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Investment in Transport Equipment in
Greece and the Eurozone
Gregory T. Papanikos
President, ATINER
Invited lecture
University of Maryland, USA
Athens, 21 May 2023
Some Definitions
➢Investment is a flow economic variable that
replenishes and adds to the stock of capital. The
stock of capital is an asset like plants, machineries,
cars, airplanes, airports, maritime ports, bridges,
rails, inland waterways, highways etc.
➢The services of the stock of capital are used to
produce intermediate and final goods and services.
➢Investment in transport equipment is the amount of
money expended to replenish and/or increase the
capital stock in industries that produce transport
equipment.
Investment and the Production Process
Production Function: y = f(L, K, Z)
The total differential is of the form of:
dy = (∂y/∂L)dL + (∂y/∂K)dK + (∂y/∂Z)dZ
dKis the net change in the capital stock, which by
definition is equal to net investment at the firm/industry
level.
Total or Gross Investment (I) is equal to net investment
(In) plus the investment to replace the technologically
obsolete or worn-out capital (plant and machinery) (Id):
I = In+ Id
Economic Theories of Investment
➢Unlike consumption, the economic theories of investment are not
deemed satisfactory and this because of the uncertainty and the risk
associated with such decisions about the future.
➢Three notable economists/philosophers (Karl Marx, John Maynard
Keynes and Joseph Schumpeter) gave metaphysical explanations of
investment: drive to accumulate, animal spirits and vision of the
future.
➢Some basic economic theories of investment are: the present value
criterion (the return rate higher than the market rate), the neoclassical
approach which makes investment a function of output and prices,
and the accelerator principle which makes investment a linear
function of the rate of growth of output.
An example: The accelerator theory of investment applied
to the Greek investment in transport equipment
The Model
K
t= αYtand Kt-1 = αYt-1 => Kt-Kt-1 = α(Yt-Yt-1) or It= αΔYtand by
approximation I
t= αlog(Yt). The latter is shown in the graph below.
Types of Aggregate Investment
1. Greece spends much less than the eurozone on investment relative to its GDP,
13.7% and 22.69% respectively.
2. Greece’s GDP account for 1.56%of all the eurozone but its investment only
0.94%.
3. Greek Investment in transport equipment was 2.4 billion of euro relative to 222.2
billion of Eurozone’s.
Types of Investment (Gross Fixed Capital Formation) in 2022
Type of Investment
Eurozone
Eurozone
Greece
Greece
Greece/Euro
(bn €)
(% of
total)
(bn €)
(% of
total)
(%)
Construction
1552.8
51.32%
10.7
37.54%
0.69%
Metal Products and
Machinery
616.9
20.39%
10.3
36.14%
1.67%
Transport Equipment
222.2
7.34%
2.4
8.42%
1.08%
Other Investment
633.6
20.94%
5.1
17.89%
0.80%
Total Investment
3025.5
100%
28.5
100%
0.94%
GDP
13333.6
208
1.56%
Total Investment/GDP (%)
22.69%
13.70%
Transport equipment industries where
investments can be made
1) manufacture of motor vehicles, trailers and semi-trailers;
2) manufacture of motor vehicles;
3) manufacture of bodies (coachwork) for motor vehicles;
manufacture of trailers and semi-trailers;
4) manufacture of parts and accessories for motor vehicles and their
engines;
5) manufacture of other transport equipment;
6) building and repairing of ships and boats;
7) manufacture of railway and tramway locomotives and rolling
stock;
8) manufacture of aircraft and spacecraft;
9) manufacture of motorcycles and bicycles;
10) manufacture of other transport equipment n.e.c. (non elsewhere
classified) such as luggage trucks, handcarts, sledges, shopping
carts etc.- manufacture of vehicles drawn by animals: sulkies,
donkey-carts, hearses etc.
Industrial Policy and Strategy
“Industrial policy” refers to government efforts
to shape the economy by targeting specific
industries, firms, or economic activities. This is
achieved through a range of tools such as
subsidies, tax incentives, infrastructure
development, protective regulations, and
research and development support.
Ruchir Agarwal (2023) “Industrial Policy and the Growth Strategy Trilemma”,
Analytical Series, Finance and Development, IMF.
EU’s Industrial Policy and Strategy
Investment in clean technologies and disruptive innovation plays a
key role in the European Green Deal and the new industrial
strategy. The industrial strategy addresses the twin challenges of the
green and digital transformations.
It highlights the importance of research and innovation in providing
the technological foundation to transform and strengthen industrial
value chains, helping to turn sustainability and digital challenges
into business opportunities. Common industrial technology
roadmaps are a key tool to achieve this objective.
