Theme: Economic impact of Climate change on the Greek Economy

3.Economic impact of Climate change on Greek Economy

The economy of Greece is the 51st largest in the world, with a nominal gross domestic product (GDP) of $ 189.410 billion per annum in 2021. In terms of purchasing power parity, Greece is the world's 54th largest economy, at $ 305.005 billion per annum. As of 2020, Greece is the sixteenth-largest economy in the 27-member European Union. According to the International Monetary Fund's figures for 2021, Greece's GDP per capita is $ 19,827 at nominal value and $ 31,821 at purchasing power parity. Greece is a developed country with an economy based on the service (80%) and industrial sectors (16%), with the agricultural sector contributing an estimated 4% of national economic output in 2017. Important Greek industries include tourism and shipping. With 34 million international tourists in 2019, Greece was the 7th most visited country in the European Union and 16th in the world. The increased demand for international maritime transportation between Greece and Asia has resulted in unprecedented investment in the shipping industry. The country is a significant agricultural producer within the EU. Greece has the largest economy in the Balkans and is an important regional investor. Greece was the largest foreign investor in Albania in 2013, the third in Bulgaria, in the top-three in Romania and Serbia and the most important trading partner and the largest foreign investor in North Macedonia. The Greek telecommunications company OTE has become a strong investor in certain former Yugoslav and other Balkan countries

Greece is classified as an advanced high-income economy and was found a member of the Organization for Economic Co-operation and Development (OECD) and of the Organization of the Black Sea Economic Cooperation (BSEC). The country joined what is now the European Union in 1981. In 2001 Greece adopted the euro as its currency, replacing the Greek drachma at an exchange rate of 340.75 drachmae per euro. Greece is a member of the International Monetary Fund and of the World Trade Organization, and ranked 34th on Ernst & Young's Globalization Index 2011.

Greece’s GDP is projected to increase by 6.7% in 2021 and just under 5% in 2022, before growth moderates in 2023. As containment measures eased in April 2021, economic activity rebounded, supported by a stronger-than-expected summer tourist season. Government support and investments will further contribute to the recovery of employment and consumption. High levels of spare capacity will likely limit the rise in inflation. A worsening in the health situation and investment delays would imperil the projected recovery.

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The literature review has identified relevant tourism studies about Greece and studies on countries other than Greece. Regarding the former group: Michailidou etal. (2016) have used multiple criteria decision analysis to assess the interactions between tourism and CC with a ranking of adaptation and mitigation measures. Giannakopoulos et al. (2011) use a high-resolution regional CC model to predict temperature, precipitation and humidity patterns for the period 2021–2015 based on a sample dataspan from 1961 to 1990. In a similar vein, Giannakopoulos et al. (2011) use nine regional climate models with data on temperature and precipitation from the period 1961–1990 to make projections for CC in Greece for the years 2071–2100. Other studies such as Slini and Papakostas (Slini & Papakostas, 2016)⁵ are more generic and climatological ones and do not have a focus on tourism. None of the up-to-date studies falls in the field of tourism economics and none has used the gravity model together with the input – output analysis to measure the economic effects of CC on Greek tourism and the economy. Thus, the need for this paper emerges as very high because it gauges a definite gap in the literature. Also, political stability seems to play an important role in Greek economy. Moreover, the Olympic Games of 2004 seem to have had a negative impact on international tourist arrivals in Greece in that year.

