Sovereign Economies Research Articles

Information modeling technologies as a growth factor of investment activity in construction

The transition to a new model of economic growth of a country with a sovereign economy requires a significant increase in investment activity not only in the housing sector, road transport infrastructure, but also in the industrial sector of the national economy. The main burden on the creation of industrial enterprises of new industries in the field of high technology lies on the state budget. Meanwhile, a number of projects for the construction of new industrial enterprises, reconstruction and overhaul of existing ones are initiated by the business environment. The active development of industrial mortgages, which started in 2022, opens up new opportunities for activating the sphere of industrial construction. Obviously, the volumes, terms and objects of lending are currently burdened with a number of requirements and restrictions. The analysis carried out by the authors showed that the use of information modeling technologies, big data and artificial intelligence are able, providing transparency of investment and construction processes, to level the risks of their lending. Moreover, bearing in mind the long duration of construction, the authors suggest using smart contracts that allow making operational adjustments to the course of construction.

From the debt trap to a sovereign economy : Introduction by Minister of Finance to the thematic issue of Economy & Finance published on the 10th anniversary of the Pénz7 event series

From the debt trap to a sovereign economy : Introduction by Minister of Finance to the thematic issue of Economy & Finance published on the 10th anniversary of the Pénz7 event series

СУВЕРЕННАЯ ЭКОНОМИКА КАК ЭКОНОМИЧЕСКАЯ СИСТЕМА: СУЩНОСТЬ, ПРИНЦИПЫ, ПЕРСПЕКТИВЫ ФОРМИРОВАНИЯ В РОССИИ

The Russian economy is currently facing serious challenges due to the complex geopolitical and geo-economic situation in the world. We can talk about a period of strong economic and political turbulence, which radically changed the views of scientists and practitioners on approaches to the development of the Russian economy. In this situation, the issues of ensuring the economic security of the Russian Federation and the formation of its economic sovereignty are of particular relevance. The relevance and novelty of the topic of the article is also confirmed by the insufficient study of the problems of the formation of the sovereign economy as an economic system in relation to Russian reality. The purpose of writing this article is to study the concept of economic sovereignty.
 The article reveals the essence of the sovereign economy as an economic system, provides the author's definition of the concept of “sovereign economy”. The article also discusses the principles of building a sovereign economy and the prospects for its formation in Russia.

Роль и место технологического суверенитета в обеспечении устойчивости экономики России

Introduction. The peculiarity of the current period development determined the need to change the vector, format and scale of the structural transformation of the Russian economy. This necessitated the need for domestic development only on the basis of achieving technological sovereignty as the main factor of economic growth and a condition of national security. It is revealed that one of the reasons for the low level of its achievement is the low innovative activity of organizations and a small proportion of organizations creating technological innovations and developments in the subjects of the Russian Federation. Theoretical analysis. The article examines the place and role of technological sovereignty in increasing national independence. Various approaches to understanding the essence of technological sovereignty are considered. A retrospective analysis of the “technological sovereignty” category formation is carried out, its priority over the policy of import substitution is proved. Empirical analysis. The analysis of the organizations’ innovative activity indicators dynamics by subjects of the Russian Federation and by types of economic activity, as well as the dynamics of the share of organizations in the total number of surveyed organizations of the Russian Federation engaged in technological innovations is carried out. The results allowed to make a conclusion about the negative trend of most of the indicators’ values. The obtained results confirmed the need to revise the vector of domestic economy development, the research activities activation as the main factor of ensuring technological sovereignty. Results. The result of the study is the identification and systematization of priority areas and measures to ensure technological sovereignty. The specific characteristics of the sovereignties influencing the achievement of universal sovereignty based on the construction of a sovereign economy model are shown. Based on theoretical and empirical analysis, assumptions are made about the different sovereignties level of development in the Russian Federation.

БЮДЖЕТНО-НАЛОГОВЫЕ МЕХАНИЗМЫ В УСЛОВИЯХ ГОСУДАРСТВЕННОГО РЕГУЛИРОВАНИЯ И ИЗМЕНЕНИЯ ПАРАДИГМЫ ЭКОНОМИКИ РОССИИ

The article discusses the state regulation of the economy, which is formed under the influence of a number of factors: the centralization of the management system based on changes in the structure and functions of government bodies, the growth of the share of state participation in the economy, the strengthening of internal and external challenges that affect the stability of the economy. Budget and tax mechanisms are singled out in the conditions of state regulation of the economy in the presence of modern challenges. The concept of the Russian economy model has changed; it will be a sovereign economy with rapid technological development. The parameters of the new economic model and its implementation in the face of modern challenges are proposed. Among them are new industrialization, a science-intensive model, new privatization, a new economic management system, scientific and technological development, and ensuring the growth of investments. The mechanisms of formation of a new model of economics and the conditions for achieving the set goals are analyzed.

