff and non-tariff barriers vis-a-vis the Community. which now covers 114 independent states and 27 territories of the less developed world (see Annex C of CEC. Israel and Turkey. Morocco. 2. J (v) The Community has not concluded preferential agreements with other industrialised countries. p.oxfordjournals. since GSP ceilings represent a very small percentage of total extra-Community imports (only 3-1% in 1975) and actual GSP imports represent an even smaller percentage (only 1*6% in 1975). Under the agreements. Another three countries. 1977). Caribbean and Pacific (ACP) countries except some agricultural products. while in the remaining eight it only gets most-favoured-nation treatment. The scheme fixes ceilings for preferential imports of manufactures which can enter the Community market duty-free. Jordan. First. In return. enjoy preferential access for manufactured exports—Community tariffs are reduced by between 40% and 70%.f Its significance is reduced by quantitative restrictions imposed on the import of certain products of special importance to developing countries and the Community.org at University of Warwick on April 22.

on the one hand. without getting comparable advantages in the markets of those countries. first. has carried out research in order to establish the effects of membership of the EEC on the competitiveness of 42 branches of Greek manufacturing. But the fall in the overall level of protection resulting from membership will be significantly more drastic than what has resulted so far from the application of the 1961 association agreement. Section 3 concluded that the tendency for the import share to rise as a result of Greece's existing association agreement with the EEC has so far been offset by the import-substituting effect of the setting up of new industries by foreign enterprises. 2010 . prospects for import substitution and. The published results cover 34 of the 42 branches and suggest that import liberalisation will worsen 'moderately' or 'seriously' the competitiveness of almost all of these branches. which is mainly financed by the Federation of Greek Industries (the employers' organisation). On the other hand. considering. This Institute. This is so because. Greece will have to adopt at once the preferential arrangements concluded between the Community and third countries.Greece and the EEC 43 will enter an industrial free trade zone covering almost the whole of Western Europe. Such a fall in the level of protection is likely to generate a strongly rising tendency in the overall import share. Downloaded from http://cje. Let us consider the position of Greek traditional consumer goods in the EEC market under the above headings: (i) the GDP of the nine member-countries of the EEC grew at an average annual rate of 4-2% over the decade 1964-73 (Eurostat.oxfordjournals. prospects for export expansion. It is. on the other hand. on account of the growing social and political resistance which it produces. Second. In what follows an attempt will be made to assess the significance of these arrangements for the process of industrialisation in Greece in the event that Greece accedes to the EEC. In section 3 we detected two main sources of manufactured export expansion over the 1961—73 period: mineral processing and traditional consumer goods. 1973-74) and is not expected to grow faster after the end of the current economic crisis. (ii) It may be argued that EEC economies are going to abandon traditional lines of manufacturing production in order to turn to branches with a technological lead. while the income elasticity of demand for traditional consumer goods is typically below unity. and (iii) the exporting country's competitive position vis-d-vis other exporters.org at University of Warwick on April 22. Let us now turn to the prospects for rapid export expansion. Processed mineral exports were found to be mainly the consequence of vertical foreign investments and to be directed for the most part outside the EEC. What are the prospects for the continued expansion of these exports within the EEC market ? In general. the EEC attracted the largest share of exports of traditional consumer goods. f unless new import-replacing industries are set up. which account for about 70% of gross output of large-scale manufacturing. then. very doubtful whether this process of structural change will be allowed to move fast. Evidence for this is the recent tightening of quantitative limitations in the Community's GSP f This prediction is amply borne out in Institute of Economic and Industrial Research (1978). A similar conclusion is reached by Hummen (1977) in a study undertaken for the German Development Institute. it will face almost unrestricted competition from manufactured exports of Mediterranean and AGP countries and limited competition from LDCs at large. so that the rate of overall import penetration may be expected to be rising. the growth rate of exports is governed by: (i) the growth rate of external demand. (ii) the overall rate of import penetration in the external market. dismantling of tariffs and non-tariff barriers vis-a-vis the Community and alignment to the CCT for competitive manufactures will involve a major break with the current regime while. Therefore. the growth of total EEC demand for these products is likely to be very low. however.

