Small Economy Research Articles

The Convergence Dynamics of Per Capita International Tourist Arrivals

ABSTRACT The study highlights the importance of comovements in tests of stochastic convergence in per capita international tourist arrivals for a large multi-country panel. LM unit root tests with allowance for comovements and structural breaks reveals a significant reduction in the number of rejections of the unit root null hypothesis when compared to LM unit root tests without comovements. Additional analysis allowing for Fourier gradual breaks confirms our findings of limited evidence of stochastic convergence. Upon further examination of convergence clubs, we identify four convergence clusters for per capita international tourist arrivals distinguished by whether a country is considered a small island economy.

Navigating Uncertainty: an Interval Method to Uncover Export Dynamics – Insights from the Republic of Armenia

Purpose: This article introduces an innovative interval method to evaluate Armenia's export dynamics in uncertain economic contexts. Theoretical Framework: Focusing on export forecasts and interval forecasts, this research addresses the dynamic nature of economic processes, enhancing accuracy in assessing economic indicators during uncertainty. Methodology: We apply the interval approach to assess Armenia's exports, particularly in the EAEU market versus the global market. We analyze the effectiveness of export-oriented scenarios amid uncertainty. Findings: Our analysis shows that the EAEU market offers more favorable export growth compared to the global market during uncertainty. The interval method significantly improves forecast accuracy. We emphasize the importance of prioritizing trade relations with specific countries and the economic significance of finished product exports. Research, Practical & Social Implications: This research provides insights into Armenia's export-oriented growth prospects and offers a practical guide for policymakers. It underscores the significance of modernization, collaboration, and economic competitiveness, particularly in smaller economies. Originality/Value: This article introduces the interval method for export dynamics in Armenia. It adds value by advocating targeted trade strategies and emphasizing economic policy focused on finished product exports during uncertain times.

Identifying Monetary Policy Under Fixed Exchange Rates in a Small Open Economy

Purpose: This paper is an empirical investigation of the transmission of monetary policy in a small open economy with fixed exchange rates. The paper argues that under a fixed exchange rate system and free mobility of capital, the ability of monetary policy actions to affect the real variables of the economy is limited and constrained by maintaining the peg. Theoretical framework: The study's theoretical framework examines how Jordan's monetary policy, influenced by a fixed exchange rate with the U.S. dollar, responds to domestic and external shocks, with an emphasis on the transmission of these shocks through key economic variables. Design/Methodology/Approach: A two-country structural macroeconomic model has been developed to describe the small economy that explicitly incorporates an interest rate differential. Findings: Using Jordan as a case study during the period when its currency was pegged to the U.S. dollar, vector auto-regression analysis reveals that there is evidence of a strong U.S. monetary policy influence on the Jordanian economy. The results show that adjustment of the policy rate by the central bank of Jordan in response to Federal Reserve actions has no significant impact on output while the interest rate differentials tend to have an immediate influence on inflation with short lags, albeit small in magnitude. Research, Practical & Social implications: The research provides insights that can inform effective monetary policy strategies in small open economies like Jordan, offering implications for policymakers and contributing to economic stability. Originality/Value: The originality of this study lies in its comprehensive analysis of Jordan's monetary policy within the context of a small open economy, offering valuable insights into the effects of external shocks, exchange rate regimes, and policy responses on key economic variables.

Determinants of Non-Performing Loans in a Small Island Economy of Fiji: Accounting for COVID-19, Bank-Type, and Globalisation

An increase in non-performing loans and bad debts in the banking sector can make banks vulnerable to a loss of confidence among customers and other banks and a banking collapse. The recent pandemic (COVID-19) and the evolving globalisation can affect bank operations, although the effects may depend on the type of banks and other bank-specific factors. In this paper, we revisit the topic on the determinants of non-performing loans of banks in a small island economy of Fiji over the period 2000 to 2022. We apply a fixed-effect method and consider seven banks (five commercial banks and two non-bank financial institutions). In our estimations, we examine the effect of bank-specific factors and control for the social and economic globalisation, the GFC, the COVID-19 pandemic, and bank-type effects, as well as the effect of the interaction between the bank type and the pandemic, as key contributions of the study. Overall, our results are consistent in terms of the effects noted from the bank-specific factors. From the extended model estimations, we note that COVID-19 had a more adverse effect on loan losses than the GFC, and the interaction between the bank type and COVID-19 indicates that non-banks were highly vulnerable to loan losses, whereas commercial banks exhibited greater preparedness. Economic globalisation reduces bank losses, whereas social globalisation exacerbates NPLs.