Несовместимость ценностей русской и западной цивилизаций. Суверенная экономика

An attempt has been made to reflect the root of the historical confrontation between Russia and the West. The centuries-old expansion of Western values has always collided with the reluctance of Russians to sacrifice their identity and subject their thinking and behavior to imposed foreign standards. It is noted that the survival of Russian civilization will require the existence of a sovereign economy.

A Tangible Concept of Imperialism: Utsa Patnaik’s Estimates of Colonial Transfers From India

The earliest work on colonial transfers from India originated in the Drain of wealth theory of the nineteenth century nationalists Dadabhai Naoroji and R. C. Dutt. While the theory displays an implicit understanding of the linking of India’s internal budget and its external accounts to facilitate tax financed transfers to Britain—a feature unique to the colonial economy, it lacked the macroeconomic concepts to make explicit its details. Utsa Patnaik’s methodological framework over the last four decades on imperialism and colonial transfers in particular has contributed significantly towards revealing not only the precise mechanism of extraction of tax financed transfers from India but also formulating accurate estimates of the same. This article focuses on two of Patnaik’s methodological contributions. The first being the use of suitably modified modern macroeconomic concepts in a sovereign economy to lay bare the link between India’s tax revenues and trade surplus and second, the use of Council Bills as a proxy for India’s merchandise surplus which has helped overcome conceptual lacunae in the existing trade data and literature about the colonial period and enabled greater accuracy in the estimation of the transfers. JEL Codes: N01, N10, P16

EUROPEAN REMIT REGULATION AS THE LATEST DETERMINANT OF CORPORATE RISK MANAGEMENT STRATEGIES IN ENERGY SECTOR

The purpose of the paper is to summarize and present the fundamental trends of the past few decades related to the financial crisis of 2008 and growing integration of European sovereign economies, including the integration of energy markets, that led to development of regulation of relationships and preventing manipulation in such markets. This regulation has become a powerful new determinant for the European multinational enterprises of the energy sector (MNE) when developing their own risk management strategies. Methodology. The analysis is based on the recent studies of the pan-European power exchange company Nord Pool Group, international organization Energy Community and relevant regulations and recommendations of the European Parliament and of the Council and European Union Agency for the Cooperation of Energy Regulators. Results of the analysis showed the growing demand for transparency and stability in the European wholesale energy markets. This demand was reflected in the EU Regulation 1227/2011 on Wholesale Energy Market Integrity and Transparency (REMIT) that was adopted by the European Parliament and the Council of the EU in 2011. While REMIT Regulation, on one hand, provides reliable and equal conditions for MNE, on the other hand, it increases the risk and burden of REMIT compliance obligations for such MNE. The consequences of misconduct can potentially be serious – both high fines and personal liability of MNE employees. Today the European multinational enterprises of the energy sector must develop the respective risk management strategies to ensure effective governance of this type of risks. Practical implications. MNE participants of the EU energy market should develop efficient risk management strategies to comply with REMIT requirements, in addition to existing commitments on the transparency of the Third Package. The REMIT compliance risk management strategies will support MNE market participants in complying with rules and policies, creating a secure structure for employees of such enterprises and promoting fair and equal conditions for trade, trusting the energy market. Furthermore, proper REMIT compliance risk management strategy will help to avoid or minimize the risk of fines and other regulatory sanctions and potential civil lawsuits. It will also help to avoid or minimize the risk of reputation loss, such as negative media reviews or poor customer experience. Value/originality. The conducted analysis provides deep understanding of the main drivers of the European wholesale energy markets regulations that create a compelling determinant for the risk management strategies of multinational enterprises of the energy sector. Ukraine has committed itself to the Energy Community to implement the REMIT Regulation in its regulatory field, which increases the relevance of developing appropriate multinational enterprises risk management strategies within the country.