oxfordjournals. point to the possibility that Greece's comparative advantage may be transposed to skilled-labour-intensive lines of production. to improve the organisation of production. so that it becomes internationally competitive. These countries. while the price elasticity of demand for traditional consumer goods is typically quite high. 2010 . Increased penetration of competitive imports into the Greek market.a. to 'learn' the technical aspects of the productive process and to organise an efficient supply of raw materials and intermediate inputs as well as the distribution of final products. whose manufactured exports consist for the most part of traditional consumer goods. especially to those which can be operated efficiently at relatively small scale.org at University of Warwick on April 22. This protection is necessary in order to give time for the new industry to increase its scale of production. The production base of these sectors in Greece is still narrow and inadequate. as testified by their big import shares (see Table 1). the overall rate of import penetration is not likely to accelerate substantially. this need for protection t The import possibilities opened by the GSP scheme for 1978 represent a marginal improvement over the 1977 scheme in value terms. moreover. Downloaded from http://cje. p. but the size of this market—about one-sixth of the EEC market—makes it unlikely that it will compensate for the diminished potential of the EEC market. by virtue of their recent agreements with the Community.! as well as growing cartelisation within the EEC itself. The creation of new manufacturing branches presupposes in general a certain degree of protection for a substantial period. The MFA agreements or arrangements envisage import growth of only 6% p. Papantoniou scheme and the bilateral textile agreements and arrangements. namely free access to the EEC market. 4). It follows that the prospects for rapid expansion of Greek exports of traditional consumer goods to the EEC market are not bright. and will be worsening as industrialisation gets under way in an ever larger number of these countries. 2). p. which absorbs the largest part of corresponding Greek exports. and seems to provide considerable scope for diversification and development in both import-replacing and export-expanding directions. Therefore. Greece's competitive position is now worse than it was in the late 1960s and early 1970s. coupled with a slowdown in the rate of expansion of traditional Greek exports to the Community market. Therefore. 1977.44 J. as well as their small contribution to total manufactured exports (see Table 2). they tend to enjoy substantially lower labour costs than Greece does. The products in question tend to belong to the groups of modern consumer and producer goods and happen to face strong demand both at home—on account of the level and growth of Greek incomes —and abroad. so that it will probably involve an absolute reduction in quantity terms (see CEC. 1978. unless new products are developed both for import replacement and for export. combined with the preferential access gained by many of them to the EEC market. A secure and protected home market is further needed in the initial stages of export expansion as a testing ground for the new products and for ensuring comfortable profit margins to permit competitive export pricing. would suggest that growth prospects of the Greek manufacturing sector if Greece joins the EEC will not be good. Broadly speaking. (see Communaut^ Europeenne. to which Greece will gain free and fairly exclusive access as an EEC member. Traditional exports may be expected to grow relatively fast in the high-income EFTA market. The comparative level of Greek labour costs and the promotion of industrialisation in an increasing number of developing countries which specialise in unskilled-labour-intensive products. now share the advantage Greece gained in 1968. to specialise. (iii) Greek products will face sharp competition from other Mediterranean and ACP countries.