Promoting Circular Economy Model through SMEs’ Growth: A Focus on African Nations

Purpose- The purpose of this study is to investigate the pivotal role of Small and Medium-sized Enterprises (SMEs) in promoting circular economy principles within African countries. By examining the challenges, opportunities, and policy implications, this research aims to provide valuable insights into how SME development can be harnessed as a catalyst for sustainable and circular economic growth in the African context. Design/methodology/approach: Our methodology encompasses a comprehensive literature review and theoretical analysis to explore the relationship between Small and Medium-sized Enterprises (SMEs) and circular economy principles in African countries, providing a robust foundation for our study. Findings: The study's findings emphasize the significant potential of African SMEs in promoting circular economy practices. However, they also reveal the various challenges these SMEs encounter, including financial constraints and regulatory complexities. Successful initiatives and supportive policies demonstrate that with targeted interventions, SMEs can play a vital role in advancing sustainability in Africa. Research limitations/implications: The study primarily relies on theoretical analysis due to the absence of empirical data, potentially limiting the practical application of findings. Additionally, the diverse African context may require further country-specific research for precise policy recommendations. Social implications: The research carries significant social implications, as the adoption of circular economy practices by SMEs in African nations can lead to the creation of more sustainable and inclusive economic systems, positively impacting local communities and fostering social cohesion. Originality/value: The research contributes original insights by specifically focusing on the underexplored intersection of SMEs and the circular economy in the African context, providing a valuable foundation for future studies and policy initiatives aimed at fostering sustainability and economic development.

Tourism Potential of China and Its Relevance for Jordan’s Economic Openness

The article dwells on the analysis of the international tourism industry in China and directions of implementation of its positive innovations in the tourism industry in Jordan. The paper analysis data, characterizes the current state and examines the strategic directions of the development of the tourism industry in China. The tourism sector in Jordan is considered as one of the most promising. The aim is to turn tourism in Jordan from a seasonal into a year-round activity. Jordan is a small economy compared to China. Nevertheless, common features of economic recovery after pandemic and great counts on tourism as a source of continuous revenues make positive Chinese experience relevant for Jordanian economy. Additionally, Jordan has become an up-and-coming destination for Chinese tourists. We expect that improvements in Jordanian tourism sector will serve the same “accelerator button” as it worked for China.
 
 The practical significance of the study is to determine the directions for improving the international tourism industry in Jordan, namely the development of ecotourism and tourism for the elderly (medical tourism, historical and cultural tourism, social tourism, relaxation tourism); introduction of innovations and digital technologies (digital platforms and online booking, virtual tours and augmented reality, face recognition and other security technologies, artificial intelligence and data analytics, interactive multimedia technologies, smart tourism and the Internet of Things); development of business tourism; improvement of the quality of tourist services (staff training, strengthening control monitoring the quality of services and updating the infrastructure of tourist facilities); development of new forms of tourism (individual and thematic tours, virtual reality tours and tours related to cultural and educational experience); development of individual programs for tourists; improvement of public services and management systems in the field of tourism.

