Economic Analysis

Revisiting the Consumption-Wealth Nexus: A Nonparametric Exploration

2025-06-02T12:29:23+00:00

This study investigates the relationship between non-durable consumption and asset prices in 12 developed and 11 emerging economies, members of the European Union, emphasising the presence of nonlinearities through a nonparametric framework. Utilising the Categorical Regression Splines (CRS) approach, the analysis challenges traditional parametric models by allowing data to dictate the functional form of the relationship. The findings reveal distinct consumption-wealth dynamics: income remains the key driver in the emerging economies sample, with stock market fluctuations exhibiting potentially non-linear effects. Furthermore, consumption is primarily income-driven, with housing wealth playing a more pronounced role due to less-developed mortgage and financial markets in these emerging economies. Money wealth effects vary in significance, depending on the economic context and time period. These results underscore the advantages of nonparametric methods in accurately capturing complex economic relationships, providing insights for policymakers in designing effective strategies to support household consumption and economic stability.

Is there a Connection between Finance and Innovation?

2025-06-02T12:29:24+00:00

Within the current macroeconomic environment, the innovation activity, especially the radical one is developed under extreme uncertainty conditions. There are a number of researches proving the existence of severely asymmetrical information generated by innovation activities. Our research objective focusses on whether or not the development of financial systems influences the level of innovation, also analyzing the real impact of several features of the financial system on the overall innovative process of a country. In this respect, we propose a two-fold contribution. First, we address the impact on innovation which is exercised by the financial intermediation entities granting credits to the private sectors of the economy. Such ‘financial resources availability’ view excludes the role played by financial markets or by the firms’ internal resources. Second, we employ a Bayesian nonparametric empirical framework able to deal with various types of uncertainty about the ‘true model’ governing the relationship between finance and innovation. Our findings show that, at an empirical level, finance does matter in explaining the status of innovation processes and outcomes. However, this conclusion should be nuanced by adding that different features of the financial system have a non-uniform importance: while the global supply of financial resources through credit granted to private sector is putting forth a positive and robust influence on innovation, the expansion of commercial banks network appears to play a more ambiguous and less robust role. Additionally, the existence of geographically spread specific mechanisms is clearly influencing the amplitude and shape of financial variables’ impact on innovation. It is our view that the paper may contribute to proving that the development as well as the functional capabilities of the financial systems are highly relevant for the status of innovation processes in modern ‘knowledge-based’ economies.

Navigating Sector Momentum: Evaluating Performance in the US and Global ETFs for Retail Investors

2025-06-02T12:29:26+00:00

Modern day investing comes with too many options and complexities for non-professional investors. An easy way for them to earn acceptable returns is investing in market index exchange-traded funds (ETFs). However, the previous research suggests that they can achieve superior results by using a simple sector momentum strategy. The aim of this study is to examine whether those conclusions remain when a different data set is used as well as to assess the performance attribution of such a strategy. The research is based on two sets of sector ETFs, which are focused on the US market and on the global market, in order to investigate whether the results are applicable in both cases. For each of them the performance measures were calculated, and the factor analysis was performed. The results suggest that the sector momentum strategies achieve superior results than the benchmark, though there is not one universally optimal strategy for every investor and for every investment opportunity set. The factor analysis confirms that the strategy generates alpha and that its performance cannot be explained by traditional factors fully. Therefore, the study further supports the use of sector momentum investing, especially for retail investors, though it has its limitations, e.g. the neglect of transaction costs.

Digital Development of Serbia Compared to Selected European Countries: A Comparative Analysis