if Greece joins the EEC. in general. for the years 1974 to 1976 foreign manufacturing investment was assumed to account for the same proportion of total foreign investment—which is taken from Bank of Greece (1978)—as it did over the 1968-73 period. will depend on a massive inflow of foreign investment.g. Recent contributions to the theory of foreign investment suggest that the main motives are either to prepare inputs and raise barriers to new entrants (vertical investment) or to exploit a unique asset. such as a patented invention or a differentiated product. Downloaded from http://cje. foreign manufacturing investment for the years 1968 to 1973 is taken from Roumeliotis (1975). The first is the setting up of certain resource-based industries. the share of foreign investment in total manufacturing investment over the 1968-76 period was only about 6%. this has not so far been happening since 1968. if a massive inflow of foreign investment is achieved.Greece and the EEC 45 may be expected to be overcome in two cases. where small initial size and 'inexperience' may be compensated for by the existence of cheap energy or raw materials. First. in a manner which is more profitable than exports or licensing (horizontal investment). the natural resources of Greece do not warrant vertical foreign investment on the required scale. But the known natural resources of Greece do not offer sufficient basis' for resource-based industrialisation. For a survey of the literature on the determinants of foreign investment see Stevens (1974). while the attraction of the small and relatively unprotected Greek market is bound to be limited. and thence the very process of industrialisation. In the absence of protection against some of the major world exporters of modern consumer and producer goods. the massive inflow of foreign investment may not be realised.oxfordjournals. Dependence on multinational enterprises is a risky choice. in a period when Greek manufactured exports had won free access to the Community while strikes were prohibited and wages increased very slowly:J in fact. The price policy of the multinationals regarding the invoicing of intermediate imports and of exports may endanger the foreign position of the country and allow the outflow of a substantial t See Vernon (1966) and Caves (1971). which are marked by the low level of their wage costs. In this case the size.§ Second. the growth of net exports of manufactures. national enterprises will be deterred from engaging in or developing new import-replacing and/or export-expanding lines of production except in certain resource-based industries. He finds that multinational participation in manufactured exports from LDCs is 'smaller than widely believed' and is concentrated in a very small number of countries. The second case is investment by multinational enterprises. e. political stability and labour docility.f As has already been suggested. § Total manufacturing investment is taken from MC (1978B). only multinational enterprises may be expected to overcome the need for 'infant'—or 'adolescent'—industry protection. this may have serious implications for the level of employment and regional balance. such as EEC and EFTA countries. its contribution to the acceleration of industrialisation may still be offset by a variety of negative factors: the technological and location choices of multinational enterprises will not necessarily coincide with those dictated by a national development policy. Thus it would seem that. technical and organisational experience and integration of multinational enterprises into an international circuit of production and trade help to remove cost problems which would hang over national industry.org at University of Warwick on April 22. 2010 . see Nayyar (1978). £ For a comprehensive review of the evidence on manufactured exports by multinational enterprises located in developing countries. Although it may be argued that Greece stands a chance of becoming a centre for low-cost exporting to advanced parts of Western Europe. in petro-chemicals or basic metals. the result being unemployment and/or emigration.

imperfect application of the 1961 agreement due to the fact that the 'freeze' imposed by the Community during the seven years of military dictatorship (1967-74) tended to affect most those aspects of it which had been negotiated in Greece's favour. Concluding remarks The overall conclusion that seems to emerge from the preceding analysis is that Greece's accession to the EEC will retard the process of industrialisation and. February (in Greek) Bank of Greece 1974. Bulletin of External Transactions of Greece. February CEC (Commission of the European Communities). Papantoniou part of manufacturing value added. Downloaded from http://cje. January-December 1970. Bulletin of External Transactions of Greece. International corporations: the industrial economics of foreign investment. 106. 1971. Among arguments in defence of such an arrangement the following may briefly be mentioned. such as the harmonisation of agricultural policies. 1 Bank of Greece 1971. April (in Greek) Caves. may have adverse effects on the rate of overall economic growth. precedents created by Community trading arrangements with Mediterranean and other developing countries. Bibliography Balassa. various numbers t For a theoretical and empirical analysis of the phenomenon of over-invoicing intermediate imports and under-invoicing exports by multinational enterprises. Such an alternative should introduce a fairly strong element of non-reciprocity in trading arrangements between Greece and the EEC for a long period. no. March (in Greek) Bank of Greece 1978.| Finally. on account of the strategic importance of the manufacturing sector for economic development. 1971. so that they remain islands of advanced technology in an area of relative backwardness. B. R. It will be observed that the expiry.46 J. which would serve the longer-term interests of the Greek economy better than the present options of membership or letting the existing association agreement be implemented in full. 2010 . of the transitional period of the association agreement currently in force would produce results comparable with those described above—if the implications of not adopting preferential agreements or arrangements between the Community and third countries are allowed for—without the benefits that membership is expected to confer on other counts. see Vaitsos (1974). Industrial policies in Taiwan and Korea. the integration of multinational enterprises in an international circuit of production and trade may reduce their linkages with the system of home production.org at University of Warwick on April 22. The need therefore arises for a new form of economic relationship. and the persistence of structural deficiencies in the Greek economy as manifested by large deficits in its balance of trade. Economica. rather than those aspects which suited Community interests. vol.oxfordjournals. January-December 1977. in 1984. Bulletin of External Transactions of Greece. Bulletin of the European Communities. but this is neither likely nor desirable. E. Weltwirtschaftliches Archiv. January-December 1973. 5. in order to give Greece time to develop its manufacturing sector and attain international competitiveness. in particular in the form of resource transfers. This prediction could be refuted if a massive inflow of foreign capital were achieved. namely tariff reduction.

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