Serbia's Economy Research Articles

Systemic limitations of the competitiveness of Serbia's economy

The paper analyzes the ways for measuring competitiveness as well as the Global Competitiveness Index which, pursuant to the methodology of the World Economic Forum, ranks countries’ competitiveness within global frameworks. The analysis begins with a hypothesis that the macroeconomic performances of national economies are positively correlated with their global competitiveness index, which has been shown on the examples of Serbia, Croatia, Slovenia and Slovakia. The other hypothesis is that the bad macroeconomic performances of the Serbian economy and its bad ranking according to the Global Competitiveness Index are the result of the systemic limitations in the Serbian economy. The analysis presented in the paper shows that systemic limitations such as the concept of transition (privatization) and its realization, the concept of macroeconomic stabilization, the concept of institutional reforms and the concept of restructuring economy are the main originators of the non-competitiveness of Serbia’s economy.

Competitiveness gap in Serbia's metals and electronics industry

Despite marked fall in production since 1980, metals and electronics industry plays an important role in Serbia's economy, reflected in its share in employment, export, and gross domestic product. Export in the sector has a sound basis for future growth, where vicinity of EU markets coupled with favorable trade regime since 2000 creates a crucial competitive advantage. Serbian companies are present in the entire spectrum of the metals and electronics value chain from primary to semi-finished to final goods production, albeit mostly with low value added products at the moment. The major competitiveness drawback is that the companies in metals and electronics industry have limited access to finance, which results in insufficient investments in technology and innovation. There is also a skills gap, especially in operating new machinery, and infrastructu­re limitations with regard to rail and river transport, presenting key challenges to future development.

Reduction of systemic risk in Serbia through intelligent risk management in state-owned enterprises

These days, the effects of the combined crisis in Serbia have been larger than ever. Serbia was already in a transitional recession when it entered global economic crisis of 2008. The global double dip recession and this domestic recession, caused by structural imbalances before and during the transition, exacerbate each other's negative effects. Consequently, companies find themselves exposed to systemic (or external) risk that is beyond their control, and is continually increasing. The current global economic crisis is a result of human misconceptions about the modeling of economic system and its institutions. The prevailing macroeconomic orthodoxy asserted that there was no incompatibility between keeping inflation low and stable and seeking maximum economic growth (or a minimum output gap). But, inflation does not provide actionable information for sustainable development because it covers up many fractures in the economic system. The U.S. and the EU have shown that this orthodox policy platform is not sustainable, especially in the case of deregulation and securitization. Also, the episode with Serbia's transition, founded on a neoliberal ideology and the so-called 'Washington Consensus' economic policy platform, has shown that inflation targeting, when output is below the radar, has not been able to help a transitional economy change from being in a recession to prosperity. Even if the financial system is restored to perfect health, there are problems with the real economy, which will trigger, sooner or later, a negative feedback loop with the financial sector. In principle, when the output gap is small and stable and the economy is overheating, inflation targeting has proved to be effective. But, in the case of transitional recessions (as well as other recessions) any monetary policy, including inflation targeting, has been virtually useless in turning things around. Economic policy makers in Serbia must react to the main transitional contradiction that price stability is not followed by sustainable employment. Employment is not only determined by price stability but also by institutions influencing the internal capacity of companies to react positively to external stimuli, the general societal climate towards enterpreneurship, the prevailing strategy of industrial leaders, endogenous incentives to innovate, etc. Consequently, the key dilemma in the recession is: whether economic policy has to maintain the orthodox anti-inflation line or to cross over to a heterodox one. In the heterodox line, the macroeconomic policies (monetary, fiscal, and financial) are important, but so are industrial policies. Output (not inflation) is the center of economic policy. Reindustrialization through industrial policies creates foundations for recovery and could correct main structural imbalances. In our last two articles, [2] and [3], we sought to identify the seeds of Serbia's economic crisis and to determine a framework for recovery using a microeconomic and macroeconomic perspective, respectively. In this article, we will focus on the expanding role of stateowned enterprises (SOEs) in the energy sector as a first step towards recovery and on intelligent risk management as a key microeconomics policy tool for effective and efficient corporate governance in SOEs. Intelligent risk management is approach that focuses not solely on risk mitigation, but also on risk-taking as a means to achieving higher future returns. This is what this paper will attempt to discuss in five parts. The first part discusses the necessity of a heterodox approach in conducting economic policy in the recession. The second part analyzes macroeconomic policy measures, especially monetary policy during the crisis. The third part consists of a strategic analysis of Serbia's economy. The fourth part reviews arguments for prioritizing energy policy in Serbia's anti-crisis program. The fifth part analyzes an intelligent approach toward risk management in SOEs as a key tool in the strategic implementation of industrial policies.

