THE IMPOSSIBLE TRINITY OF DEVELOPING COUNTRIES – THE GREEK EXAMPLE

The mobility of factors of production from the very beginnings of the theory of the
optimal currency area (OCA) stands out as one of the primary mechanisms for
achieving a balance of payments, i.e. sustainability of the monetary union
(Mundell criterion). However, there is a significant qualitative difference between
the monetary union of countries with similar income levels and the one with
different development stages Namely, in the first case, labor mobility, as a rule, has
short-term economic effects, while it has a longer-term (more negative) impact –
especially on the long-run aggregate supply (LRAS). Many Eastern European
countries, which expressed a desire to become part of European integration and
the monetary union after the communist ruin, experienced this. In a previous
paper, the authors set the thesis about “Impossible Trinity of Developing
Countries”. In this paper, the aspiration is to confirm the validity of this theory by
analyzing Greece within the period 1999-2020, specifically observing the impact
of three variables (fiscal policy, social development level, and level of economic freedom) on the emigration of the population under conditions of monetary union
and labor force mobility. The results obtained in this research indicate that the
fiscal policy in the observed period was the most significant factor in explaining
migration trends. The implications for developing countries that are currently
entering (such as Croatia) or intend to enter the monetary union with more
developed countries in the future are particularly significant.