European Integration
Dualism in Greece

The 1992 programme will face its greatest challenges and its largest potential benefits in recent entrants to the EC. In Discussion Paper No. 374, Research Fellow Louka Katseli assesses how the Greek economy will adjust to the combined shocks of EC membership and 1992. She attributes major rigidities in goods, capital and labour markets to a `state corporatist' political environment which has condoned the development of dual markets and allocative inefficiencies in their operation.
European integration challenges the fundamentals of state corporatism, Katseli notes, through trade and capital market liberalization and the requirements of macroeconomic policy coordination. In the short run, unemployment is likely to rise as import protection and subsidies are removed from traded-goods production, but in the longer run, competitive gains are expected from the reduction of price-cost mark-ups, the exploitation of scale economies and industrial restructuring. Reforms of capital and financial markets will affect the two sectors differently, raising the cost of capital for the subsidized `official' sector and lowering it for firms presently starved of credit.
This paper was produced for the CEPR project on `Economic Integration in the Enlarged European Community', described in more detail in Bulletin No. 36

Structural Adjustment of the Greek Economy
Louka T Katseli