Economic Volatility Research Articles

Is Caribbean tourism in overdrive? Investigating the antecedents and effects of overtourism in sovereign and nonsovereign small island tourism economies (SITEs)

PurposeDrawing on theories of development economics and sustainable tourism, this research explores the differences between sovereign and nonsovereign small island tourism economies (SITEs) and identifies the antecedents and effects of overtourism in the Caribbean.Design/methodology/approachThe research design is based on a comparative case study of selected Caribbean SITEs. Case study research involves a detailed empirical inquiry that investigates a contemporary phenomenon within its real-life context. The main purpose of a case study is to provide a contextual analysis of the conditions and processes involved in the phenomenon under study. A comparative case study is an appropriate research methodology to explore new multi-faceted concepts with limited empirical evidence.FindingsThe results confirm previous studies that nonsovereign SITEs have a distinctive overdrive toward tourism specialization. Moreover, the findings indicate that overtourism is driven by both global and domestic policy factors and generates significant economic volatility, social inequality and ecological stress. The paper discusses the tourism policy implications of the evolving economic disconnectedness, environmental decay and social tensions in SITEs in the Caribbean.Originality/valuePolicy recommendations are presented for transitioning toward a more inclusive development and strengthening the resilience of small island tourism development in the Caribbean.

How Strong are the impact of economic volatility, company growth, and COVID-19 pandemic on the Net Asset Value of Sharia Mutual Funds? Empirical Evidence from Indonesia oleh :

Currently, Islamic mutual funds are an alternative resource in Indonesia The belief that a sharia-based financial system offers a strong and resilient offering, is integrated with the financial system, and the sentiment and conviction to implement a sharia-based business are factors that encourage the strengthening of investment and the Islamic system This study aims to: first, measure the impact of conditions of economic volatility, which is reflected by the inflation rate and BI interest rate on the Net Asset Value of Islamic mutual funds;Second, examining whether there is an impact of Black Swan in the form of the COVID-19 Pandemic and the increasing development of Islamic mutual funds with the increasing number of choices for Islamic mutual fund companies The study used monthly data from January 2019 to the latest November 2020 data, which were obtained from the Financial Services Authority, BPS-Statistics Indonesia and Bank Indonesia with time series regression The results showed that statistically all variables have a negative effect, except for the number of Islamic mutual funds which have a positive but insignificant effect on the NAV of Islamic mutual funds

Global Value Chains, Volatility and Safe Openness: Is Trade a Double-Edged Sword?

Modern production has become increasingly reliant on inputs sourced from abroad. These multi-country production processes are known as global value chains (GVCs). While it is generally accepted that GVCs increase productivity, by allowing producers to reap the gains from their individual comparative advantage, there is disagreement on the effects they have on macroeconomic volatility. In particular, some have argued that GVCs are a ‘double-edged sword’: they increase productivity, but also increase volatility. In this paper, we show that the relationship between GVC integration and volatility is ambiguous in theory, and insignificant in the data. This supports our headline conclusion that there is no compelling reason to fear the double-edged sword: a blanket reduction in GVC integration would impose economic costs without necessarily, or significantly, reducing economic volatility. Another feature of today’s GVCs is their concentration around a few central ‘hubs’. This has led to a discussion of alternative industrial policies that can reshape GVCs in the longer-run, in particular re-shoring and diversification. Within our model, policies to re-shore production lead to an increase in aggregate volatility, as they effectively increase the concentration of value chains on domestic sources. On the other hand, diversification of GVCs among foreign suppliers can lower volatility, by lowering the exposure to any single country. Finally, while the debate around the effects of trade on business-cycle volatility pre-dates the Covid-19 pandemic, recent events have increased the broader discussion of ‘safe trade openness’. We discuss the scope for policy actions to make trade safe and open, drawing out an analogy with the financial sector reforms enacted following the global financial crisis. We emphasise the merits of co-operation and multilateralism in order to underpin safe openness in the global trading system, and caution against direct policy interventions that are not targeted to address well-identified market failures.

Analyzing state government spending: balanced budget rules or forward-looking decisions?

We analyze US state government spending behavior with a general intertemporal model allowing for asymmetry in balanced budget rules in a panel data setting. We find no strong evidence for forward-looking behavior in state spending; balanced budget rules are a significant constraint. States with budget rules imposing lighter restrictions are more likely to exhibit habit formation, while those with stricter rules demonstrate asymmetric responses to revenue changes. Evidence for a precautionary savings motive is limited. Balanced budget requirements trigger substantial pro-cyclical spending, possibly amplifying state economic volatility for states with tight fiscal rules, especially after revenue increases.

