Economic Policy Research Articles

It's the biology, stupid! Proxy failures in economic decision making.

Utilitarian characterizations of economic decision making fail to capture the complex, conditional, and heterogeneous motivations underlying human behavior as shaped by the predictive, multicriterial drivers of biological regulation. Unless economic models start to acknowledge that humans have bodies and a biology with its own adaptive logic and tradeoffs, economic policies will be systematically exposed to, and systematic generators of, proxy failures.

Evaluating the Kuznets curve relationship between economic growth and child labor in an emerging economy

PurposeThis study aims to test the Kuznets curve between economic growth and child labor, along with the influence of exports, household size and rural population in the context of Pakistan.Design/methodology/approachTo achieve the research objective, this study applied the unit root test, bound co-integration test, and autoregressive distributive lags (ARDL) method for the period of 1972–2021.FindingsThe findings show an inverted U-shaped relationship between economic growth and child labor indicating that at the beginning stage of economic development, child labor increases due to lower per capita household and subsequently, in the long-run of economic development, child labor decreases due to the higher per capita households. Moreover, the results also show that exports, household size and rural population have a positive influence on increasing child labor.Research limitations/implicationsThe policymakers and government of Pakistan need to focus on long-term economic growth policies, ensure free quality education and cheap equipment which practices minimum manpower to reduce the threat of child labor.Social implicationsHaving long-run economic growth, the government of Pakistan need to equally benefit the households and the poor population to reduce child labor and enhance the social welfare of society.Originality/valueTo the best of the authors’ knowledge, this is the first study that investigates the Kuznets curve relationship between economic growth and child labor in the context of Pakistan. Moreover, this study contributes to the reduction in child labor through long-term economic growth in the context of Pakistan.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-05-2023-0387

Credit Growth and Risk Management in Indian Banks: Analysis Through Sectoral Deployment

This research paper explores the dynamics of sectoral credit deployment and its impact on risk management within the Indian banking sector over three fiscal years (2021-2023). Utilizing data from the Reserve Bank of India's annual reports, the study delves into the growth patterns of credit allocation to agriculture, industry, services, and personal loans, and assesses corresponding risk metrics such as the Gross Non-Performing Assets (NPA) ratio, Provision Coverage Ratio (PCR), and Capital Adequacy Ratio (CRAR). Descriptive statistics, correlation analysis, and regression modelling were employed to identify relationships and impacts. The findings reveal substantial credit growth in the services and personal loan sectors, accompanied by significant improvements in risk management indicators, including a marked reduction in the Gross NPA ratio and enhanced Provision Coverage Ratios. These trends highlight the sector’s increasing resilience and risk preparedness, reflecting broader shifts towards a consumer-driven financial landscape. The paper discusses the implications of these findings for banking stability and economic policy, emphasizing the need for nuanced regulatory frameworks to manage sector-specific risks. Future research could extend this analysis to predict long-term impacts of credit expansion on financial stability using advanced econometric models.

European Integration, Opportunities and Risks of Business and Agriculture in Albania

The Integration Process of Albania in the European Union started in 1993 and is considered a long road with many challenges. The signing of the Stabilization-Association Agreement in 2006 is the most important moment of this process, including the harmonization of legislation, to prepare the final EU membership process. This article analyses business opportunities and risks, mainly those of the agri-food sector on its way to the EU. In this framework, trade agreements with the EU and Free Trade Agreements (CEFTA) have influenced the liberalization of trade for agri-food products, intensifying and increasing the level of trade with Europe and the countries of the region. This article also deals with the identification of comparative advantages for the agri-industry sector, where facing the regulated European market, not only challenges are analyzed, but also serious limitations, increasing the need for a structural change in trade relations. In the focus of this paper, are the economic and regional strategies, as well as the progress of the business and agri-food processes, also addressing the trade flows of Albania with the countries of the region and the EU. The analysis of this paper consists of three main premises: 1) in the framework of European integration, costs and benefits in terms of economy and business are more visible in the medium and long term; 2) the integration in the medium term brings a higher economic growth for the countries that aspire to join the EU; and 3) the European integration makes the economy more efficient, bringing about an increase in the ratio of investments, in relation to income, through the reduction of risk with a tendency to increase capital and income per capita (European Commission Report, 2023). The analysis of empirical data shows that the results are not as convincing as expected, thus confirming other previous studies by experts in the field. The main conclusion of this paper is that the integration process has influenced reforms and economic policies in terms of formal and content, both in terms of costs and benefits. In substantive terms, the data analysis shows that the process of European integration has served as a strong impetus for the development of institutions in the country, inter-institutional coordination, the establishment of new institutions, the improvement of human resources, local markets, and the increase of absorptive capacities of funds from the EU. On the other hand, it is concluded that in specific areas of domestic business, such as agri-industry, the effects of EU integration are either not felt yet or are minimal.