2025-06-02T12:29:27+00:00

The aim of this research is to analyze the level of digital development achieved by sixteen European countries based on Microsoft’s Digital Future Index from 2021. The countries analyzed in the report are classified into three groups: a) Digitally Advanced “Benchmark” Countries of Western Europe (the Netherlands, Denmark, Sweden, and Finland), b) Europe’s Fast-Growing Digital Leaders (Czech Republic, Estonia, Malta, Slovenia, and Portugal), and c) Digital Followers of Central & Eastern Europe (Croatia, Hungary, Poland, Romania, Russia, Serbia, and Greece). By applying comparative graphical analysis, using a 45-degree line, the relationship between the Level of Digital Development and the Benefits of Digitization in these countries was examined. The findings indicate that economies with a relatively lower Digital Development Score achieved relatively higher Economic and Social Gains Scores. This highlights the need for more efficient management of digitalization factors in countries leading the digital development process. Furthermore, the inputs to the development of digitization and the economic and social results of achieved digital development were visually compared both for the three previously identified groups of European countries and specifically for the Republic of Serbia. The research findings demonstrate that the digital Followers of Central & Eastern Europe significantly lag behind the “Benchmark” countries of Western Europe and Europe’s fast-growing digital leaders in terms of achieved digitalization levels. Serbia lags in the development of digital infrastructure, digital skills, the adoption of digital technologies, and the overall level of human capital development compared to other European countries.

Corporate Taxation and Subsidy Distortions as Barriers to Private Domestic Investment in Serbia

2025-06-02T12:29:28+00:00

This paper examines the structural barriers to private domestic investments in Serbia, with a particular focus on the role of corporate taxation and subsidy policy. The analysis combines descriptive empirical data, comparative legal assessment, and institutional diagnostics to explore why domestic investments have remained persistently low relative to both foreign direct investments and levels observed in comparable EU economies. Using Eurostat and World Bank data for the period 2013–2022, the paper documents that total investment growth in Serbia has been primarily driven by rising FDI inflows and increased public investments, while domestic private investments have remained weak. Despite a relatively high fiscal effort devoted to investment incentives, including both tax-based instruments and direct subsidies, the design and allocation of these measures appear to disproportionately benefit large investors – most often foreign. The paper contextualises Serbia’s statutory and effective corporate tax rates within EU norms and identifies significant structural asymmetries in incentive accessibility between firms of different sizes. It also develops a classification of corporate tax incentive regimes in selected EU member states and Serbia, based on the structure and conditions of tax-based investment support, which is used to assess Serbia’s position relative to prevailing EU practices in the design of fiscal incentives. Institutional barriers, including legal uncertainty and administrative inefficiency, further constrain domestic investments. The findings suggest that Serbia’s current investment model is unlikely to support sustainable long-term development unless policy is rebalanced to improve the investment climate for domestic firms. The findings inform policy recommendations aimed at rebalancing incentive structures and strengthening institutional and financial conditions for domestic investments.

Flexible Work Arrangements and the Hybrid Work Model: Attitudes of Employees in the Scientific Research Sector in Serbia

2025-06-02T12:29:30+00:00

The paper analyses the advantages, disadvantages, and possibilities of implementing flexible work models in modern organisations, focusing particularly on the hybrid work model. The aim of the research is to identify the key benefits of the hybrid work model and examine the attitude of employees in the scientific research sector in Serbia regarding this relatively new and innovative concept. By using the desk research method and the empirical approach, the main advantages of flexible work models have been analysed, as well as the key challenges managers face during the implementation. The research findings indicate a growing popularity of the hybrid work model across various sectors, including scientific research in Serbia. Due to its numerous benefits, the model has been actively adopted by employees in the field of social sciences and humanities.

The Effects of Strict Social Norms on Home Bias

2025-06-02T12:29:31+00:00

Despite the documented advantages of international portfolio diversification, investors tend to over-allocate to domestic markets, leading to exposure to home bias. This paper explores the behavioral explanation of this phenomenon by investigating the relationship between cultural tightness-looseness and equity home bias. Based on foreign portfolio holdings data from 28 of the most developed markets and over the period 2001-2022, we find empirical support using the OLS methodology that investors from culturally tighter countries register higher levels of home bias, compared to investors from looser countries. In cultures where stricter social norms are imposed and little deviation is allowed, investors exhibit higher confidence in domestic returns and associate international investments as more costly. Due to higher levels of innovation and fewer behavioral constraints, investors from looser countries overcome the cost associated with the unfamiliarity of foreign stocks, managing to better diversify their portfolios internationally. Additionally, we identify that financial education and economic openness of the investor country alleviate the effect stricter norms have on home bias. The significance of the study is reinforced by the robustness tests performed, such as employing alternative measures of both our dependent and independent variables and testing the identified relationships through different estimation methods. This paper contributes to the extensive literature on home bias by identifying the strictness of social norms as a key cultural determinant in shaping international portfolio allocation and exploring channels to mitigate its effect on home bias.