Isn't output more important than inflation in impotent economy: Serbia's economic policies revision

Current economic crisis in Serbia was triggered primarily by pre-transitional structural instabilities and stressors influenced by uncompleted transition, both geopolitical and economic. The fact that macroeconomic policies (monetary and fiscal, primarily) did not manage to fix these problems forces economic practitioners to question the orthodox framework for conducting economic policies. With structural instabilities and in the absence of automatic stabilizers orthodox macroeconomic policies lose their purpose. The previous point is important for Serbia as an economy in transition in which radical reforms such as privatization and financial deregulation provoked output gap. A shift in perspective is particularly important for Serbia that entered the 2008 global economic crisis with impotent economy, low competitiveness, and high system risk. In macroeconomics the prevailing orthodoxy asserted that there was no incompatibility between keeping inflation low and stable, and seeking for maximum growth (or minimal output gap). From this point, the misconception of macroeconomic orthodoxy becomes obvious to anyone. The majority of previous macroeconomic models broke down because the modelers largely ignored their microeconomic implications, or how firms and banks would react to imposed policies and regulation that attempted to exploit past correlations in the data base in order to eliminate market failures. The modeling that took fixing of the problem for granted resulted in breakdown of fixing. Most importantly, with this kind of modeling, no economy in deep recession has ever made turnaround. Today, besides domestic transitional recession, Serbia's economy is exposed to global double dip crisis. This 'combined crisis' will end upon reaching two conditions. First, when bubbles in all kinds of assets are deflated. In the period before the global economic crisis, debt-fueled bubbles were the trigger for irrational exuberance and, consequently, overestimation of the value of equity based on mark-to-market accounting. The bubbles deflation, or eventually bubbles burst, leads to convergence of the real and market value of different kinds of assets. Second, crisis ends, also, when asset prices, debt levels, and factors' income get back into the balance. When the new balance is met, economic expectations will rise, new investment cycle will start, and economy will leave the crisis. Until then, new economic policies must correct all structural instabilities and create the fundaments for recovery. Policy makers in Serbia must react to the main transitional contradiction that achieved price stability is not followed with sustainable employment. The first step in this reaction is to understand the complexity of the crisis and to identify its seeds. In our latest article [3], we intended to identify the seeds of the Serbia's economic crisis and to figure out the feasible solutions predominantly from microeconomic perspective. In this article we shift the focus to macroeconomic perspective. Again, industrial policies are at the core of feasible solution. This is what this paper attempts to explain. It proceeds in five parts. The first and second part review common macroeconomic 'M' as a bottom line in macroeconomic analysis and economic policy modeling, respectively. The third and fourth part analyze Serbia's macroeconomic 'M' and related economic policies, respectively. The fifth part identifies industrial policies as a main tool for elimination of structural imbalances and competitiveness gap. Also, in this part we propose the roadmap for exit from the crisis.

