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Economics & Management: How to Cope with Disrupted Times - SELECTED PAPERS - EMAN 2024

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8th International Scientific Conference
on Economics and Management
SELECTED
PAPERS
8TH INTERNATIONAL SCIENTIFIC CONFERENCE
EMAN 2024
EMAN 2024 – Economics & Management:
How to Cope with Disrupted Times
SELECTED PAPERS
Rome, Italy
March 21, 2024 (hybrid)
8
th
International Scientific Conference EMAN
Economics & Management: How to Cope with Disrupted Times
ISSN 2683- 4510
Selected Papers (part of EMAN conference collection)
Editor:
Nastase Carmen
PhD, Full-Time Professor, Dean of the Faculty of Economics and Public Administration,
University “Stefan cel Mare” of Suceava, Romania
Antonella Monda
PhD, Postdoctoral Research Fellow in Management,
Tor Vergata University of Rome, Department of Management and Law, Rome, Italy
Rui DIAS
PhD, Associate Professor, ISG – Business & Economics School, CIGEST, Lisbon, Portugal
EMAN Organizational Board:
Jasmina Grž inić
PhD, Full-Time Professor, Faculty of Economics and Tourism “Dr. Mijo Mirkovic”,
Juraj Dobrila University of Pula, Pula, Croatia
Luna Leoni
PhD, Associate Professor, Faculty of Economics, University of Rome Tor Vergata, Italy
Silvia Baiocco
PhD, Assistant Professor, Faculty of Economics, University of Rome Tor Vergata, Italy
Anton Vorina
PhD, Professor, School of Economics, Vocational College, Celje, Slovenia
Nikolina Vrcelj
PhD, Udekom Balkan, Serbia
Nevena Bevanda
PhD student, Udekom Balkan, Serbia
Ivana Mirčev
BSc, Udekom Balkan, Serbia
Uroš Mirčev
Ing., Udekom Balkan, Serbia
Goran Stevanović
BSc, Udekom Balkan, Serbia
Technical Editor:
Branimir Trošić
Published by:
Association of Economists and Managers
of the Balkans – UdEkoM Balkan
Ustanicka 179/2 St. 11000 Belgrade, Serbia
office@udekom.org.rs
+381 62 8125 779
Conference partner institutions:
Master in Economics and Management of Tourist and
Cultural Activities (MEMATIC), University of Rome
“Tor Vergata” – Faculty of Economics – Department of
Management and Law
Faculty of Economics in Osijek, Josip Juraj Strossmayer
University of Osijek – Croatia
Faculty of Economics, Administration and Business,
“Stefan cel Mare” University of Suceava – Romania
School of Economics and Business,
University of Sarajevo (SEBS) – Bosnia and Herzegovina
Faculty of Business, “Aleksandër Moisiu” University of
Durrës, Durrës, Albania
Cover image by: Ptra from Pixabay
Printed by: SKRIPTA International, Belgrade
Print circulation: 100 copies
Belgrade, 2024
ISBN 978-86-80194-84-4
ISSN 2683- 4510
DOI: https://doi.org/10.31410/EMAN.S.P.2024
Disclaimer: The author(s) of each paper appearing in this pub-
lication is/are solely responsible for the content thereof; the
findings, interpretations and conclusions expressed in the pa-
pers are those of the authors and do not reflect the view of the
editor, reviewers, scientific committee members, the publisher,
conference partners or anyone else involved in creating, pro-
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INTERNATIONAL Scientific Conference
Economics & Management: How to Cope with
Disrupted Times (8 ; 2024 ; Rome)
Selected Papers / 8th International Scientific
Conference EMAN 2024 - Economics & Management:
How to Cope with Disrupted Times, Rome, Italy March
21, 2024 ; [organized by Association of Economists
and Managers of the Balkans ... [et al.] ; editor Nastase
Carmen, Antonella Monda, Rui Dias]. - Belgrade
: Association of Economists and Managers of the
Balkans, 2024 (Belgrade : Skripta International). -
XV, 195 str. : graf. prikazi, tabele ; 30 cm. - (EMAN
Conference Collection, ISSN 2683-4510)
Tiraž 100. - Napomene i bibliografske reference uz
tekst. - Bibliografija uz svaki rad. - Registri.