Industrialization as an engine of growth in Latin America throughout a century 1913–2013

For a long period of the 20th Century, industrialization was seen as the quickest and more effective path for progress and productive diversification, influencing the choice of public policies adopted by Latin American governments since the inter-war period up until the debt crisis and the lost decade of the 1980s. Using a long-term macroeconomic database for the period 1913–2013 and 11 Latin American countries, complemented with a dataset of exports by product for the same countries and years, a positive relationship between industrialization and economic growth was found, both for the long run and for episodes of acceleration and deceleration. This correlation seems to be stronger for large than for small economies, reflecting the importance of the size of the domestic market in order to take advantages of economies of scale in the process of industrialization. Three economic channels that may explain this positive correlation are empirically tested. The first one is the contribution of manufacturing to the different components of productivity growth (within- and shift-effects), for which a shift-share decomposition was estimated, both for the long-run, for subperiods and for acceleration and deceleration episodes. The second channel is the contribution of industrialization to gross capital accumulation, where a positive relationship was found between the change in the share of employment in manufacture with the rate of growth of physical capital. Finally, the learning-by-doing hypothesis is tested using the skill-level composition of manufacturing exports, finding a positive relationship between cumulative manufacturing production and the share of mid- and high-skill products in the exports’ matrix. The main contributions of the paper are twofold: the empirical identification of the mechanisms through which industrialization can promote economic development, and the extension of the analysis of Latin American economies to the first half of the 20th Century, which is scarce in the literature because of lack of reliable data.

Evaluating the effectiveness of monetary policy for retail central bank digital currency

This paper evaluates the macroeconomic effects of monetary policy for a central bank digital currency rule with traditional monetary policy in an open environment. We build a dynamic stochastic general equilibrium small open model economy with interest-bearing central bank digital currency assets. The redistribution of asset holdings and the change in asset price are the two pathways through which a retail central bank digital currency rule under the traditional monetary policy affects the macroeconomy. Fiat's digital and traditional monetary policies complement one another in lowering macroeconomic fluctuations. As a result, the real exchange rate, current accounts, and consumption are more stable in transmitting foreign shocks. These results occur when price-based or quantitative-based fiat digital monetary policy parallels traditional price-based monetary policy.

THE ANALYSIS OF LEVEL OF INSTITUTIONAL SUPPORT FOR INTERNATIONAL ENTREPRENEURIAL EXPANSION OF SMALL AND MEDIUM-SIZED ENTERPRISES FROM DEVELOPING COUNTRIES

The initiating and development of international entrepreneurial expansion of small and medium-sized enterprises (SMEs) from developing countries (DCs) is under the influence of numerous internal and external challenges and limitations. Unlike developed countries, the institutional context of DCs determines specific business conditions, so the relevant literature indicates the necessity of incorporating institutional theory in international entrepreneurship research. Compared to previous research in which the estimation of institutional environment was performed on the basis of one dimension, in this paper, a composite indicator of benefits of country institutional profile for entrepreneurship (CIPE), which is relevant for export SMEs, is used. The aim of the paper is to point out the importance and the necessity of measuring entrepreneurs’ perception on the characteristics of institutional environment of a small and open economy, encompassing its regulatory, normative and cognitive dimension. The subject of the research is the attitude of entrepreneurs/managers of export SMEs from Bosnia and Herzegovina (BIH) about the level of institutional support for their international expansion. The results of the research indicate that the CIPE scale has high reliability and validity. Based on the data collected from 81 export SMEs from BIH, it has been determined that the institutional environment in BIH does not provide significant support for international entrepreneurial activities. The normative dimension of institutional environment has been rated the most favorably, while the regulatory dimension is considered to be the greatest obstacle to international entrepreneurship development. The paper, both theoretically and empirically, presents the complexity of institutional profile of DCs, states the recommendations for overcoming institutional barriers, the areas of institutional framework where measures of government policy are necessary, as well as recommendations for future research.

The Replicability of Chinas Economic Development in Smaller Economies

From one of the world's most impoverished countries to currently the world's most active international trade participant, China and its economic growth in the past few decades is a constantly discussed and debated topic amongst the world's most prestigious politicians and scholars. Aware of China's economic accomplishment, officials from developed and developing countries ponder if China's triumph can be replicated in developing countries that aim to repeat China's success. Although some developing countries, mostly ones that are limited in economic size, have great ambitions to follow the path China once took that led the latter to prosperity, many experts warn that China's economic growth was deeply reliant on the size of its economy and questions if such experience can be replicated outside of economies massive in size, for instance, Singapore. Therefore, this essay aims to determine if Singapore can be as developed as it is if China's past developmental plans were utilized in this relatively small economy.

