The role of economic uncertainty in the investment and employment gap in the Greek economy

Georgios Gatopoulos, Alexandros Louka, Arsenios-Georgios Prelorentzos, Evangelia Valavanioti and Nikolaos Vettas
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Georgios Gatopoulos: Foundation for Economic and Industrial Research (IOBE) and American College of Greece
Alexandros Louka: Foundation for Economic and Industrial Research (IOBE)
Arsenios-Georgios Prelorentzos: Foundation for Economic and Industrial Research (IOBE) and Panteion University
Evangelia Valavanioti: Foundation for Economic and Industrial Research (IOBE)
Nikolaos Vettas: Foundation for Economic and Industrial Research (IOBE), Athens University of Economics and Business and Centre for Economic Policy Research, UK

Economic Bulletin, 2026, issue 63, 47-84

Abstract: This study examines the extent to which economic uncertainty acts as a deterrent to business decisions regarding investment and employment. Focusing on the Greek economy, which has experienced successive and prolonged crises, we find that uncertainty exerts a significant negative impact on economic activity, with the magnitude of this effect varying across sectors, firm size and measurement method. Using microdata from Business and Consumer Surveys (BCS), we construct new uncertainty indices for the Greek economy. These indices are positively correlated with existing measures, while also allowing for a more granular analysis of uncertainty at both the sectoral and firm levels. The macroeconometric analysis shows that uncertainty acts as a constraint on both investment and employment, with effects that are substantial and persistent, lasting beyond one year. The microeconometric analysis further reveals significant heterogeneity and asymmetry in these effects, depending on firms’ expectations, sectoral characteristics and firm size. Overall, the findings highlight the importance of measuring and systematically monitoring economic uncertainty. Such measurement enables the timely identification of constraints faced by firms in their investment and employment decisions and provides valuable insights for the design and implementation of policy measures aimed at mitigating the adverse effects of uncertainty and strengthening economic resilience.

Keywords: uncertainty; investment gap; employment (search for similar items in EconPapers)
JEL-codes: C23 C32 E22 E24 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:bog:econbl:y:2026:i:63:p:47-84

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