ISBN 978-86-80194-84-4
a) Menadžment -- Zbornici b) Ekonomija -- Zbornici
v) Digitalizacija -- Inovacije -- Zbornici g) Cirkularna
ekonomija -- Zbornici d) Turizam -- Održivi razvoj
-- Zbornici
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Editorial Committee:
Anamarija Delic
J.J. Strossmayer University in Osijek, Faculty of Economics in Osijek, Trg Lj. Gaja 7, Osijek, Croatia
Armand Faganel
Faculty of Management Koper, University of Primorska, Head of Marketing Department, Slovenia
Bashar Malkawi
University of Arizona, James E. Rogers College of Law, Tucson, Arizona, USA
Beata Zyznarska-Dworczak
Poznan University of Economics and Business, Department of Accounting and Financial Audit, Poznan, Poland
Beatriz Corchuelo Martinez-Azua
Department of Economics, University of Extremadura, Spain
Biljana Petrevska
Law Faculty “Iustinuanus Primus”, University Ss.Cyril and Methodius, Skopje, North Macedonia
Chara Karakosta
School of Electrical and Computer Engineering, National Technical University of Athens, Greece
Dejan Filipovic
Faculty of Geography, University of Belgrade, Belgrade Serbia
Dolores Amalia Gallardo Vazquez
Faculty of Economics Sciences and Business Administration, University of Extremadura, Badajoz, Spain
Edith Patricia Borboa Alvarez
Faculty of Management and Business Development, Technological Institute of Sonora (ITSON), Mexico
Elisabetta Venezia
University of Bari Aldo Moro, Department of Economics and Finance, Bari, Italy
Erika Quendler
Federal Institute of Agricultural Economics, Rural and Mountain Research, Vienna, Austria
Faik Bilgili
Erciyes University, Faculty of Economics and Administrative Sciences, Kayseri, Turkey
Fayruza S. Ismagilova
Ural Federal University named after B.N.Yeltzin (UrFU), Department of Psychology,
Ekaterinburg, Russian Federation
George Abuselidze
Batumi Shota Rustaveli State University, Batumi, Georgia
Igor Cvecic
University of Rijeka, Faculty of Economics and Business, Rijeka, Croatia
Ilhan Ozturk
Faculty of Economics and Business, Çag University, Mersin, Turkey
Inna Koblianska
Economics and Entrepreneurship Department at Sumy National Agrarian University, Sumy, Ukraine
Ionel Bostan
Doctoral School of Economic Sciences, Ștefan cel Mare University, Suceava, Romania
Jehan Murugadhas
University of Technology and Applied Sciences-Nizwa, IT Department, Sultanate of Oman
Jelena Djurkin Badurina
Faculty of Tourism and Hospitality Management, Department of Management, University of Rijeka, Croatia
Julia Peric
J.J. Strossmayer University in Osijek, Faculty of Economics in Osijek, Trg Lj. Gaja 7, Osijek, Croatia
Kameleddine Benameur
Gulf University for Science and Technology, West Mishref, Kuwait
Khaled E. Bekhet
American University in Cairo, Egypt
Litvin Aurelia
Head of Business and Administration Department, State Agrarian University of Moldova, Chisinau, Moldova
Luay H. Tahat
Accounting & Management Information Systems Department, College of Business Administration,
Gulf University for Science and Technology, Kuwait
Marcel Kordos
Department of Public Administration and Regional Economics, Faculty of Social and Economic Relations (FSER),
Alexander Dubcek University in Trencin (ADUT), Slovakia
Maria Murray Svidronova
Faculty of Economics, Matej Bel University, Banska Bystrica, Slovakia
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Mariantonietta Fiore
Department of Economics, University of Foggia, Italy
Marina Stanic
Vice Dean for Science, J.J. Strossmayer University in Osijek, Faculty of Economics in Osijek, Trg Lj. Gaja 7,
Osijek, Croatia
Marko Tomljanovic
University of Rijeka, Faculty of Economics and Business, Rijeka, Croatia
Marta Biancardi
University of Bari “Aldo Moro”, Bari, Italy
Martina Tomicic Furjan
Faculty of Organization and Informatics Varazdin, University of Zagreb, Croatia
Miho Murashima
College of Business, Rikkyo University, Japan
Miklos Somai
Institute of World Economics, Centre for Economic and Regional Studies HAS, Budapest, Hungary
Mimoza Kasimati (Skenderi)
Economic Faculty, Tirana University, Tirana, Albania
Ning Zeng
School of Business, Macau University of Science and Technology, Taipa, Macau
Paola Paniccia
University of Rome Tor Vergata, Italy
Paulo Monteiro Alexandre
ESCE – Polytechnic Institute of Setubal;
Director of the Degree in Accounting and Finance – Evening Classes, Portugal
Radka Vanickova
Institute of Technology and Business in Ceske Budejovice, Faculty of Corporate Strategy,
Department of Management, Czech Republic
Radovan Samardzic
University Adriatic, Faculty of Mediterranean Business Studies – Tivat, Maritime Faculty – Bar, Montenegro