О специфике национальных моделей экономики в постсоветских странах

The article attempts to identify the types of models used in countries and to establish which of them and in which countries have been most successful. The study of economic development models used in different countries is important firstly, to identify the most successful world practices for their development and application. It is also necessary for building economic relations and expanding mutually beneficial cooperation with countries for mutual adaptation of economies. This is especially important within the framework of integration associations that require coordination of programs and strategies for the socio-economic development of the participating countries. In theoretical terms, this explains the nature of economic development or stagnation, helps understanding of how to adjust the models of national development. In our view, the economic model is the result of linking, through the appropriate institutions, the goals of national socio-economic development with the available material and intellectual resources, peculiarities of the geo-economic position, cultural traditions, on the one hand, and trends in the development of world politics and economics, national security issues on the other. Post-Soviet countries have common initial conditions for the formation of sovereign economies. The movement towards the polycentric structure of the world economy is aggravating international political and economic relations. The coronavirus pandemic has raised the profile of the quality of governance and hit the incomes of both hydrocarbon producing countries and exporters of labor and services.

News sentiment and sovereign credit risk

AbstractWe explore the impact of media content on sovereign credit risk. Our measure of media tone is extracted from the Thomson Reuters News Analytics database. As a proxy for sovereign credit risk we consider credit default swap (CDS) spreads, which are decomposed into their risk premium and default risk components. We find that media tone explains and predicts CDS returns and is a mixture of noise and information. Its effect on risk premium induces a temporary change in investors’ appetite for credit risk exposure, whereas its impact on the default component leads to reassessments of the fundamentals of sovereign economies.

The short- and long-run inconsistency of the expansionary austerity theory: a post-Keynesian/evolutionist critique

This work provides a critical analysis of the expansionary austerity theory (EAT). The focus is on the theoretical weaknesses of the EAT—the extreme circumstances and fragile assumptions under which expansionary consolidations might take place. The paper presents a simple theoretical model based on both the post-Keynesian and the evolutionary/institutionalist schools. First, it shows that well-designed austerity measures hardly trigger short-run economic expansions in the context of expected long-lasting consolidation plans dealing with remarkably high debt-to-GDP ratios, when the so-called “financial channel” is not operative (i.e. in the context of monetarily sovereign economies), or when the degree of export responsiveness to internal devaluation is low. Even in the context of non–monetarily sovereign countries (e.g. members of the eurozone), austerity’s effectiveness crucially depends on its highly disputable capacity to stabilize immediately fiscal variables.The paper then analyzes some possible long-run economic dynamics. Path dependency and cumulativeness make the short-run effects of fiscal consolidation elements of paramount importance to (hopefully) obtaining any medium-to-long-run benefit. Should these effects be even slightly contractionary, short-run costs can breed an endless spiral of recession and ballooning debt in the long run. If so, in the case of non–monetarily sovereign countries debt forgiveness may emerge as the ultimate solution to restore economic soundness. Alternatively, institutional innovations such as those adopted since mid-2012 by the European Central Bank are required to stabilize the economy, even though they are unlikely to restore rapid growth in the absence of more active fiscal stimuli.

Media Content and Sovereign Credit Risk

We explore the impact of media content on sovereign credit risk. Our measure of media tone is extracted from the Thomson Reuters News Analytics database. As a proxy for sovereign credit risk we consider Credit Default Swap (CDS) spreads, which are decomposed into their risk premium and default risk components. We find that media tone explains and predicts CDS returns and is a mixture of noise and information. Its effect on risk premium induce a temporary change in investors’ appetite for credit risk exposure whereas its impact on the default component lead to reassessments of the fundamentals of sovereign economies. This is consistent with prevailing theories of investor over- and under reaction.

The Short- and Long-Run Inconsistency of the Expansionary Austerity Theory: A Post-Keynesian/Evolutionist Critique

This paper provides a critical analysis of expansionary austerity theory (EAT). The focus is on the theoretical weaknesses of EAT — the extreme circumstances and fragile assumptions under which expansionary consolidations might actually take place. The paper presents a simple theoretical model that takes inspiration from both the post-Keynesian and evolutionary/institutionalist traditions. First, it demonstrates that well-designed austerity measures hardly trigger short-run economic expansions in the context of expected long lasting consolidation plans (i.e., when adjustment plans deal with remarkably high debt-to-GDP ratios), when the so-called “financial channel” is not operative (i.e., in the context of monetarily sovereign economies), or when the degree of export responsiveness to internal devaluation is low. Even in the context of non–monetarily sovereign countries (e.g., members of the eurozone), austerity’s effectiveness crucially depends on its highly disputable capacity to immediately stabilize fiscal variables. The paper then analyzes some possible long-run economic dynamics, emphasizing the high degree of instability that characterizes austerity-based adjustments plans. Path-dependency and cumulativeness make the short-run impulse effects of fiscal consolidation of paramount importance to (hopefully) obtaining any appreciable medium-to-long-run benefit. Should these effects be contractionary at the onset, the short-run costs of austerity measures can breed an endless spiral of recession and ballooning debt in the long run. If so, in the case of non–monetarily sovereign countries debt forgiveness may emerge as the ultimate solution to restore economic soundness. Alternatively, institutional innovations like those adopted since mid-2012 by the European Central Bank are required to stabilize the economy, even though they are unlikely to restore rapid growth in the absence of more active fiscal stimuli.