In order to boost sustainable investments, the EU established a
sustainable finance policy and a dedicated taxonomy regulation, as
part of the European Green Deal. These actions aim to attract
private green finance to facilitate financing of large-scale
demonstrators and deployment.
EU’s Transport Policy Objectives I
1. Developing a comprehensive strategy for sustainable and smart
mobility, ensuring a transport sector fit for a clean, digital and modern
economy.
2. Promoting sustainable and alternative transport fuels for road, maritime
and air transport.
3. Working to extend the Emissions Trading System to the maritime sector
and reducing free allowances for airlines.
4. Leading in international fora such as negotiating global emissions
reductions within the International Civil Aviation Organization and the
International Maritime Organization.
5. Contributing to a zero-pollution goal, mitigating the impact of transport
on the climate and natural environment from emissions reductions to air,
water and noise pollution.
6. Reviewing the Energy Taxation Directive, aligning it with the
Commission’s climate ambitions and bringing an end to fossil-fuel
subsidies.
7. Modernizing transport systems, such as connected and automated
mobility, with a strong focus on digital innovation.
EU’s Transport Policy Objectives II
8. Swiftly completing missing infrastructure links and the Trans-European
Transport Network, underpinned by a fair and functioning internal
market for transport.
9. Ensuring passenger rights are respected and transport remains affordable,
reliable and accessible, particularly for low-income households and those
in remote areas.
10. Ensuring the highest safety standards as traffic increases and security
threats become more complex.
11. Working closely with key partners to open up new market opportunities
and to enforce existing agreements.
12. Improving connectivity links, particularly in the EU's neighborhood and
Western Balkans.
13. Ensuring effective implementation of dual-use infrastructure projects to
improve military mobility using Connecting Europe Facility funds.
14. Contributing to asustainable and competitive tourism industry.
1. In 2022, the eurozone countries spent 193 billions of constant 2010 euro in
investment in transport equipment.
2. In 2019 spent 231 billion which is a maximum of the entire 2000-2022 period.
3. The minimum value occurred in 2009 of 143 billion.
4. The pandemic of 2020 had a sharp impact on investment in transport equipment
measured at 51 billion euro decrease relative to the previous year.
1.
Greece’s investment in transport equipment was rising since 1995 reaching the first peak of
the period just before the Olympic Games of the 2004 of 1.9 billion euro.
2.
After a short decrease, it started to increase again reaching the 4.2 billion in 2007.
3.
The Great Recession of 2009 hit Greece’s transport equipment investment very hard. It
reached 0.8 billion euro, the lowest value in the euro years (after 2000).
1. Eurozone’s transport equipment investment as a percentage of total investment was much
higher than Greece’s up to 2012. In the last ten years, the share is almost the same for both
Greece and the Eurozone.
2. As shown in the Graph, the Great Recession hit harder the Greek transport equipment sector
than the total investment. From 7.54% in 2007, it dropped to 3.81% in 2012.
3. This was not the case in the Eurozone where the share of transport equipment investment
remained relatively stable as a percentage of total investment.
1. Following the previous observations, the share of Greece’s transport equipment investment to
total Eurozone’s transport equipment investment has shown great variability.
2.
In 2012, this share was only 0.5%. The average of the period was 1.15% with a maximum of
2.11% in 2007.
3.
After the Great Recession, the share remained relatively stable.
1.
Greece invests relative less on transport equipment than the Eurozone area.
2.
Greece’s transport equipment investment is more volatile than Eurozone’s. The standard
deviation (not reported in the Graph) was 0.28% for Greece and 0.16% for the Eurozone.
3.
The Great Recession of 2010 hit Greece’s investment very hard. From 1.8% of GDP in 2007
decreased to 0.4% in 2012. The Eurozone percentages were 1.9% and 1.6% respectively.
Summary
❖Investment replenishes and adds to capital stock.
❖The services of the capital stock are used to produce intermediate and
final goods and services.
❖In the European Union (Eurozone, Greece), the transportation sector
(industries) is committed to serve the objective of sustainability by
setting certain targes that take into account the climate change and the
digital economy.
❖The investment in transport equipment is more sensitive to external
economic and noneconomic crises such the Great Recession of 2009
and the Pandemic of 2020 than the other sectors of the economy.
❖Relative to the Eurozone, the Greek investment in transport equipment
has been affected harder during the Great Recession and the pandemic.
❖In both the Eurozone and Greece, there exists a strong positive relation
between investment in transport equipment and Gross Domestic
Product (GDP)