The Impacts of Different Economic Structures on Economy and Society

The debate on the benefits and drawbacks of an economy's size is developed in this proposal. The researcher wants to use this background information to study the consequences of various economic structures after reading literature comparing and contrasting small and large economies. To be more precise, the researcher wants to start the suggested research by contrasting China's and Singapore's economic progress. Choosing a period allows us to study the effects of changes in the relative proportions of various industrial structures in China and Singapore on economic growth during that particular period.

The impact of exogenous shocks on the innovation performance of firms in the Caribbean small island economies: Quasi-replication of Paunov (2012)

In this paper, we investigate how exogenous shocks affect firms' innovative activities and also uncover the factors that can support and drive firms' innovation during crisis events. We underpin our conceptual framework on the cyclicality and procyclicality theory views and develop a quasi-replication methodology for Paunov's (2012) study, which used survey data collected by the OECD during the 2008–2009 global financial crisis (GFC) from eight Latin American countries (LAC). We use a new dataset covering 13 Caribbean economies (N = 1979), during the COVID-19 pandemic. Using Probit regression, we confirm that, like the GFC, the COVID-19 shock led many firms to stop ongoing innovation projects, corroborating Paunov's original findings and the procyclicality theory. Nevertheless, as we step-by-step extend the replication methodology we deviate from the original hypotheses and focus on uncovering which elements can support firms' innovation activities during adverse conditions. In doing so we find that funding was important to support new innovation activities during the COVID-19 pandemic and also that the size of firms' R&D department and their investments in product R&D and process R&D enhanced the development of innovations during this exogenous crisis.

Secessionism in Nevis: Why Have Tensions Eased?

Existing studies of secessionism focus predominantly on why these movements gain momentum and persist. A subset of work focuses on why secessionist tensions cease. We contribute to these latter studies by adapting the main theories developed to explain why secessionist agitation occurs, to account for abatement. We focus specifically on the island of Nevis in St Kitts and Nevis, a country that should be a “least likely” case for secession, given its small population, territory, and economy, yet has experienced secessionist agitation for much of the second half of the 20th century. Since the late 1990s, momentum for secession has subsided. We explain why by reference to rationalist, culturalist and institutionalist arguments. We use an in-depth case study method, drawing on a range of sources, that foregrounds equifinality and concatenation across more than a century of inter-island politics. The findings suggest that all three types of arguments have some explanatory value but each fall short of fully accounting for the ebb and flow of secessionist dynamics. The findings may be of particular interest to multi-island states and territories in the Caribbean. They also offer practical lessons about the importance of policies that promote sectoral integration, encourage sociological linkages, and provide scope for dynamic political settlements.

Renewal capital matters: Comparison between Lithuania and Taiwan

In a hyper-competition era with the shadows by COVID-19 pandemic, nations as well as companies are competing for talents, high-technologies and innovations to sustain the economic performance and competitiveness. This study compares the NIC of two small economies, Lithuania and Taiwan, that both perform better than most countries during the pandemic, aiming to understand their next steps to sustain the successfulness after the pandemic. The study utilized the ELSS (Edvinsson, Lin, Stahle and Stahle) model (Stahle et al., 2015) with 48 indicators collected from the World Competitiveness Yearbook to measure the degree of NIC. Based on 20 years (2001-2020) national intellectual capital (NIC) panel data, the descriptive analysis reveals that Lithuania lags behind Taiwan renewal capital. However, Lithuania’s market capital and process capital have great improvement over the past 20 years and are catching up with those of Taiwan. The renewal capital mainly consists of R&D spending/GDP, business R&D spending, cooperation between corporations and universities, venture capital, entrepreneurship, development and application of technology and 6 other renewal relevant indicators. From the perspective of NIC, the gap of GDP per capita between Lithuania and Taiwan corresponds to the difference of renewal capital between these two countries. The results show the significance of renewal capital. Those who are unable to attract, retain talents and slow in technology renewal will not be competitive and sustainable. We suggest that Lithuania utilize its short-term NIC to boost up economic development, then invest more in talent development and technology advancement to ensure its sustainability.