Analysis of Moody's Sovereign Credit Ratings: Criticisms Towards Rating Agencies Are Still Valid?

With the increasing international financial and economic integration, sovereign credit ratings have become one of the most important elements in directing global capital flows. Effects of credit rating agencies on both sovereign economies and the global economy have increased. On the other hand, CRAs have been heavily criticized for their poor performance in the crises of 1990s and the recent global financial crisis that started in 2008. The aim of this study is to examine the systematic and consistency of sovereign credit ratings given by CRAs and to identify the determinants of sovereign credit ratings. As a result of panel data analysis conducted by reverse engineering methodology within this context, GDP per capita, governance quality, current account balance, growth performance and growth expectations, being an industrialized country and having a reserve currency were identified as factors affecting sovereign credit rating positively. On the other hand; exchange rate volatility, interest payments, debt stock and default occurrences were the factors effecting credit ratings negatively. The findings of the analyses support the critiques against CRAs about being unable to foresee the economic crises and about deepening the existing crises by making sudden rating cuts.

Reformation or exodus: Assessing the future of the Euro

AbstractEurozone economies were the most adversely affected by the Global Financial Crisis, with forecast macroeconomic outcomes still highly uncertain. This article argues first that the Eurozone policy framework can be viewed as neo-liberalism overlaid with policy constraints associated with a mis-specified Optimum Currency Area. We are critical of this framework since it is incompatible with the policy sovereignty that is experienced, if not utilised, by sovereign economies such as the USA, UK and Australia. Second, recent and proposed policy reforms which generally lie within the constraints of the Eurozone framework are examined. We conclude that these policies are piecemeal and fail to restore policy sovereignty, which ultimately requires that member countries exit the Eurozone. Key issues associated with such an exit are briefly discussed.

CARMEN REINHART AND KENNETH ROGOFF IN A TIME OF FISCAL AUSTERITY: A CRITICAL ANALYSIS OF THE EXPANSIONARY AUSTERITY THEORY

In this paper, we provide a critical analysis of the theory of the expansionary austerity. We take the hotly debated contribution by Carmen Reinhart and Kenneth Rogoff on the supposedly negative relationship between public debt and economic growth (when the debt-to-GDP ratio overcomes the 90 percent threshold) as the starting point of our analysis. We then move to analyze those contributions that more directly point to the possible expansionary outcomes of tough fiscal retrenchments. We eventually criticize the main conclusions of the expansionary austerity theory by presenting a simple short-run theoretical model. We show that fiscal consolidation might have expansionary outcomes only under pretty extreme, or very specific and uncertain circumstances. Expansionary austerity would hardly take place in the context of monetarily sovereign economies, or in presence of an accommodative monetary policy like that implemented by the ECB since late 2011, or into economic systems that are poorly integrated on international goods markets.