By the middle of the century, the average temperature in our country will increase, and the average rainfall will decrease, while the sea level will rise to a remarkable degree. Climate change is an ongoing, exceedingly important and very well-studied global phenomenon. Detailed models predict its development over the next decades in a fairly clear manner. However, its effects are not just environmental. They are not limited to increase air temperature, or to the appearance of extreme weather events. Its consequences affect every aspect of human activity, from the tourism infrastructure and the agricultural production of a country, to the health of its population.
Regarding the second group which contains studies on countries other than Greece: We have identified studies on various countries that have an important income size from tourism. Following an ascending chronological order in those studies, Eryigit etal. (2010) have used a gravity model to analyze tourism demand in Turkey from the top 11 originating countries during 1995–2005. They have found that the following factors positively affect international tourism arrivals in Turkey: GDP per capita, tourism climate index, source country population, tourism price index, distance, earthquake, neighboring country, September 11th terrorist attacks. In 2012, Massidda and Etzo (2012) have performed a GMM panel data analysis to examine Italian domestic tourism demand as measured by regional bilateral tourism flows. The analysis has been developed at a country level and for the Center-North and South parts of the country. For the aggregate case, domestic tourism demand appears to be affected by traditional variables. Moreover, tourist choices appear to be affected by past experiences and by regional differences in the quality of the wider environment. Italian tourists treat domestic and international destinations as substitutes. With respect to the disaggregate case, southern tourists are more responsive to income changes but less sensitive to prices differentials than the northern ones. Also, southern tourists seem to be affected more by environmental characteristics. While northern ones appear as more sensitive to cultural activities. In the same year, another study by Vietze (2012) has employed an augmented gravity model for the investigation of cultural effects on tourism demand in the USA. He has found that more people from countries speaking the English language and high governmental rankings comparable to that of the USA will travel to the USA for holidays. Tourists from Christian countries prefer the USA as a holiday destination more. This finding supports the argument that people prefer a vacation to countries with similar cultural and political backgrounds to their own. In 2013, Velasquez and Oh (2013) have also used a gravity model to study tourism demand in Peru from 59 countries for 1990–2011. The empirical results reveal positive coefficients for economic size and negative coefficients for distance. The collaboration of Peru with its neighboring countries will generate mutual investment in transport infrastructure which is necessary to create economies of scale that will favor the generation of benefits from the cluster effect. For 2015, we have identified two studies: The study by Priego etal. (2015) has used a gravity model to investigate the impact of temperature on tourism destination choice for domestic tourism in Spain with data from 2005 to 2007. They apply the model for data on Spanish provinces, and they find that climate affects domestic tourism flows. Their findings also show that colder provinces in the north of Spain will benefit from rising temperatures, while warmer regions in the south will be confronted with a decrease in tourism demand. Provenzano (2015) applies a gravity model on Sicily with a system dynamics methodology and he investigates structural and promotional aspects that might affect tourism demand. His results show that natural and cultural resources, the road infrastructure and the urban environment affect tourism demand.

For 2016, we have identified three studies: One by Alawin and Abu-Lila (2016) has identified the determinants and the uncertainty of international tourism in Jordan. They have used a gravity model and a Panel-GARCH model to study the effect of uncertainty on the number of tourist arrivals to Jordan with data from 22 countries and a data span from 2000 to 2014. Their results show that development in Jordan, place familiarity, infrastructure, language, the income of importing countries and hotel capacity do affect tourist arrivals in Jordan in a positive way. Conversely, the exchange rate, cost of living, distance and uncertainty negatively affect tourist arrivals in this country. Lorde etal. (2016) have introduced climate conditions in their gravity model for tourism demand in the Caribbean. They have confirmed Linder’s hypothesis, namely that tourist flows are partly determined by the similarity in preferences between the destination and source markets. They have also confirmed the climate distance hypothesis, which measures the gap between climate conditions in origin and destination countries. Habit persistence has the largest impact on demand based on their results. Last, the study by Pintassilgo etal. (2016) has used a gravity model for Portugal with temperature and precipitation data and an input – output model to find that Portugal will experience a significant increase in temperature, leading to a decrease in inbound tourism arrivals between 2.5 and 5.2%. This decrease in tourist arrivals is expected to reduce the Portuguese GDP between 0.19 and 0.40%.

Last, two more studies in 2017 have been developed for Bangladesh and Australia. Actor et al. (2017) have studied tourism demand in Bangladesh, and they have used factors like distance, Gross Domestic Product (GDP) per capita, population, Consumer Price Index (CPI) and exchange rate. Their paper has employed Rodrigue's modified Gravity model through GLS regression analysis based on a very short panel from 2009 to 2012 of 30 source countries. Based on those results, arrivals are positively correlated with GDP per capita and population and negatively associated with distance, exchange rate, and CPI. The gravity approach has been used not only at a country level, but for smaller geographical places too. Gouveia et al. (2017) have investigated international demand for the Douro river cruises in Portugal for the period 2007–2014. The following factors have been identified as positively significant: income per capita and the population size of source countries. One of the earliest studies though was by Taplin and Qiu (1997) who used a gravity model to study car trip attraction and route choice in Australia. Their model comprised populations, travel times, traffic on road links, and identification of prime tourism destinations. They have estimated simultaneously a gravity model of trip generation, with an attraction population multiplier, and a route assignment model. Their results have revealed an attraction multiplier equal to four and a high propensity for long-distance car tourists to return home by a different route. This study has focused on a specific tourism flow rather than aggregate tourism demand as most studies have done. In doing so, one can easily realize that the model we employ in this paper, to the best of our knowledge, has not been used by any other study so far, also, our data set is more up to date than the existing studies, finally the set of the employed variables is unique. Foremost our study uses the difference of the variables between the origin and destination country which constitutes another novelty too. The aforementioned novelties also apply to studies that deal with tourism in countries other than Greece too. Hence, it is easily perceived that our suggested model and approach, together with the focus and the dataset of the paper contribute to filling a definite gap in the literature.