Compass for public/private management in turbulent times: corporate diplomacy

The 21st century is characterised by grand challenges, external shocks and global fragilities, such as economic volatility and societal upheaval in our interconnected communities. International business managers must adapt to consider geopolitics as relevant to their activities, to integrate political risk analyses into their business decisions. International society is in need of content-sensitive orientation knowledge to reassess, adjust and accommodate diplomacy's essentials (human factor interactions) to new expectations of the public sphere. In a qualitative leap towards a change of mindset, decision-makers should learn to think and act responsibly through the middle of conflictual situations towards compromise and consensus, thus managing politics through diplomacy. Transnational corporations can profit from traditional state diplomacy in order to create a reliable working environment and to anticipate and avoid costly conflicts, if they practice Corporate Diplomacy as a key concept of trusted and coordinated collaboration with government and local host communities. Corporations adhering to the diplomatic communication tool of Corporate Diplomacy are also gaining legitimacy and political influence over the development of societies.

Transformation of the private offshore wealth management service industry in the emerging economy

Dollarisation in emerging economies of Southern Africa like Zambia and Zimbabwe, led High-Income Earning Individuals (HIEI) to invest offshore as an investment diversification strategy. The turbulent past experiences influenced African HIEI behavior in relation to their wealth management approaches. HIEI started looking for ways to protect its financial assets against future political and economic volatilities. The purpose of this study was to equip academics and the wider commercial fraternity with practical and strategic knowledge of the emerging markets’ offshore wealth management services industry. This would assist emerging markets to regulate HIEI markets, boost capital flow, fight tax evasion to allow banks to assist, help governments protect pensions, promote transparency in investments and avoid negative effects of dollarisation. Data were collected from 81 participants including HIEIs with offshore investments, those individuals without, financial advisors, and the Securities Exchange Commission (the industry regulator). The study used a qualitative approach in its methodology using questionnaires, interviews, and a computer-aided system for data analysis. We found that HIEI feels their wealth is under attack and looks towards offshore investing as a refuge. We identified the desperate urge of African HIEIs to secure their wealth as the main influence driving the offshore investing phenomenon

Fear of commitment: Weak institutions, volatile economy, and the prevalence of short-term International capital

This paper shows that weak legal and political institutions and high macroeconomic volatility shorten the maturity of cross-border bank lending. Although these results are confirmed in the previous literature, this paper uses a broader panel data set of 135 countries from 1983 to 2012. Data also suggest new finding that the maturity of international bank credit and per capita GDP are positively correlated. The share of debt incurred by banks shortens the maturity, while the share of debt incurred by governments lengthen the maturity of cross-border credit. Our results are robust after we control for potential endogeneity.

The Evolution of the Earnings Distribution in a Volatile Economy: Evidence from Argentina

This paper studies earnings inequality and dynamics in Argentina between 1996 and 2015. Following the 2001--2002 crisis, the Argentine economy transitioned from a low- to a high-inflation regime. At the same time, the number of collective bargaining agreements increased and the minimum wage adjustments became more frequent. We document that this macroeconomic transition was associated with a persistent decrease in the dispersion of real earnings and cyclical movements in higher-order moments of the distribution of earnings innovations. To understand this transition at the micro level, we estimate processes of regular wage adjustments within job spells. As the Argentine economy transitioned from low to high inflation, the monthly frequency of regular wage adjustments almost doubled, while the distribution of changes in regular wages morphed from having a mode close to zero and being positively skewed to having a positive mode and being more symmetric.

АНАЛИЗ СТРУКТУРЫ ЦИФРОВОЙ ТРАНСФОРМАЦИИ ЭКОНОМИКИ В СОВРЕМЕННЫХ РЕАЛИЯХ

Nowadays, there is no consensus that digitalization is a threat to business security or an opportunity to comprehensively manage the entire chain of business processes in real time, taking into account incoming data from all assets. However, political and economic instability, demand volatility, and competition are all a set of global challenges that digital transformation has responded to. In industry, the competitive advantage has become not the ownership of the enterprise, the firm, but access to digital technology, on which the efficiency of work with specific resources depends. The processes of forming individual business segments related to production management based on modern digital technology have already been launched and most companies are focused on this direction. The article reveals the features of the evolutionary stage of digital economy development, presents the relationship of this process with the formation of the conceptual framework from the theoretical foundations, substantiated in the 1990s by foreign and domestic scientists to modern approaches in the interpretation of digital economy definitions. The article proposes the structural dynamics of the digital economy in today's realities, revealing internal problems, opportunities for economic growth, maturity and readiness of the state to new ways of doing business in the digital economy and digital transformation, to form the country's national strategy. In addition, the conditions under which digital transformation opens up new opportunities for the business environment, the public sector and society as a whole are presented. Changes in business strategy, organizational forms, business process capabilities, new approaches in working with clients, competitive advantages, increase in profit sources are analyzed. As a result, the efficiency of the whole system increases, which allows to reach a fundamentally new level of production efficiency in a short time.