Nexus between total natural resource rents and public debt within symmetric and asymmetric framework: Fresh insight from resource-rich economy

Many economies abundant in natural resources often leverage the rents from these resources as collateral for borrowing during periods of economic boom, intending to repay debts during periods of windfall. However, this practice can cultivate irresponsible borrowing tendencies, potentially leading to debt trap scenarios when global resource prices decline. Thus, our study delves into the interaction between public debt (PD) and total natural resource rents (TNR), examining both aggregate and disaggregate forms, with a specific focus on India spanning from 1980-81 to 2021–22.Our aggregate analysis reveals that PD exhibits heightened responsiveness to negative shocks in TNR compared to positive shocks, indicating an asymmetric impact of TNR on PD within the Indian context. Additionally, disaggregate analysis uncovers that both positive and negative shocks in coal rents (CR), natural gas rents (NGR), and forest rents (FR) significantly and adversely affect PD. Furthermore, a positive shock in mineral rents (MR) demonstrates a negative and significant impact on PD, while a negative shock in MR yields a positive but insignificant impact on PD. Overall, barring oil rents (OR), other forms of resource rents such as CR, NGR, FR, and MR showcase asymmetric and negative effects on PD. These findings underscore the importance of prudent institutional behavior and sound economic policies in overseeing and managing debt sustainability in resource-rich economies.

Consumer sentiment of the regional youth

In today’s rapidly developing world, young people play an important role in the segment of active consumers of goods and services. Their behaviour in the consumer market is formed under the influence of subjective moods, ideas, assessments, and expectations. The purpose of this work is to study the state and dynamics of consumer sentiment among young people in the Vologda region using the results of public opinion monitoring and using the index method of processing sociological information. The results of the study showed that the consumer behaviour of young people has a number of specific characteristics: rationality, responsiveness to new products, spontaneity, desire to follow fashion, status. The formation of various consumption models and practices among representatives of the younger generation is largely determined by consumer sentiment. During the measurement period, young people’s assessments were dominated by negative characteristics of their financial situation, opportunities for purchasing goods and services, current economic situation and prospects for its further development. The unfavorable consumer sentiment of the youth significantly deforms its typical features of consumer behaviour, hinders the formation of modern consumer practices and the development of the regional consumer market in accordance with new all-Russian and global trends. Improving the consumer sentiment of young people is directly related to enhancement of the state’s youth and economic policies aimed at improving the socio-economic situation of young members of the Russian society and creating sufficient guarantees for young citizens to exercise their rights and freedoms.

The Impact of Economic Policy Uncertainty on Real Effective Exchange Rate and Systemic Risks --Based on TVP-VAR Modeling

Today's international situation is complex and volatile, and the impact of economic policy uncertainty on systemic financial risk has attracted much attention. In this essay, the TVP-VAR model is used to investigate the mechanism of economic policy uncertainty on systemic financial risk and real effective exchange rate. It is found that its effect on both was characterized by time-varying and nonlinear, and the impact on systemic financial risk is mainly long-term, while the impact of real effective exchange rate is mainly short- and medium-term as long as. Meanwhile, the impact of economic policy uncertainty on systemic financial risk and real effective exchange rate under some specific risk events is more lasting.