Sandra Lovrencic
Faculty of Organization and Informatics Varazdin, University of Zagreb, Croatia
Shalini Talwar
Department of Finance & Law, K J Somaiya Institute of Management Studies and Research, Mumbai, India
Suncica Oberman Peterka
Vice Dean for Cooperation with the Environment, International Cooperation and Projects, J.J. Strossmayer
University in Osijek, Faculty of Economics in Osijek, International Center for Entrepreneurial Studies (ICES), Trg
Lj. Gaja 7, Osijek, Croatia
Sunday Ogunjimi
Department of Agricultural Economics and Extension, Federal University, Oye-Ekiti, Ekiti State, Nigeria
Vasko Vassilev
Transport University “Todor Kableshkov”, Sofia, Bulgaria
Veena Tewari Nandi
Majan University College, Muscat, Sultanate of Oman
Volodymyr Olefir
Institute for Economics and Forecasting, NASU of Ukraine Kyiv, Ukraine
Yana Oliinyk
Head of the Institute of Postgraduate Education, SESE “The Academy of Financial Management”, Kyiv, Ukraine
V
Contents
Index of Authors ...........................................................................VII
Index ......................................................................................IX
Preface.....................................................................................XI
EMAN 2024 Participants’ Affiliation .........................................................XIII
Entrepreneurship as a Catalyst
for Sustainable Development in Developing Countries .........................................1
Silvana Gashi
Estimating Trade Facilitation in a Regional Integration Initiative:
Leveraging the Logistics Performance Index..................................................11
Irena Kikerkova
Predrag Trpeski
Ljuben Kocev
Jasna Tonovska
Understanding Transfer Pricing Dynamics:
Evidence from Related Party Transactions in EU Public Companies .............................21
Renata Fulop
Impact of COVID-19 on Sustainable Development in Western Balkans ..........................31
Denada Liça
The Dynamics of Direct Procurement in Albania: A 14-Year Analysis ............................41
Etion Kapedani
Edlira Martiri
An Empirical Study on the Relationship Between Economic Growth
and Globalization in Albania Based on a VAR Model ...........................................51
Kladiola Gjini
The Appreciation of the National Currency in Albania: Does Informality Matter? ................61
Emiljan Karma
Does the Customs Clearance Process Affect Economic Growth? A Panel VAR Data Analysis ...... 71
Christos Katris
Evangelos Daskalopoulos
Aristeidis Mylonas
Investment in Renewable Energy Sources: Economic Profitability Factors in Croatia............ 83
Vlasta Roška
Zvonko Merkaš
Bartol Pavlović
Portfolio Diversification in a New Era of Financial Markets.................................... 93
Rosa Galvão
Rui Dias
Cristina Palma
Paulo Alexandre
Sidalina Gonçalves
Further Unravelling Cryptocurrency Behaviour .............................................103
Cristina Palma
Rui Dias
Rosa Galvão
Paulo Alexandre
Sidalina Gonçalves
Tech-Enabled Business Models in Banking for Financial Inclusion:
A Systematic Literature Review .............................................................111
Arjela Dervishaj
Aida Bitri
VI
8th International Scientic Conference EMAN 2024
Selected Papers
Navigating the Evolution of Large Language Models
in Business Analysis: A Comparative Study of RAG,
Prompt Engineering, and Fine-Tuning Techniques .......................................... 121
Andrea Alberici
Nevila Baci
Transforming the CRM Diamond Model with Genetic Data Integration........................ 133
Ivelina Ivanova-Kadiri
The Influence of Podcast Engagement
on Consumer Perception and Purchase Intention:
Evidence from Croatia..................................................................... 141
Ivana Tonković Pražić
Kristina Devčić
Examining Consumer Attitudes Towards Online Shopping
for Intimate Apparel in North Macedonia:
A Study of Customer Expectations & Preferences............................................ 151
Nadica Jovanovska Boshkovska
Sara Spasovska
Ilijana Petrovska
Ana Tomoska Misoska
Customer Satisfaction and the Use of Beacon Technology
in the Hotel Industry ...................................................................... 161
Tomislav Car
Anton Kliman
Digital Nomadism in a Contemporary Business Environment ................................ 171
Žikica Milošev
Andrea Ivanišević
Alpar Lošonc
Minja Bolesnikov
Aleksandra Pavlović
Can Hypnosis Develop Emotional Intelligence and Employees’ Skills? ........................ 179