Cyber-physical production systems: enhancement with a self-organized reconfiguration management

The frequency of changes in production requirements is continuously increasing due to economic volatility, shorter innovation cycles and product life cycles. Therefore, a prediction of all goals of a production system at development time is impossible, which is leading to an increased reconfiguration demand during operation. Currently, there are still some weaknesses concerning the reconfiguration of production systems, which are highlighted in this article. The future of industrial automation will be dominated by Cyber-Physical Production Systems, which offer many promising potentials. Hence, this contribution discusses the Cyber-Physical Production Systems and some of their potentials regarding the reconfiguration issues. Corresponding concepts are required to utilize these theoretical potentials. Therefore, this research provides a basic concept for self-organized reconfiguration management.

How Populism Corrodes Latin American Parties

One of the main ways in which populism damages democracy is through the corrosion of political-party systems, a phenomenon that has been especially pronounced in contemporary Latin America. Populism’s core, namely charismatic leadership, is to blame: Overbearing personalistic leaders avoid hemming in their own autonomy and predominance by keeping their electoral movements organizationally fluid and weak. And because opposing populism entails confronting a charismatic leader rather than a clear programmatic project, the opposition itself remains diverse and heterogeneous and thus fails to unify and form a political party. Latin America’s fragmented social structure, high economic volatility, and frequent corruption scandals exacerbate these corrosive tendencies.

Research on the Effect of Monetary Policy on Financial Accelerator—Based on the empirical analysis of Chinese steel enterprises

From the perspective of principal-agent, the theory of financial acceleration holds that due to the defects of the financial market, external shocks will be amplified by the financial market and accelerate the transmission in the real economy, and the impact on small enterprises is greater than that on large enterprises. According to the theory of financial deceleration, the agency cost caused by financial friction is counter-cyclical, which restrains credit scale to some extent, prevents excessive debt, and thus alleviates external shocks. According to the empirical analysis of panel data of iron and steel enterprises and the existing empirical results of the real estate industry, it is found that there is no financial accelerator effect or financial reducer effect in the field of iron and steel enterprises. China’s financial accelerator is more focused on bubbly assets where growth is expected and continues to be overheated despite policy tightening. That would trigger a bigger debt crisis and greater economic volatility.

Risk-taking and Uncertainty: Do Contingent Convertible (CoCo) Bonds Increase the Risk Appetite of Banks?

We assess the impact of contingent convertible (CoCo) bonds and the wealth transfers they imply conditional on conversion on the risk-taking behaviour of the issuing bank. We also test for regulatory arbitrage: do banks try to maintain risk-taking incentives by issuing CoCo bonds, when regulators reduce them through higher capitalisation ratios? While we test for, and reject sample selection bias, we show that CoCo bonds issuance has a strong positive effect on risk-taking behaviour, and so do conversion parameters that reduce dilution of existing shareholders upon conversion. Higher economic volatility amplifies the impact of CoCo bonds on risk-taking.

Target Capital Structure of Egyptian Listed Firms: Importance of Growth and Risk Factors

This paper investigates the determinants and adjustment speed to the target capital structure of the Egyptian Listed firms over the period of 2009 – 2018. We use panel regression analysis to examine role of growth factors as well as risk factors in explaining the dynamics of target leverage. The main findings of the growth factors model (GFM) reveal that political risk, profitability and stock market return are negatively affect the target leverage of Egyptian firms. In contrast, investment opportunities, non-debt tax shield, firm size have significant positive effect on the target leverage. On the other hand, the results of risk factors model (RFM) indicate that political risk, size and profitability lose their significant effects for the account of firm risk, stock return, investment and asset tangibility. The business risk captures the effect of political risk on the target leverage. Interestingly, both the investment opportunities and the non-debt tax shield preserve their positive effects and thereby they are considered as the most important firm-specific determinants of the target leverage. We find no significant effects of the economic growth, macroeconomic risk and stock market volatility on the target leverage in Egypt. Regarding the adjustment speed and in the presence of growth (risk) factors, the Egyptian firms take 2.7 (4.4) years to adjust their current leverage toward the target leverage.