The Impacts of Financial Market, Trade and Economic Policy Uncertainties on the Import Performance of Advanced Economies

The Impacts of Financial Market, Trade and Economic Policy Uncertainties on the Import Performance of Advanced Economies

Analysis and Forecasting of Energy Data and GDP Based on Pearson Correlation Analysis-Random Forest Algorithm

The relationship between energy data and GDP is an important economic issue because energy is the foundation that supports modern economic development. This paper examines the relationship between energy data and GDP and uses Pearson correlation analysis to calculate the relationship between each variable in energy data and annual GDP for 52 regions. The results show that total electricity consumption is the factor with the highest degree of influence on GDP, followed by natural gas consumption, biomass consumption, hydroelectricity consumption, LPG consumption and geothermal energy consumption. This indicates that there is an extremely strong correlation between local energy data and GDP. To further explore this correlation, this paper attempts to predict the GDP of the locality based on the local energy data using a machine learning approach.The Random Forest algorithm is chosen as the machine learning model, and the training, validation and test sets are divided according to the ratio of 6:2:2. By using MSE, RMSE, MAE, MAPE and R to evaluate the model, it is found that the random forest machine learning algorithm can predict the local GDP well.The predicted value of GDP and the actual value of GDP are very close to each other, meanwhile, the value of MSE is 62.779.These findings show that the local energy data are closely related to economic development. The impact of energy factors on the economy should be taken into account when formulating economic policies. In addition, machine learning algorithms can provide strong support for economic forecasting and provide more accurate information for decision makers.

Economic Effectiveness and Forecasting of Scientific Activity in Azerbaijan

In the conditions of increasing international competition, sustainable development of the economy is considered to be one of the priority areas of scientific activities in the country. Since science and high technologies are the fundamental basis of innovative development, the strengthening of scientific, technical, and innovative potential for countries is considered as the goal of economic policy. In this context, the ability to achieve achievements related to scientific activity and to implement the obtained results becomes one of the factors that ensure the competitiveness of both the economy and fields and subjects in the global competitive environment. The effectiveness of scientific activity directly depends on the funding of research and development. The comparison of costs and results is closely related to the consideration of different time intervals between financing and the achievement of commercial results. Therefore, investments related to the commercialization of science appear as investments in the future. Thus, the application of the results of scientific activity to production, being considered an important factor of production intensification, ensures the increase of labor productivity, the reduction of production costs, and the improvement of the efficiency of capital investments. These, in turn, are the main conditions for the effectiveness of the integration of science and production. In the research, the effectiveness of scientific activity, the factors affecting it, the possibilities of expanding the application of scientific activity to production, and the forecast indicators of the volume of scientific and technical works shortly are determined.

Economic complexity and income inequality in Russian regions

Although economic growth leads to a reduction in poverty, the growing income inequality and its possible consequences are of some concern. The level of economic complexity has recently been increasingly viewed as an important predictor of income inequality. In this paper, using pool and models with time fixed effects, the impact of the economic complexity index on income inequality in Russian regions for 2013 and 2015 was estimated. The results of the evaluation of econometric models show that regions with more complex economies showed a higher level of income inequality compared to others. The explanations for the effect obtained include an increase in demand for highly qualified labor as a result of the development of high-tech industries and an increase in wage differentiation between high-skilled and low-skilled workers, as well as the migration of high-skilled workers to economically more complex regions. The main conclusion is that economic complexity is a significant factor of the variation in income inequality and should also be taken into account while conducting economic and social policy in Russian regions.

Dynamic capabilities and competitiveness: Relationship among industrial policy, structural transformation, and economic growth in Indonesian regional industries

The complex interactions of industrial Policy, structural transformation, economic growth, and competitive strategy within regional industries are examined in this research. Using a dynamic capabilities framework, the study examines the mediating roles of organizational innovation and adaptability in the link between competitiveness and macroeconomic variables. A two-way fixed effects model is used in this study to examine the influence of structural transformation (ST) on Industrial Policy (IP). Using regional data covering the years 2010 to 2022, the research undertaken in this paper explores the dynamics of the Indonesian economy by empirically assessing the consequences of structural change on industrial Policy. In order to establish a comprehensive model that clarifies the mechanisms through which industrial policies and structural shifts impact the development of dynamic capabilities, ultimately influencing competitiveness strategies, this research draws on a large amount of empirical data and integrates insights from seminal works. Our research adds to our knowledge of strategic management in regional industries by providing detailed information on how economic development and policy interventions influence businesses’ ability to adapt and gain a competitive edge. In addition to advancing scholarly discourse, this study offers business executives and politicians valuable insights for managing the intricacies of global economic processes.

