Digitalization, Industrialization, and Skills Development

The world economy is undergoing a period of structural and technological transformation, driven by the increasing digitalization of economic and social life. Digitalization is being experienced differentially across the globe, reflecting the different opportunities it offers as well as the particular challenges countries face in digitalizing their economic systems. This chapter looks at the opportunities and challenges of digital industrialization through the lens of the South African case. In South Africa, digitalization is occurring in an economy that has prematurely deindustrialized, where the digital capability gap in terms of digital infrastructures and skills is wide, and where organizations need significant investments to retrofit their existing systems. Despite this, South Africa has islands of excellence in which firms are embracing the opportunities provided by digitalization to achieve greater efficiency, process innovation, and supply-chain integration. These examples point to what is possible, while at the same time revealing gaps and shortcomings. The potential and shortcomings are evident both across firms (in terms of their investment rates) within global value chains (domestic firms; engagement with multinationals), and across public institutions and industrial policies. The development of digital skills in cross-cutting fields such as data science and software engineering, as well as transversal technologies in complementary services, are identified as particularly important. The chapter concludes with a discussion of the policy implications for South Africa and beyond.

Determinants of Productivity in Brazil: an empyrical analysis of the period 1996-2020

Empirical studies regarding the determinants of productivity in developing countries, including Brazil, have demonstrated the negative impact of high inflation rates on the industrial capacity. However, the recent Brazilian experience clearly shows that stabilization since 1996, in and of itself, is not capable of recovering the investment rates. With this in mind, this study's goal is to answer, with the help of econometric simulation models, the questions: (i) what are the key-drivers to assess the Brazilian economy since 1996?; and (ii) what are the key-factors to be considered when investments are made, particulary in productivity? To answer the questions we evaluated the impacts of macro-economic variables on private investments, using a strategic bias and a long term vision plan. The estimates demonstrate empirical crowding-in evidence of public investments in infrastructure over private investments as a real impact to productivity. As for public invetsments (noninfrastructural) we suggest that the crowding-in impact dislocates private investments. All these indicators were obtained as presented in the therory, with the exception of the real interest rates variable (r), in which we observed that the coefficient is positive and insignificant in the estimated equation.

Policy Analysis of Individual Financial Planning Affected by Personal Bias Factors in Indonesia

Even in making individual financial decisions, humans will naturally still be affected by personal biases which leads to less than optimal, illogical, and irrational decisions. It will be an important issue due to individual financial decisions which accumulate as a whole country's economic performance. This research introduces the idea to combine personal biases stated in behavioral economic theory with individual financial decision models using a system dynamics approach. The research uses vignette a fractional factorial studies method to calculate the score of personal bias factors. The main findings of the research show that there is a positive feedback loop on individual financial planning which is influenced by personal biases. The research concludes that personal bias factors such as the hedonic editing effect, future spending, category budgeting, endowment effect, and house-money effects are important factors in individual financial planning. Thus, paying attention to these personal biases then may help policy maker to control saving, spending, and investment rates in Indonesia.

Debt diversification and investments of European listed real estate companies

Purpose This paper aims to examine the relationship between the use of public debt and investment activity of European listed real estate companies. Design/methodology/approach Using a hand-collected sample of debt structures of 102 European public real estate companies, and using European Central Bank lending standards survey as a proxy for bank credit availability, the authors test a conditional hypothesis on the relationship between investment rates and the use of public debt during period of constrained bank lending environment in Europe. Findings The results show that ex ante diversification of debt allows retaining higher investment rates when the main source of debt, bank lending, is shrinking. The effect is statistically and economically significant and increases during times of tight bank lending constraints. The authors find no support to debt capacity explanation of the effect. They neither find support of the higher investment rates to be indicative of overinvestment problem. The results are robust to alternative model specifications and estimators. Research limitations/implications The empirical analysis is limited to Europe. Practical implications Investments and the growth of real estate companies depend on their ability to seize value-increasing opportunities that arise in the competitive markets. This paper evaluates the role of a diversified debt structure in this context. The results suggest that debt structure can have material importance for the investment activity of European listed real estate companies and issuance of public debt can help companies to counterbalance the negative effects of restricted bank loan supply on the investment levels. Originality/value The paper extends the literature on debt structures of listed real estate firms by considering the effect of debt diversification on investments.

The Impact of Discretionary Accruals on Corporate Investment Decisions: Evidence from GCC Countries

The aim of the article is to examine the relationship between the level of discretionary accruals and corporate investment decisions by using the data of listed production firms from six Gulf Cooperation Council (GCC) countries for the period 2009-2015. We firstly generated discretionary accruals using performance adjusted model introduced by Kothari, et al. (2005). Secondly, we constructed six models to see the relationship between discretionary accruals and investment decisions. To control for country and time effects, we added GDP growth rates of countries as a macroeconomic indicator in all models. Our findings reveal a weak emphasis of discretionary accruals on two dependent variables. Mean accruals are negative for all years and for all countries, and it shows that companies tend to engage in earnings management practices in order to understate income. The use of PPE as an indicator of investment rates for companies provide more precise results than the use of total assets.

The Rise of Services and Balanced Growth in Theory and Data

We investigate the effect of structural transformation on the process of economic growth. Using a two-sector growth model we show that, in addition to Baumol’s cost disease, structural transformation from goods to services generates other predictions that are in line with cross-country growth facts: an increase in the real investment rate, a decline in the real interest rate and the marginal product of capital, and an acceleration of investment-specific technological change as the share of services increases. The model calibrated to US data can account for the elasticity of real investment rates to the share of services measured in cross-country data. (JEL E22, E23, E43, L16, O33, O41, O47)

Strengthening Public Investment Management in the Eastern Caribbean Currency Union

The quality and stock of infrastructure vary widely across countries of the Eastern Carribbean Currency Union and are inadequate to achieve the desired higher growth and social development. Given relatively low investment rates in the region, one solution is to invest more. However this paper shows that governments can also narrow their infrastructure and service gaps significantly by improving expenditure efficiency and strengthening public investment management systems.

Does Going Tough on Banks Make the Going Get Tough? Bank Liquidity Regulations, Capital Requirements, and Sectoral Activity

Whether and to what extent tougher bank regulation weighs on economic growth is an open empirical question. Using data from 28 manufacturing industries in 50 countries, we explore the extent to which cross-country differences in bank liquidity and capital levels were related to differences in sectoral activity around the period of the global financial crisis. We find that industries which are more dependent on external finance, in countries where banks had higher liquidity and capital ratios, performed relatively better during the crisis, with regard to investment rates and the creation of new enterprises. This relationship, however, exists only for bank-based systems and emerging market economies. In the pre-crisis period, we find only a marginal link to bank capital. These findings survive a battery of robustness checks and provide some solid support for the tighter prudential measures introduced under Basel III.

Investment, Wage Goods, and Industrial Policy

Raising and sustaining long-run growth rates is made more difficult by the complexity of economic growth and by the complexity of growth theory debates. Nonetheless, the investment rate is central to long-run growth and development. Growth sustained by high investment rates will also involve structural change: a shift of resources into high-productivity economic activities. This chapter combines discussion of investment—why it matters, what economic policies help to raise investment rates and keep them high—with discussion of ‘industrial policy’. But the terrain of industrial policy has expanded to take account of new high-productivity activities, of servicification, and of agribusiness; policy officials thus need to refine the criteria used to make resource allocation and incentive decisions accordingly. A particularly important political economy constraint on investment rates is the non-inflationary supply of wage goods.