Ahlem Khefacha
Beatrix Séllei
Generation Z Students` Preferences Toward Future Professional Engagement ................ 187
Koviljka Banjević
Dragana Gardašević
Marta Trninić
VII
Index of Authors
A
Ahlem Khefacha, 179
Aida Bitri, 111
Aleksandra Pavlović, 171
Alpar Lošonc, 171
Ana Tomoska Misoska, 151
Andrea Alberici, 121
Andrea Ivanišević, 171
Anton Kliman, 161
Aristeidis Mylonas , 71
Arjela Dervishaj, 111
B
Bartol Pavlov, 83
Beatrix Séllei , 179
C
Christos Katris , 71
Cristina Palma, 93; 103
D
Denada Liça, 31
Dragana Gardašević, 187
E
Edlira Martiri, 41
Emiljan Karma, 61
Etion Kapedani, 41
Evangelos Daskalopoulos , 71
I
Ilijana Petrovska, 151
Irena Kikerkova, 11
Ivana Tonković Pražić, 141
Ivelina Ivanova-Kadiri, 133
J
Jasna Tonovska, 11
K
Kladiola Gjini, 51
Koviljka Banjević, 187
Kristina Devčić, 141
Lj
Ljuben Kocev, 11
M
Marta Trninić, 187
Minja Bolesnikov, 171
N
Nadica Jovanovska
Boshkovska, 151
Nevila Baci, 121
P
Paulo Alexandre, 93; 103
Predrag Trpeski, 11
R
Renata Fulop, 21
Rosa Galvão, 93; 103
Rui Dias, 93; 103
S
Sara Spasovska, 151
Sidalina Gonçalves, 93; 103
Silvana Gashi, 1
T
Tomislav C ar, 161
V
Vlasta Roška, 83
Z
Zvonko Merkaš, 83
Ž
Žikica Milošević, 171
IX
Index
A
Acce ssibil ity, 111
Albania, 41; 51
Arbitrage, 103
ARDL Approach, 61
Articial intelligence, 93
B
Ban king se rvices , 111
Beacon technology, 161
Biblio met ric a na lysis, 111
Business analysis, 121
C
Characteristics, 187
Competition, 51
Consumer attitudes, 151
Consumer behavior, 151
Consumer perception, 141
COVID-19, 31; 171
CRM, 133
CRM-Diamond, 133
Croatia, 141
Cryptocurrencies, 103
Customer satisfaction, 161
Customs clearance process
eectiveness, 71
D
Developing countries, 1
DFA, 103
Digita li zation, 111
Digital nomadism, 171
Digitisation, 171
Direct procurement, 51
Domain-specic languages,
121
E
Economic growth, 41
Eciency, 103; 111
Emerging economies, 111
Emotional intelligence
development, 179
Entrepreneurship, 1
EU context, 21
EURO / LEK, 61
Exchange rate, 61
F
Fi na ncial in clusion, 111
Fine-tuning, 121
Fintech, 93
G
Generation Z, 187
Genetic data, 133
Globalization, 41
Gravity model, 11
Green investment, 83
H
Hotel industry, 161
Hypnosis, 179
I
Inclusive nancial systems, 111
Inuencing factors, 21
Intentional frameworks, 121
Intimate apparel, 151
L
Large Language Models, 121
Logistic Performance Index
(LPI ), 11
Long memories, 103
M
Multiple linear regression, 21
N
Nomads, 171
O
Online shopping, 151
P
Pande mic, 171
Panel VAR, 71
Personalized service, 161
Photovoltaic systems, 83
Podcast, 141
Podcast engagement, 141
Portfolio rebalancing, 93
Preferences, 187
Professional engagement, 187
Prompt engineering, 121
Public procurement, 51
Purchase intention, 141
R
Related party transactions, 21
Remote work, 171
Renewable energy sources, 83
Retrieval-augmented
generation, 121
S
Savings, 51
St udent s, 187
Sustainable development, 1; 31
Sustainable economy, 83
T
Technology-enabled business
models, 111
TR ACECA, 11
Trade Facilitation, 11
Trade Logistics, 11
Traditional banking operations,
111
Transfer pricing, 21
Transformational leadership,
179
U
Under wear, 151
V
Var model, 41
W
Western Balkans, 31
Workplace success, 179
XI
Preface
The purpose of the annual EMAN conference is to support the power of scientific research and
dissemination of the research results with the objective to enhance society by advancing knowl-
edge; policy-making change, lives, and ultimately, the world. Our objective is to continue to be
the foremost annual conference on cutting-edge theory and practice of economics and manage-
ment through encouraging advancement via excellence and interaction.
EMAN conference aims to bring together the international academic community (experts, sci-
entists, engineers, researchers, students, and others) and enable interactive discussions and oth-
er forms of interpersonal exchange of experiences and popularization of science and personal
and collective affirmation.
The annual EMAN conference is committed to the highest standards of publishing integri-
ty and academic honesty ensuring ethics in all its publications. Conformance to standards of
ethical behavior is therefore expected of all parties involved: authors, editors, reviewers, and
the publisher. The conference organizer follows the Committee on Publication Ethics (COPE)
guidelines on how to deal with potential acts of misconduct.
All received full papers prior to the peer review process are subject to plagiarism check with
iThenticate by Turnitin software. Any identified plagiarism automatically disqualifies a paper.