Waging Financial War

ABSTRACT: Has the emergence of global financial markets brought with it global financial warfare? This article discusses the canon of financial warfare and how one might wage it across both the strategic and tactical realms. ********** Imagine warfare waged in financial cyberspace: electronic, remote, fought in hypervelocity with millions of engagements per second, and with nations forced to construct redundant systems, sacrificing billions in economic efficiency for survival capacity. Financial warfare strikes can blockade vital industries; delink countries from the global marketplace; bankrupt sovereign economies in the space of a few days, and cause mass exoduses, starvation, riots, and regime change. Financial warfare can support US policy objectives by attacking regime elites, collapsing trade, draining foreign currency reserves, decreasing economic production, spiking inflation, driving unemployment, increasing social and labor unrest and accelerating population migration. Financial warfare can assist the warfighter by halting an enemy's capability to produce and distribute war materials, fund training, operations, or proxies. Financial warfare can amplify and accelerate the damage inflicted by economic warfare. Financial warfare spoofing operations can assist intelligence collection by isolating and mapping crisis response patterns of individual adversaries, organizations, nations, and regime elites. The aim of financial warfare is, quite literally, to disarm opponents by reducing their ability to finance production or distribution, complete transactions, or manage the consequences of a transaction failure. If precisely employed, financial warfare can reduce a targeted society's will and cohesion by forcing upon it, in stark terms, the daily necessity to choose between guns or butter. This dilemma highlights and magnifies the real, immediate, and personal consequences of resource allocation. Deployed within an indigenous society's political framework, financial warfare can deepen the divide between rival constituencies, reducing societal cohesion and inciting civil unrest. Financial warfare is not a new concept. While many individual policy actions had financial aspects, perhaps the first pure financial warfare campaign in United States history occurred in the Eisenhower administration. It was prompted by the Soviet invasion and suppression of the Hungary Revolution on 4 November 1956 and sparked by the seizure of the Suez canal by NATO allies, Britain and France, in Operation Musketeer on 5 November. (1) President Dwight Eisenhower determined he could not effectively oppose Soviet military intervention in Hungary, while allowing European military intervention in Egypt. (2) Diplomacy had not convinced the British or the French to withdraw. (3) The United States was hesitant to intervene with military force against NATO allies. As an alternative, Eisenhower employed financial warfare. With just three offensive strikes, the United States achieved its immediate policy aims of forcing Britain and then France to withdraw from the Suez Canal. The three financial warfare strikes were: (1) blocking the International Monetary Fund (IMF) from providing Britain with $561 million in standby credit; (2) blocking the US Export-Import Bank from extending $600 million in credit to Britain; and (3) threatening to dump America's holdings of pound-sterling bonds unless Great Britain withdrew from the Suez. (4) The credit blockade froze Britain's ability to borrow and forced it back onto its negative cash flow, effectively bankrupting it. The pound-sterling threat significantly raised the perceived risk of dealing in British currency. That threat, if executed, would have directly affected British ability to trade internationally. By 1956, Britain was grossly overleveraged and dependent on further international borrowing to maintain its standard of living. The United States owned $3. …

A Modern Money Perspective on Financial Crowding-out

The withdrawal of discretionary fiscal stimulus and a renewed emphasis on institutional and ‘self-imposed’ budgetary constraints are evidence that the imperative of fiscal sustainability and sound accounting fundamentals continue to drive fiscal policymaking within many advanced economies. To buttress the urgency for fiscal sustainability, neo-liberals often draw upon financial crowding-out theory. Despite an extensive literature, empirical applications are often misspecified due to their failure to account for different institutional arrangements. However, the policy responses of national governments to the Global Financial Crisis have highlighted the institutional disparities, presenting a unique opportunity for a rigorous empirical investigation. This paper develops panel vector error correction models for both sovereign and non-sovereign economies over the period 1999 to 2010 to examine financial crowding-out. The empirical evidence reveals crowding-out effects in non-sovereign economies, but not within sovereign economies.

A Structural Balance Sheet Model of Sovereign Credit Risk

Résumé Cet article étudie les écarts de crédit souverains à l’aide d’un modèle d’actifs contingents et d’une représentation bilantielle de l’économie souveraine. Les formules analytiques d’évaluation de la dette domestique, de la dette externe ainsi que de la garantie financière sont obtenues dans un cadre d’analyse où le taux de recouvrement est déterminé de manière endogène comme la solution d’un jeu stratégique de renégociation. L’approche permet de relier les écarts de crédit souverains à des facteurs macroéconomiques observables et, en particulier, prend en compte des effets de contagion au travers des secteurs industriel et bancaire. La performance d’évaluation ainsi que les prédictions concernant les déterminants des écarts de crédit sont testées avec succès sur l’économie brésilienne.

Liquidity Contagion: A Look at Emerging Markets

Emerging economies have passed an important stress test during the period 2008-09 andare now the key drivers for global growth of the world economy. Financial markets are todayso inter connected that they are fragile to contagion. The issue of financial contagion washistorically concerning Emerging Markets (EM). These latter attract foreign investors andmassive investments funds in - and out - flows on very short horizons can be a source of contagion effects between markets. The analysis of the sovereign debt markets and particularlyrelated CDS markets is of interest since it is at the very center of a new phenomenon: banksare not any more the main source of systemic risk but sovereign economies are. As foreigninvestors represent the most of the volume traded, capital flows in these markets should also impact FX market. Their analysis is thus also central to this study. Indeed, the mainrisk for an asset manager is to get stuck with unwanted sovereign debt due to a dry up ofmarket liquidity. The main contribution of this paper is the analysis of contagion looking atcommon markets liquidity problems to detect funding liquidity problems. We use the CreditDefault Swap bond spread basis and the deviations from the Covered Interest Parity as liquidity measures respectively for sovereign debt and FX markets. Moreover, we distinguishinterdependence and pure contagion using a state-space model with a time - varying volatilityspecification and we apply it to both returns and liquidity indicators.