THE CAPITAL MARKET MATTERS - THE EXPERIENCE OF THE GRAND DUCHY

The Bulgarian capital market is not founding its place in the national economy for more than 30 years, and the market infrastructure is far from world standards, at least as far as the central depository is concerned. The government is a major shareholder in CD (Central Depository) and BSE (Bulgarian Stock Exchange) and is not doing enough for their development and integration. The state is also absent as a factor in the development of securities trading. The example of Luxembourg shows that the capital market can be a driver of the national economy and a factor for growth, which is why it should be recognized. The stated goal of the research also sets the limitations in the present study - it is an overview and uses a comparative analysis of indicators for economic development and trading in financial instruments. The analysis shows that government guidance of capital market development can become a major factor for remarkable growth, and this can be achieved by small economies as well.

Is short-term firm performance an indicator of a sustainable financial performance? Empirical evidence

PurposeThis study aims to thoroughly examine and understand the relationship between working capital management (WCM) and the sustainable financial performance (FP) in the context of the New Zealand companies listed on stock exchange.Design/methodology/approachThis study has applied various regression techniques to examine WCM and the sustainable FP relationship. The data set period is from 2009 to 2019. The results are robust upon various layers of robustness parameters. The system-generalized method of moments is applied for managing endogeneity issue.FindingsThe research reveals compelling evidence of a meaningful connection between WCM and sustainable FP indicators. The study specifically highlights the significant negative associations between the cash conversion cycle, average collection period and average age of inventory with the firm’s sustainable FP. Through robust analyses and various parameter adjustments, the study ensures the credibility and reliability of its conclusions, further reinforcing the impact of WCM on the financial health of New Zealand-listed firms.Practical implicationsThis study provides future directions for researchers to explore the dynamic relationship between WCM and a firm sustainable FP because it is still a demanding and challenging area. Future research may care to explore the optimal way to reduce the cash conversion cycle, average collection period and average age of inventory for New Zealand firms. The current study does provide insights to NZ financial managers, which is useful for improving sustainable FP by efficiently managing WCM.Originality/valueWCM is problematic and constitutes a notable challenge; it requires further research, especially in small economies such as New Zealand. Hence, it is an updated and fresh attempt based on a larger data set to measure the empirical relationship between WCM and the sustainable performance of New Zealand-listed firms. Furthermore, the current study uses dynamic panel data estimation techniques in addition to multiple regression techniques.

Dynamic framework for strategic forecasting of the bank consumer loan market: Evidence from Ukraine

Accurate forecasting of consumer loan market behavior gives banks a huge potential to optimize their credit strategies by proactively adapting to external changes. This study aims to analyze and predict consumer loan demand, supply, and profitability in the Ukrainian banking sector. Using a systemic dynamic approach, the interplay of five key factors is considered: central bank policies, GDP fluctuations, changing competitive landscape driven by FinTech companies, investment in government bonds as an alternative to loan granting, and severity of credit risk management.The developed dynamic model for the bank consumer loan market in Ukraine offers predictive capabilities enhancing decision-making and strategic planning in the banking sector and can be adapted in open small economies. Within the proposed systemic dynamic model, five scenarios were explored. Compared to the base scenario, a 4 p.p. increase in the key policy rate results in UAH 4.7 billion decrease in demand for bank consumer loans and a UAH 0.55 billion reduction in lending profitability based on the year’s results. Fall in GDP by 6 p.p. leads to a decrease in the supply of bank consumer loans by UAH 6.9 billion and a decrease in lending income by UAH 1.3 billion based on the year’s results. Scenario with the decline of FinTech portfolio by 20 p.p. quarterly leads to an increase in demand for bank consumer loans of UAH 8 billion. A 4 p.p. rise in government bond yields leads to a UAH 17 billion reduction in the supply of consumer loans in the same quarter.