Afterward, all full papers are double-blind peer-reviewed by the reviewers drawn from the ed-
itorial committee or external reviewers depending on the topic, title, and subject matter of the
paper. Peer reviewers provide a critical assessment of the paper and may recommend improve-
ments. Although the author may choose not to take this advice, editors highly recommend that
the author address any issues, explaining why their research process or conclusions are correct.
Association of Economists and Managers of the Balkans headquartered in Belgrade – Serbia, along
with the partner institutions, namely the Master in Economics and Management of Tourist and Cul-
tural Activities (MEMATIC), University of Rome “Tor Vergata” – Faculty of Economics – Depart-
ment of Management and Law; Faculty of Economics in Osijek, Josip Juraj Strossmayer University
of Osijek – Croatia; Faculty of Economics, Administration and Business, “Stefan cel Mare” Uni-
versity of Suceava – Romania; School of Economics and Business, University of Sarajevo (SEBS)
- Bosnia and Herzegovina, and Faculty of Business, “Aleksandër Moisiu” University of Durrës,
Durrës, Albania organized Eight International Scientific Conference on Economics and Manage-
ment: How to Cope with Disrupted Times - EMAN 2024. The conference was held in Rome, Italy
(online/virtually/in-person) at the Faculty of Economics, University of Rome “Tor Vergata”.
EMAN 2024 keynote speaker was Gjorgjina Gina Sherovska, PhD, a Marketing Management
& PR Consultant from SMX Academy, North Macedonia, with the topic: HOW CAN COMPA-
NIES COPE WITH DISRUPTIVE TIMES IN THE FIELD OF MARKETING.
Within publications from the EMAN 2024 conference:
20 double peer-reviewed papers have been published in the EMAN 2024 – Economics &
Management: How to Cope with Disrupted Times - Selected Papers,
72 double peer-reviewed papers have been published in the EMAN 2024 – Economics &
Management: How to Cope with Disrupted Times - Conference Proceedings and
66 abstracts have been published in the EMAN 2024 Book of Abstracts.
XII
8th International Scientic Conference EMAN 2024
Selected Papers
EMAN 2024 publications total more than 1,000 pages. All full papers have DOI numbers and
ORCID ID integration.
Nearly 320 researchers from 27 different countries, including universities, eminent faculties,
scientific institutes, colleges, various ministries, local governments, public and private enter-
prises, multinational companies, associations, etc., participated in the conference.
XIII
Albania
Aleksander Xhuvani” University, Economic
Faculty., Rr “Ismail Zyma”, Elbasan
“Fan S. Noli” University, Faculty of Education and
Philology, Department of History and Geography,
“Shëtitorja Rilindasit”, 7001, Korçë
Agricultural University of Tirana, Faculty of
Economics and Agribusiness, str. Paisi Vodica, 1025,
Tirana
Aleksander Moisiu University of Durres, Faculty
of Business, Department of Management, Rr. Ta-
ulantia, L.1, 2001, Durres
Canadian Institute of Technology, Faculty of
Economy, Xhanze Keko Street 12, 1040, Tirana
Catholic University Our Lady of Good Counsel,
Faculty of Economic, Political and Social Sciences,
Rruga Dritan Hoxha 23, 1064, Tirana
Epoka University, Department of Business
Administration, 1000 Tirana
Epoka University, Faculty of Economy and
Administrative Sciences, Rinas, 1000 Tirana
Fan S. Noli University, Agribusiness Department,
Shëtitore Rilindasit, 7001, Korçe
Fan S. Noli University, Faculty of Economics,
Bulevardi Rilindasit 11, 7001, Korçë
Kolegji Universitar “Qiriazi”, Faculty of Economy,
Kodër Kamëz, Zip Code 1001. Tirana
Luarasi University, Tirana
Mediterranean University of Albania, Department of
Economics, Bulevardi Gjergj Fishta 52, 1023 Tirana
National Authority for Electronic Certication and
Cyber Security, Rruga “Papa Gjon Pali II “, Nr3,
Tirana
Polytechnic University of Tirana, Faculty of
Technology and Information, Bulevardi Deshmoret e
Kombit, Nr.4, 1000, Tirana
Tirana Business University College, Faculty of
Business and Law, Rruga Rezervat e Shtetit, Tirana
University “Aleksandër Moisiu” of Durrës, Faculty
of Education, Durrës, Currila Street, 2001 Durrës
University College of Business, Tirana
University Metropolitan Tirana, Faculty of
Administrative Sciences, Rruga Sotir Kolea, 1010,
Tirana
University of Korca, Faculty of Economy, Bulevardi
Rilindasit, 11, 7001, Korce
University of Shkoder “Luigj Gurakuqi”, Economic
Faculty, 4001, Shkoder
University of Shkoder “Luigj Gurakuqi”, Faculty of
Social Sciences, 4001, Shkoder
University of Tirana, Faculty of Economics, Rruga
Arben Broci 1, 1001, Tirana
University of Tirana, Faculty of Economy,
Department of Statistics and Applied Informatics,
Rruga Arben Broci 1, 1001, Tirana
University of Tirana, Faculty of Law, Milto Tutulani‘
St., 1000, Tirana
Algeria
Applied Economics for Development Research
Centre, Alger, DZ, Rue Djamel Eddine El-Afghani
- El Hammadia BP.197, Rostomia, Bouzaréah Alger
- A, Bouzareah
Mouloud Mammeri University, Tizi-Ouzou
Austria
University of Applied Sciences Burgenland, 7000
Eisenstadt
University of Applied Sciences Kufstein Tirol,
Andreas Hofer-Straße 7, A-6330 Kufstein
University of Klagenfurt, Universitätsstraße 65-67;
A-9020 Klagenfurt
Belgium
European Association for Training in Banking
EBTN, Avenue des Art 56, 1000 Brussels
Bolivia
Universidad Privada del Valle Sede La Paz, ave.