Lean manufacturing implementation and performance: the role of economic volatility in an emerging economy

PurposeThe purpose of this study is to explore the mediation effect of volatile economic conditions on performance benefits of successful kean manufacturing implementation (LMI). The mediating factor of economic volatility (EV) is constructed based on four macroeconomic dimensions – supplier uncertainty, market demand fluctuations, governmental policy changes and peer competition.Design/methodology/approachAn attempt is made to build an exhaustive list of the internal operational manifests grouped into one human and three technical input factors. Similarly the benefits accrued are collated under two performance measures – customer satisfaction (CS) and organizational goal satisfaction (OGS). Based on data from the Indian manufacturing sector, structural equation modelling (SEM) and ordinary least square (OLS) analyses are carried out to validate the proposed model.FindingsResults of the structural model validate the first six hypotheses posited in the model. Results of OLS further reveal the mediation effect of EV having negative impact on LMI–CS and LMI–OGS nexus.Practical implicationsThis research offers a fair understanding of the internal operational lean factors and the effect of volatile macroeconomic conditions on lean benefits. The structural model will aid the academicians and lean implementers comprehend the dimensional structure underlying the lean practices and beliefs. This work further helps to understand the moderation effect of environmental complexity on the output measures of LMI in the Indian manufacturing sector.Originality/valueThis work is one of the very first empirical analyses of lean performance under contingent economic conditions. The paper presents a valuable recommendation to practitioners for considering the dynamism of external economic environment instead of simply adopting standalone internal lean parameters, if satisfactory levels of performance in terms of CS and OGS are to be achieved.

Determinants of Islamic bank financing in the Middle East: Vector Error Correction Model (VECM)

As the world has been struck with a global financial crisis, Middle Eastern countries have been affected as well. Thus, Islamic banks have expanded, and the competitive advantage has become intensive with the increased number of conventional banks in the global banking system. This manuscript is aimed to examine the impact of macroeconomic and bank-specific factors on Islamic bank financing in the Middle Eastern countries. Therefore, the Vector Error Correction Model and the Granger causality test were run from 2009 to 2018 to detect the long- and short-run relationship between the explanatory variables and Islamic bank financing. The results suggest that both inflation and profitability negatively impact Islamic bank financing in the long run. The paper also revealed bidirectional causality between the variables GDP and bank size and Islamic bank financing. It shows that GDP and bank size are highly dominant factors of Islamic bank financing in the short run. Thus, this paper provides evidence that any short-run shock in the variables of GDP, inflation, and bank size will cause a long-term relationship with Islamic bank financing. This article’s novelty is to ensure resilience within the Islamic banking system during and after the financial crisis. It provides evidence that Islamic banks can cushion their financial activities from economic volatility during the crisis. The results found can be used to predict the growth of Islamic bank financing in upcoming years in the Middle East and all emerging countries.

Classification of international stock markets through MDS based on Hurst-surface distance

Classifying stock markets by measuring the similarity between them can provide a reliable reference for investors and help them earn more profits. This paper seeks to explore a better method to measure the degree of similarity between international stock markets. We chose the daily closing price of 24 stock markets from the Americas, Asia, Europe, and Australia, and mapped them into three-dimensional space as points. In order to measure the similarity, we propose using Hurst-surface distance as a transformation and then use this distance matrix as a dissimilarity matrix to classify the stocks by multidimensional scaling method(MDS). We compared the classified results with classical MDS which use the Euclidean distance as a measure of similarity and σDCCA-based MDS. The results show that using Hurst-surface distance as a reflection of similarity can not only provide more information about correlation but also distinguish the differences of economic volatility in different regions. While σDCCA puts more emphasis on the similarities and dissimilarities within the same region. Those two modified MDS technology above are better than the classical method based on Euclidean, they can reflect more detailed and clearer information.

The impact of equity sensitivity on mental health, innovation orientation, and turnover intention in the Hungarian and Indian contexts