The Yugoslav Model and Serbia's Transitional Economy: Some Aspects of Development

Abstract The study deals with key questions of Serbia’s economic development, including the regularities of transforming self-managed socialism to a standard capitalist system. It is based on the concept of endogenous growth and the general theory of market transition. In the empirical part of investigation, the main directions of economic development and transition in Serbia are analysed. Crucial issues of economic policy are also considered with a particular emphasis on the latest phase of transition. Concerning the problems of economic efficiency, an attempt is made to quantify the various types of technical progress and determine their contribution to its overall rate. The macroeconomic role of external factors is quantitatively shown through a globalisation effect related to inflows of FDI. The author believes that the Serbian economy, despite all its problems and difficulties, in principle has the potential necessary for finding adequate answers to the challenges of ‘neo-transition’. Of these challenges, he regards as most serious Serbia’s ability to comply with the standards of accession to the European Union, which, among others, requires closer regional cooperation.

From macroeconomic stability to industrial policies and back: The case of Serbia

After the 2008 economic crisis in the whole civilized world the orthodox model of macroeconomic policies has been under revision. Although the last crisis wave in Serbia was not triggered primarily by macroeconomic policies, it forces economists to question the framework for conducting broad policies in conditions of transitional recession. Without automatic stabilizers broad policies lose their purpose, particularly when massive privatization and financial deregulation take place. Hidden fractures of the uncompleted transition and mistakes inherent to the economic policies force us to develop conceptually wider framework applicable during the crisis as well as in the post-crisis period. In the emerging heterodox model industrial policies lead over broad policies (monetary and fiscal, primarily) with extended set of tenets instead of monetary determinism of orthodox model focused exclusively on two tenets, inflation and output gap, both low and stable. In the orthodox model consumer price inflation (CPI) is approximation for inflation and output gap is defined as the distance from the level of output that would prevail in the absence of nominal rigidities of the economic system. Change of the policies framework is an imperative especially for economies that entered the 2008 economic crisis with structural imbalances and low competitiveness. Main manifestations of structural imbalances in Serbia's economy are twin output gaps (transitional gap +gap by definition) and continuous and strong inflation pressures. Unfortunately, structural imbalances could be easily deepened due to financial crisis and the 'run' on the governments and banks in the EU. The shift from the orthodox model to the heterodox one in case of Serbia is not the matter of economic prosperity in terms of output expansion and competitiveness improvement but the matter of survival. Unlike broad macroeconomic policies that affect the whole economy, industrial policies are sector specific. Namely, industrial policies are directed towards output expansion of industries with tradable goods, by promoting certain sectors for import substitution and/or subsidizing certain export oriented sectors. After output increases through industrial policies, broad economic policies come into play. In many ways, in heterodox model the broad policy measures should remain the same. The main promising routes for improvement are new combination of traditional monetary policies and prudential financial regulation and design of better automatic fiscal stabilizers. In monetary policy automatic stabilizers could be developed in many ways. This article suggests currency board as monetary model for Serbia's economy in which stable and competitive exchange rate play the role of automatic stabilizer. This is what this paper tries to do. Consequently, it proceeds in four steps. The first reviews the genesis of the economic crisis in Serbia and identifies the causes of today's vulnerability. The second and most tentative, takes a new heterodox macroeconomic policy framework (industrial policies lead, broad policies follow). The third identifies industrial policies as an important tool for elimination of structural imbalance causes. The fourth identifies the road map for exit from the crisis.

The 2011 anti-crisis program and strategy for sustainable development: Serbia 2020

In the post-crisis world sustainability is a key word. The new reality in the global economy reflects a paradigm change, a shift from macroeconomic stability toward dynamic management. Escape from the crisis also requires refocusing from inflation (low and stable) toward intelligent investments, both in public and private sector as well as a strategic smart state. The new purpose of companies must be creating shared value which means interaction between value creation and societal progress. Serbia's economy is in the combined crisis. This is the consequence of transitional stressors and global economic crisis ones. Escape from combined crisis asks for anti-crisis program and new strategy for sustainable economic development. Complexity of interactions between relevant risk factors as well as their evolution requires Balanced Scorecard, well known holistic tool for strategy formulation and implementation. The purpose of this paper is to point at key tenets that the strategy should hit, their mutual interdependencies and feasibility, as well as the main iniciatives which contribute to that.