Argentina 2083, La Paz
Bosnia and Herzegovina
Independent University of Banja Luka, Faculty
of Political Sciences, Veljka Mlađenovića 12e,
Banjaluka
International Commission on Missing Persons,
Netherlands, Sarajevo Oce, Alipašina 45a, 71000
Sarajevo
University of Banja Luka, Institute of Genetic
Resources, Bulevar Vojvode Petra Bojovića 1,
Banjaluka
University of Travnik, Faculty of Law, Azapovići
439, Kiseljak
University of Sarajevo – School of Economics and
Business, Trg oslobođenja - Alija Izetbegović 1,
71000 Sarajevo
Bulgaria
Medical University Plovdiv, Department of
Languages and Specialized Training, 15A, blvd.
Vasil Aprilov, 4002, Plovdiv
Medical University Plovdiv, Faculty of Public
Health, Department of Health Management and
Health Economics, 15A, blvd. Vasil Aprilov, 4002,
Plovdiv
New Bulgarian University, Soa
SWU “N. Rilski”- Blagoevgrad
Technical University of Varna, Department of
Industrial Management, Studentska str. 1, 9010,
Varna
Technical University of Varna, Faculty of
Manufacturing Engineering and Technologies,
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University of Economics – Varna, Faculty of
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8th International Scientic Conference EMAN 2024
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Croatia
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Zagreb
Juraj Dobrila University of Pula, Faculty of
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University of Applied Sciences “Nikola Tesla”
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University of Applied Sciences of Rijeka,
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University of Dubrovnik, Department of Economics
and Business, Lapadska obala 7, 200000 Dubrovnik
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Business, Ivana Filipovića 4, 5100 Rijeka
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University of Split, Faculty of Economics, Business
and Tourism, Cvite Fiskovića 5, 21 000 Split
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tér 1., 3300 Eger
Hungarian University of Agriculture and Life
Sciences, Kaposvár Campus, Guba Sándor utca 40.
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Skopje
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2, 1000 Skopje
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code 7500, Prilep
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Lisbon
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and Administration, Setúbal
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for Pedagogy and Andragogy, Belgrade
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34000 Kragujevac
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Subotica, Segedinski put, 9-11, 24000, Subotica
Slovakia
Comenius University, Faculty of Management,
Odbojarov 10, Bratislava
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Economics and Management, Institute of Economics
and Management, Tr. A. Hlinku č.2, 949 76 Nitra
Slovenia
Celje School of Economics, Higher Vocational
College, Mariborska 2, 3000 Celje
Spain
Miguel Hernández University of Elche, Department
of Economic and Financial Studies, Avda. de la
Universidad, s/n. Edicio La Galia. 03202 Elche,
Alicante
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S/N, La Cañada de San Urbano, 04120, Almeria
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Switzerland
Lucerne University of Applied Sciences & Arts,
Campus Rotkreuz Suursto 1, CH - 6343 Rotkreuz
RUAG Aerostructures Schweiz AG, Seetalstrasse
175, 6032, Emmen
Turkey
Pamukkale University, Faculty of Medicine, Kınık
Mh. Üniversite Cd. No:11 20160 Pamukkale /Denizli
United Arab Emirates
Higher Colleges of Technology, Department of
Business
Higher Colleges of Technology, Faculty of Applied
Media, FWC
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Boise State University, Organizational Performance
and Workplace Learning Dept., Boise, Idaho
Texas Tech University, 2500 Broadway W, Lubbock,
TX 79424
8th International Scientific Conference EMAN 2024 – Selected Papers
ht tps://doi.org/10. 31410/E MAN.S.P.2024.1
https://orcid.org/0009-0002-2941-2423
Entrepreneurship as a Catalyst
for Sustainable Development in Developing Countries
Silvana Gashi1
Keywords:
Entrepreneurship;
Developing countries;
Sustainable development
Abstract: This study employs a comprehensive literature review as a meth-
odological approach to investigate the relationship between entrepreneur-
ship and sustainable development in developing countries. Through aca-
demic works, policy documents, and empirical studies, the paper seeks to
synthesize existing knowledge and differ patterns, gaps, and key insights.