Вплив деяких зовнішніх чинників на фінансову нестабільність в Україні

Introduction. The nature of Ukraine's economic development over the past thirty years reflects its dependence on global financial and economic cycles. The nature of this dependence lies in the stable interrelationship of the global commodity markets with factors of internal financial stability. One of the important ways to overcome such dependence is a nationally-rooted monetary policy aimed at supporting domestic economic activity and weakening the influence of the external environment on financial stability. Problem Statement. Increasing the internal financial stability of the national economy and the regulatory potential of monetary policy by limiting their dependence on global economic cycles. Purpose: Formalization of the relationship between the financial stability of the national economy and changes in the global commodity markets and the identification of prospective monetary policy measures to mitigate them. Methods. General scientific and special methods are used : theoretical generalization, systematic, abstract-logical and comparative analysis, synthesis, grouping. Results. The article summarizes the regularities that determine the cyclical repetition of financial and economic crises in Ukraine. In particular, it was noted that the stability of small open economies, a significant share of whose income is formed by the export of raw materials, largely depends on the situation on the global raw materials markets. Cyclical downturns in these markets cause financial crises, which lead to the decapitalization of small open economies and thus make their structural innovative development impossible. Conclusions. In order to ensure the sustainable development of small open raw material economies, it is necessary to carry out an appropriate institutional policy of the state aimed at ensuring the development of a more complex economic base with a departure from raw material dependence. This requires a corresponding modernization of monetary policy in terms of expanding control over the movement of capital flows, limiting the volatility of the exchange rate.

Assessing the Stability of Poverty Alleviation from a Household Economic Perspectives

From the perspective of household economy, the application of a multiscale spatial econometric model to realize the objective evaluation of county-level poverty alleviation stability is a core issue in rural economics research. The improvement of economic income and livelihood conditions for small farm holders are significant manifestations of poverty alleviation stability. Quantitative evaluation of the county-level poverty alleviation stability can provide a scientific basis for the adjustment of rural economic policy and high-quality development of regional economy by the multiscale spatial econometric model. This study realizes the quantitative evaluation of county-level poverty alleviation stability by constructing the evaluation index system, taking five counties in China’s Yunnan Province as an example, using the exact 2242 survey datasets, and adopting the multiscale spatial econometric model. The main idea of the model is to obtain the score of poverty alleviation stability by weighted summing of dimensions on the basis of weight calculation of each evaluation index. Results revealed the following: (1) County-level poverty alleviation stability includes the stability of regional poverty alleviation and the stability of farmers’ poverty alleviation, which is mainly affected by the combined effect of five factors, including economic and ability status, cognitive level, supporting facilities, and social governance. (2) Based on the multiscale spatial econometric model, the overall poverty alleviation stability in the five counties is relatively low, with Zhaoyang District showing the highest stability, followed by Yiliang, Yuanyang, Honghe, and Gongshan. (3) Farmers’ poverty alleviation stability in all counties, except Zhaoyang, is higher than that in the region. County-level gross domestic product and fiscal revenue are the dominant factors affecting the stability of poverty alleviation in the region, while the dominant factors affecting the farmers’ poverty alleviation stability are the level of per capita net income and labor force proportion in the household population. (4) To enhance poverty alleviation stability, this study suggested enhancing the level of economic development in counties and strengthening the collective economy of the village, innovating the form of economic development of the village, taking the enhancement of the development capacity of counties, relying on resource advantages to actively develop special industries, and improving the stability and sustainability of income generation for farmers. Meanwhile, we propose to further improve the conditions of regional infrastructure and enhance the capacity of public services. The findings can help enrich the theoretical research system of rural economics, expand the scope of research on small-holder farming systems, and provide a reference for diversification of small farm holders economy, the improvement of agricultural farming technology, and the high-quality development of regional economy in China.

Global models for a global pandemic: The impact of COVID-19 on small euro area economies

We analyse the COVID-19 pandemic shock on small open economies (SOEs) in the euro area in a unified modelling framework: the Euro Area and the Global Economy model. We find strong negative international spillovers affecting each of the modelled SOEs, stemming not only from the rest of the euro area, but also from the United States and the rest of the world. A lower bound on nominal interest rates in the euro area amplifies these spillovers, especially within the euro area. Furthermore, we find some positive spillovers from the fiscal measures implemented in the Euro area to combat the pandemic, including the new Next Generation EU instrument.