climate and governance performance, and Greece the worst. Portugal and Spain fall in between and their performances mirror each other’s. Poor performance on these indicators is likely to have a negative impact on growth (Olson et al, 2000).<sup>76</sup> Figure 14a‐d shows GIPS’s most recent global competitiveness ranking (GCR) and other related measures. The evolution of these indicators provides insight on outcomes. Greece’s performance is 3 times worse in the GCR in 2012‐2014 than it was at the beginning of the decade (Figure 14a). On almost all measures of institutional quality (Figures 14b, c, d), government effectiveness, rule of law, regulatory quality, the strength of auditing and accounting, resolving insolvency and, in particular, corruption, Greece shows a widening difference with the other countries and a much worse deterioration. Table 10 below shows how GIPS compare with other countries at similar or lower GDP per capita. Portugal outperforms Greece, despite being poorer. Since 2012, some indicators show that Greece’s relative performance is improving. For example, the doing business indicator shows the largest improvement in Greece and Portugal’s relative rankings and a deterioration in Ireland’s and Spain’s. The OECD’s product market regulation index also shows an improvement for Greece, but both Portugal and Spain’s changes outperform it. Yet, a net positive output response to structural reforms takes time, particularly after crisis, when the rate of firm destruction is hastened. Despite, these selected improvements in GPS, they clearly have a substantial reform agenda ahead.

**Table 10: GDP per capita and Governance**

||GDP pe<br>(constant<br>|r capita<br>2010 US$)<br>|Control of<br>|corruption<sup>1</sup><br>|Glo<br>competitiv<br>|bal<br>eness rank<br>|Doing b<br>ra<br>|usiness<br>nk<br>|
|---|---|---|---|---|---|---|---|---|
||2007|2014|2007|2014|2007|2014|2007|2014|
|Ireland|53,975|52,257|93|92|22|25|10|15|
|Austria|47,243|47,645|96|90|18|21|30|30|
|France|41,699|41,050|92|88|15|23|35|38|
|Spain|32,462|29,595|82|70|29|35|39|52|
|Greece|30,057|22,558|65|51|61|91|109|72|
|Israel|29,634|32,673|76|76|14|27|26|35|
|Slovenia|24,675|23,247|81|75|40|62|61|33|
|Portugal|22,819|21,537|80|79|43|51|40|31|
|Korea, Rep.|20,421|24,479|73|70|23|25|23|7|
|Estonia|17,595|14,540|79|88|26|32|17|22|
|Slovak Rep.|15,827|17,883|67|60|36|78|36|49|
|Croatia|14,480|13,539|59|62|56|75|124|89|
|Hungary|13,629|13,933|73|61|38|63|66|54|

1: Percentile Rank (0 lowest rank, 100 highest rank). Source: The World Bank; World Development Indicators, Worldwide Governance Indicators, Global Competitiveness Dataset, Doing Business Reports.

_<u>Poor business environment, large productivity dispersion.</u>_ Another structural factor explains why GPS’s business environments need to be improved for growth: they have a large share of small, low productivity firms. The average size of firms is _smaller_ than in other European countries. Over 90% of firms have less than 9 employees (micro firms) and more than half of the workers are employed in firms with fewer than 50 employees (comparable numbers are 23% of workers in Germany, and 32% in France). The smaller firms are less productive and more labor intensive; moreover, more than 85% of total exports in European countries are from the largest 5,000 companies (European Economy, 2015).<sup>77</sup> Obstacles, such

> 76 Note that some of these indicators being “subjective” partly reflects worsening of perceptions than worsening on the ground.

> 77 See also Freund (2016) for the relationship between firm size and exports.

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