Debt on the Ground: The Scholarly Discourse of Bankruptcy and Financial Precarity

A rich literature uses law and social science methods to better understand household financial distress and overindebtedness both inside and outside of bankruptcy. This scholarship contributes to several ongoing scholarly conversations, such as those on income and wealth disparities across race and class, how people live in circumstances of financial precarity, why people turn to the legal system to solve their problems, and how to improve access to justice so people can get the help they need. We first review the current literature about who files bankruptcy, the contributors to people's need to file bankruptcy, what happens to them in bankruptcy court, and what happens after their bankruptcy cases conclude. We then outline a research agenda of low-hanging fruit that will contribute to broader sociological and sociolegal research agendas, including economic mobility, aging, gender studies, health studies, family studies, social psychology, and policy work.

How does economic policy uncertainty impact CO2 emissions? Investigating investment's role across 22 economies (1997–2021)

Economic policy uncertainty (EPU) has significant implications for both economic growth and CO2 emissions through investment and consumption. Existing research has produced mixed findings on the impact of EPU on CO2 emissions. Nevertheless, there is a need for further empirical investigation into the role of investment in the relationship between EPU and CO2 emissions in various economies. This article contributes to the literature by examining the investment channel in the EPU-CO2 emissions nexus in 22 economies using annual panel data from 1997 to 2021. The analysis was conducted using eight specifications to classify the empirical estimates of the direct and indirect impacts of EPU on CO2 emissions through the investment channel. The CD test, CADF test, and CIPS test were used to test for cross-sectional dependence, unit root, and cointegration, respectively. The GMM estimation technique was used to test for the long-run relationship. The empirical results suggest that both direct and indirect EPU stimuli on CO2 emissions through the investment channel are positive, and the EKC hypothesis holds. Furthermore, findings show that fossil-fuel energy usage leads to an increase in CO2 emissions. Given the significant impact of economic policy uncertainty on CO2 emissions, policymakers should consider the environmental implications of their policy decisions. Second, reducing fossil fuel energy usage in the production process should be a priority to mitigate the impact of EPU on CO2 emissions.

Trading-off or trading-in? A critical political economy perspective of green growth’s policy framing

ABSTRACT The trade-off policy framing has been a central feature of green growth since the 1980s, employed to frame the countervailing spheres of social, environmental, and economic policies purported to ensure the sustainable development of the global economy. This article argues that so central has this framing become that IPE scholars have tended to focus on different types of ‘greenable’ growth observable within capitalism, rather than question the prospect of greening growth itself. Far from value-free, the trade-off framing is ultimately determined by the structural imperative for economic growth, veiling the disciplines anthropocentric ontology in a normative or objective guise. To account for the tacit prioritization, the trade-in policy framing – the compromising of environmental objectives to accommodate the growth imperative – is advanced as an alternative framing. The trading-in of environmental policies is legitimized through political-industrial narratives, of which three, the (i) consequential, (ii) allay, and (iii) finance are outlined in this analysis.

A news-based economic policy uncertainty index for Nigeria

AbstractIn this study, we develop the first daily news-based Economic Policy Uncertainty (EPU) index for Nigeria, which was previously not covered in recent EPU indices. The need to track economic uncertainties in Nigeria becomes crucial for investment and policy, especially with the renewed interest in the country as an important investment destination. To construct the EPU index, we use relevant keywords from articles in prominent newspapers in the country, covering the aftermath of the global financial crisis and the COVID pandemic, with a data scope of January 2010 to November 2022. We evaluate the predictability of the index by examining its connection with economic and financial variables like exchange rates, stock prices, and inflation in Nigeria. The results are robust to alternative model specifications, data frequencies, and multiple forecast horizons. We hope to extend this exercise to other useful indices, including Geopolitical Risk, Financial Stress Indicators, and Monetary Policy Uncertainty, which are not readily available for Africa, including Nigeria.