Key themes explored include the role of entrepreneurial innovation, the im-
pact of small and medium enterprises, and the influence of policy frame-
works on fostering sustainable entrepreneurial ecosystems. Additionally,
this study examines challenges and opportunities faced by entrepreneurs in
navigating the complex landscape of developing economies. Through this
methodological lens, this study aims to contribute a synthesized body of
knowledge that informs future research directions and guides practical in-
terventions. By consolidating the existing literature, this paper aims to offer
a foundation for policymakers, researchers, and practitioners to formulate
evidence-based strategies that exploit the potential of entrepreneurship for
sustainable development in the context of developing countries.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
In the dynamic area of global development, the relationship between entrepreneurship and sus-
tainable development plays an important role, particularly in the context of developing coun-
tries (Oana-Ramona et al., 2021; Thanasi-Boçe et al., 2023; Vig, 2023). The necessity to balance
economic progress with social equity and environmental responsibility has caused a re-evalua-
tion of traditional development paradigms. Entrepreneurship, with its inherent capacity for in-
novation, job creation, and adaptive problem-solving, emerges as a key player in shaping a sus-
tainable future for nations striving to overcome developmental challenges (Chichevaliev et al.,
2023; Ordeñana et al., 2020; Raimi et al., 2022).
Developing countries, characterized by diverse economic structures, cultural landscapes, and
institutional frameworks, face a myriad of obstacles on their path to sustainable development
(Chichevaliev et al., 2023; Raimi et al., 2022; Sergi et al., 2019; Vig, 2023). These challenges
range from poverty and inequality to environmental degradation and insufficient infrastructure
(Ahmad & Bajwa, 2023; Raimi et al., 2022). Against this setting, this research aims to explore
and investigate the multifaceted relationship between entrepreneurship and sustainable devel-
opment in developing nations.
The methodology employed in this research involves a thorough literature review, synthesiz-
ing scholarly works, policy documents, and empirical studies. By critically examining exist-
ing knowledge, this paper seeks to investigate the complex mechanisms through which entre-
preneurship contributes to sustainable development goals. The literature review serves as a
1 Aleksander Moisiu University of Durres, Faculty of Business, Department of Management, Rr. Taulantia,
L.1, 2001, Durres, Albania
Received: March 28, 2024
Accepted: June 30, 2024
Published: December 17, 2024
2
8th International Scientific Conference EMAN 2024
Selected Papers
methodological tool to identify key themes, gaps, and opportunities, offering a panoramic view
of the current state of research in this field. This study is structured to investigate the impact of
entrepreneurship on economic growth, social inclusion, and environmental management.
Furthermore, it investigates the role of small and medium enterprises (SMEs) as well as the in-
fluence of policy frameworks in shaping conducive entrepreneurial ecosystems. Through this
comprehensive analysis, this study contributes to the ongoing discourse, offering a foundation
for future research endeavors and practical strategies that affect the catalytic power of entrepre-
neurship for sustainable development in developing countries.
The research objectives of this study are as follows:
Objective 1 - Exploring the entrepreneurial impact on economic growth. The first re-
search objective is to investigate the intricate relationship between entrepreneurship and
economic growth in developing countries. This study aims to uncover how entrepreneur-
ial activities contribute to fostering economic development, job creation, and poverty al-
leviation within these regions. By examining existing literature and empirical evidence,
it seeks to identify the mechanisms through which entrepreneurship stimulates economic
growth, fosters innovation, and drives productivity. Through this exploration, it is possi-
ble to gain insights into the specific entrepreneurial strategies and interventions that have
been effective in fueling economic progress in diverse developing country contexts.
Objective 2 - Investigating the role of social entrepreneurship in inclusive development.
The second research objective is to analyze the role of social entrepreneurship in promot-
ing inclusive development within developing countries. This study aims to explore how
social entrepreneurs leverage innovative business models to address pressing social chal-
lenges, such as poverty, inequality, and access to basic services. Through a comprehensive
review of the literature, it aims to identify the unique characteristics and impacts of social
enterprises on marginalized communities and vulnerable populations. By understanding
the drivers of social entrepreneurship and its contributions to inclusive development, this
study aims to inform policy interventions and support mechanisms that can amplify the
positive social impact of entrepreneurial ventures in these regions.
