Diversification, structural change and supply side potential in Malta

  • Brian Micallef

Student thesis: Doctoral Thesis

Abstract

The Maltese economy has been extremely resilient after the 2009 global financial crisis and has expanded rapidly afterwards, with real GDP standing at around 50% above its pre-crisis level of output by the end of 2017. This doctoral thesis presents eight papers that provide a detailed account of the structural changes underpinning the Maltese economy, its sources of resilience and the sustainability of its growth model. Six of these papers have been published in peer-reviewed journals, one as a book chapter in a publication by the Central Bank of Malta and another as a Central Bank of Malta working paper.
These studies are grouped to answer three research questions, which are in turn addressed in three policy themes. The first theme consists of three papers that focus on the estimation of Malta’s supply-side potential. The second theme includes another three papers that look at the impact of structural reforms and the factors underpinning the economy’s remarkable resilience. The two papers in the third theme deal with macro-financial linkages to assess whether strong economic growth was driven by the accumulation of financial imbalances, which would ultimately cast doubt on the sustainability of this growth model.
The studies show that Malta’s recent economic performance appears largely to have been the result of structural change aided by the opportunities opened by EU membership. This period of strong growth was driven by a significant increase in the economy’s supply-side potential, through a boost in total factor productivity, the effects of past structural reforms, the emergence of new high value-added sectors and the unlocking of latent labour potential, combined with an influx of foreign workers. Diversification towards new industries has increased the flexibility and the resilience of the Maltese economy, making it less subject to industry-specific shocks. There is no evidence that faster economic growth was fuelled by rising credit but rather financial conditions tightened after the crisis. Following a period of strong growth, house prices recovered back to their equilibrium levels by mid-2017.
Date of AwardOct 2019
Original languageEnglish
SupervisorAaron G. Grech (Supervisor) & Lester Hunt (Supervisor)

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