Does global economic and climate policy uncertainty affect private investment? Evidence from sub‐Saharan Africa

AbstractThis study investigates how uncertainty in climate and global economic policies affects private investment in sub‐Saharan Africa (SSA). Using panel data from 41 countries over the period 2000–2022, the study employs a dynamic panel model to estimate the effects of these two types of uncertainty on the private investment‐to‐gross domestic product ratio. The study finds that both global economic policy uncertainty (EPU) and climate policy uncertainty have a negative and significant influence on private investment, implying that higher levels of uncertainty discourage private investors from undertaking long‐term projects in the sub‐region. The study also finds that the effect of uncertainty on climate policy is stronger than that of EPU, suggesting that private investors are more sensitive to the lack of clarity and coherence in the global climate policy framework. The findings are robust to different estimation techniques. The study concludes that reducing policy uncertainty, especially in the area of climate change, is crucial for enhancing private investment and promoting sustainable development in SSA.

Predicting Indian GDP with Machine Learning: A Comparison of Regression Models

In recent years, the application of machine learning algorithms in economic forecasting has gained significant traction. This study focuses on predicting the Gross Domestic Product (GDP) of India by harnessing advanced machine learning techniques. We assembled a comprehensive dataset incorporating time series analysis and inflation rates from diverse sources. Our investigation involved a comparative analysis employing both linear and polynomial regression methods to discern the most accurate predictive model. Our findings underscore the superiority of the polynomial regression model, which excelled in capturing non-linear relationships between independent variables and GDP. Specifically, the polynomial regression model achieved an impressive prediction accuracy rate of surpassing the accuracy achieved by the linear regression model. This study underscores the critical role of advanced machine learning algorithms in economic forecasting. By emphasizing the significance of high-quality datasets and the application of techniques like polynomial regression, we illustrate how these factors can substantially enhance the precision of economic forecasts. These insights hold substantial implications for policy makers and businesses alike, aiding informed decision-making and effective economic policy development. This study serves as a valuable reference for future research, highlighting the importance of advanced machine learning methods and robust data sources in economic forecasting.

Crude credit: The political economy of natural resource booms and sovereign debt management

Oil, gas, and minerals have notoriously adverse effects on institutional quality. But when global liquidity is high, risk-tolerant investors are more willing to lend to all borrowers, even resource-rich countries with low-quality institutions. Despite the availability of cheaper credit during commodity booms, we argue that countries do not increase current borrowing to mitigate future revenue shortfalls during commodity busts. Instead, they rely on resource windfalls to meet their current financing needs, fearing they would otherwise forfeit national policy discretion to global financial markets. We leverage primary evidence from extensive field research across five Latin American countries to show that national economic officials (i.e. finance ministers and central bank governors) are wary of high indebtedness, after past commodity booms ended in cycles of lofty spending, borrowing, and default. For sovereign borrowers, high bond market indebtedness often reduces government discretion over economic policy, whereas windfalls increase it; all else equal, governments will favor the latter. Using data on 22 Latin American and Caribbean countries from 1996 to 2020, we find that governments issue bonds less frequently, in smaller amounts, as their oil and gas production or GDP share from resource rents increases. These findings make an important contribution to our understanding of how commodity cycles affect global capital markets: sovereign borrowers do not fully leverage commodity booms to expand their fiscal space to finance more spending over time.

Front-line guardian of the status quo: Japan under the Kishida government

Abstract Prime Minister Fumio Kishida and his government have implemented bold defence, diplomatic and economic policies against the challenges to the status quo order posed by Russia's invasion of Ukraine and increased Chinese assertiveness. What do these policies unveil about Japan's strategy and response to the transformed strategic environment? This article argues that the Kishida government has upgraded Japan to a front-line guardian of the status quo order. To achieve its front-line role, the Kishida government has consolidated Japan's deterrence policy, namely focusing on two main pillars—military and rules. To ensure Japan's frontline role is sustainable, this policy paper makes three recommendations: Japan must develop strategic clarity and clear operational plans on how to respond to a regional contingency, such as the Taiwan Strait; Japan must resolve domestic problems that prevent the increase in defence spending to 2 per cent in the period to 2027. Japan's role as a front-line state to protect the status quo order is very much dependent on the availability of resources that would be provided by this increase in defence spending; Japan should re-energize its efforts towards east Asia through a sustained diplomatic, economic and security means. This is important in securing support for Japan's preferred vision of regional and global order from not only like-minded partners and friends in east Asia, but also China. Japan's approach should underscore how the extant status quo order benefits all states, including China, especially in terms of spreading economic prosperity, development and connectivity.