PurposeEconomic turbulence brings a significant impact in the mental health of workforce on both developed and developing countries. The purpose of this paper is to explore the impact of equity sensitivity on employee mental health. Innovation is considered to be among the critical drivers for the success and future of organizational existence, therefore this paper also investigates how the equity sensitivity impacts innovation orientation and turnover intentions across two geographies India and Hungary.Design/methodology/approachAn online survey was carried out among Hungarian and Indian students. Students were selected only on the basis of having two to three years of work experience and also from good business and economics colleges from India and Hungary.FindingsThe results were analyzed using partial least square–structural equation modelling method to test the hypotheses and it showed that equity sensitivity has a positive effect on employee mental health. The findings of the study highlight that even with significant cultural differences equity sensitivity perception does not differ between Hungary and India.Research limitations/implicationsThe relationship between equity sensitivity and employee mental health is an important area to understand in a volatile economy. Innovation orientation and turnover intention both are important to understand the productivity of any organization; this paper is an effort to understand the impact of both variables bringing in the positive or negative impact on the growth of an organization. Limitations of this study include the sample size, cross-sectional data. Future studies can be based on a larger sample size from wider cross-sections and cultures.Practical implicationsManagers need to give importance to understand the equity sensitivity of employee and how it impacts their mental health and well-being. Knowing the volatile nature of economy this becomes very relevant and important for managers and organizations.Social implicationsThis study is important to understand that how two countries that are significantly different in cultural values still have no difference in equity sensitivity perception. Therefore, equity sensitivity is an important determinant to bring innovation and productivity in organizations across cultures.Originality/valueThese findings contribute to literature of equity sensitivity by exploring the impact of equity sensitivity on employee mental health in the context of two countries. Mental health is a concern not only in India but also in Hungarian context as well.

Negotiating the Subtle Encounters

When I started writing this article, the coronavirus disease (COVID-19) pandemic had not yet hit the world as it has now. However, even if there is evidence that by November of 2019, China had already registered cases of the carnivorous virus, the world was barely prepared to tackle the situation. Now nearly every part of the world is affected, without a cure, the only way to prevent the pandemic is by avoiding contact with other people “social distancing” or home quarantine and isolation. Countries have had to lock down, but in the most impoverished environments, how does one social distance or practice a self-imposed quarantine, when 12 people live in a two-roomed house. How does a community social distance when they are hungry, and there are scarce food products. Social distancing or isolation becomes an illusion in these environments with volatile economies. How do we reflect on this magnitude of an apocalyptic nature? How do we respond, what does Art do?

Trend Shocks, Liquidity Constraints and China’s Economic Fluctuations

The development of China’s economy not only contains the commonalities of all countries in the world, which can be explained by existing theories to a large extent, but also presents many development characteristics that are different from other countries, which needs to be explored from a new perspective. Analyzing the data on output, consumption, and investment in the 40 years after the reform and opening up from 1978 to 2018, we can find the following characteristics: (1) The economy of China is more volatile than those of developed countries, and consumption volatility is greater than that of output, a phenomenon in sharp contrast with the rational consumption behavior obtained from the permanent income hypothesis. (2) Since 1978, China’s economic volatility has shown a downward trend, and consumption volatility has declined even faster than that of output. (3) Since 2008, China’s economic growth rate has continued to decline.The academic circles attribute the miracle of China’s economic development to a series of institutional reforms since the reform and opening up. However, what has been ignored by the academic circles is that since the institutional reforms are the main driver of China’s rapid economic growth in the past 40 years, as a logical corollary, they must also be an important factor that leads to sometimes rapid and sometimes slow performance of China’s economic growth and the formation of several development cycles. Different from the deviation from trend caused by various random shocks, such as government purchases, money and information, and financial and non-financial frictions, a series of institutional reforms such as the transformation from a planned economy to a market one, the development of private enterprises from illegal to mushrooming, and China’s entry into the World Trade Organization impact the trend itself, changing and supporting China’s rapid economic growth, intertwining its trend fluctuations with cyclical fluctuations.In order to illustrate the above characteristics, this paper constructs a dynamic stochastic general equilibrium model of small open economies with persistent trend shocks and liquidity constraints. The research results show that: First, after the reform and opening up, a series of institutional changes are an important cause for China’s economic fluctuations to be greater than that of developed countries. Second, there is an obvious random trend in China’s economy. Large fluctuations in output, especially in consumption, are caused by both trend shocks and cyclical shocks. Third, these two shocks are not enough to explain large fluctuations in consumption, especially the fact that consumption fluctuations are greater than that of output, but their combination with liquidity constraints explains this feature pretty well. The introduction of trend shocks increases consumption volatility through the permanent income hypothesis, while the introduction of liquidity constraint increases consumption volatility by reducing the inter-temporal substitution of consumption. Fourth, through comparative analysis of the changes in the driving factors of economic fluctuations in the two stages from 1978 to 1999 and from 2000 to 2018, it is found that with the gradual improvement of the market economic system, both the cyclical shock that has a temporary impact and the trend shock that has a persistent impact on economic fluctuations show a gradual attenuation trend, reducing China’s economic volatility. As the impact of trend shocks declines faster, cyclical shocks gradually play a dominant role in China’s economic fluctuations.