Objective 3 - Examining environmental entrepreneurship for sustainable practices. The
third research objective focuses on examining the role of environmental entrepreneurship
in promoting sustainable practices and green growth in developing countries. This study
aims to investigate how environmental entrepreneurs leverage innovative technologies,
business models, and sustainable practices to address pressing environmental challenges,
such as climate change, pollution, and resource depletion. Through a meticulous examina-
tion of the literature, it seeks to uncover the potential synergies between economic devel-
opment and environmental sustainability within entrepreneurial ventures. By identifying
successful environmental entrepreneurship models and regulatory frameworks, this study
aims to provide insights that can guide policymakers and practitioners in fostering a more
environmentally sustainable entrepreneurial ecosystem in developing countries.
2. LITERATURE REVIEW
Numerous studies emphasize the important role of entrepreneurship in fostering econom-
ic growth, particularly in the context of developing countries (Ajide et al., 2019; Bitzenis &
Nito, 2005; Mok & Kan, 2013; Oana-Ramona et al., 2021; Ordeñana et al., 2020; Shirokova et
al., 2013; Thanasi-Boçe et al., 2023; Volchek et al., 2013). Scholars argue that the dynamism and
3
Entrepreneurship as a Catalyst for Sustainable Development in Developing Countries
adaptability of entrepreneurial ventures contribute significantly to job creation, income genera-
tion, and the overall expansion of local economies (Ahmad & Bajwa, 2023; Oana-Ramona et al.,
2021; Ordeñana et al., 2020).
SMEs play a crucial role in this regard, serving as engines of innovation and contributors to
GDP (Sergi et al., 2019). Entrepreneurship grows up in environments conducive to innovation,
collaboration, and resource accessibility. The research underlines the importance of entrepre-
neurial ecosystems sustaining ventures that contribute to sustainable development (Ahmad &
Bajwa, 2023; Chichevaliev et al., 2023; Vig, 2023). Effective ecosystems encompass supportive
institutions, access to finance, mentorship networks, and a culture that values risk-taking and
experimentation (Oana-Ramona et al., 2021; Ordeñana et al., 2020). Understanding the dynamics
of these ecosystems is important for policymakers seeking to cultivate an environment where
entrepreneurship can flourish sustainably (Cullen & Archer-Brown, 2020; da Rocha et al., 2022;
Nkongolo-Bakenda et al., 2010).
Beyond economic considerations, the literature increasingly recognizes the role of entrepreneur-
ship in fostering social inclusion and addressing societal challenges. Social entrepreneurship,
in particular, emerges as a powerful force for positive social change (Ahmad & Bajwa, 2023;
Chichevaliev et al., 2023; Raimi et al., 2022; Vig, 2023). Enterprises with a social mission not only
contribute to poverty alleviation and community development but also exemplify the potential of
business models that prioritize both profit and social impact (Ahmad & Bajwa, 2023). The impact
of entrepreneurship on sustainable development is closely linked with the regulatory environment
and policy interventions. Studies indicate that well-defined policies can foster an entrepreneurial
culture, enhance access to finance, and create an enabling environment for business growth (Or-
deñana et al., 2020; Sergi et al., 2019). However, a critical evaluation of the effectiveness of these
policies, considering the contextual nuances of developing countries, remains a key point for fu-
ture research. Among global environmental challenges, a growing body of literature explores the
intersection of entrepreneurship and environmental sustainability.
Environmental entrepreneurship encompasses ventures that prioritize ecological responsibility,
resource efficiency, and the development of green technologies (Oana-Ramona et al., 2021; Tha-
nasi-Boçe et al., 2023). Understanding the motivations, challenges, and impact of environmen-
tal entrepreneurship is crucial for aligning economic development with environmental manage-
ment (Ahmad & Bajwa, 2023; da Rocha et al., 2022; Ranjith Kumar Saravanakumar et al., 2021;
Veglio & Zucchella, 2015; Wynarcz yk, 2013).
3. METHODOLOGY
The methodology employed in this research is a comprehensive literature review. To identify rel-
evant literature, a systematic search was conducted across reputable academic databases, includ-
ing but not limited to PubMed, JSTOR, and Google Scholar. The search criteria were designed to
capture a diverse range of sources related to entrepreneurship and sustainable development in de-
veloping countries. Keywords such as “entrepreneurship”, “sustainable development”, “develop-
ing countries”, and variations thereof were used to ensure a broad yet focused scope.
Inclusion criteria for the literature encompassed academic articles, books, and reports published
between 2000 and the present. This timeframe was chosen to capture contemporary perspec-
tives on the evolving role of entrepreneurship in sustainable development. Primary emphasis
4
8th International Scientific Conference EMAN 2024
Selected Papers
was given to studies that provided empirical insights, theoretical frameworks, or policy impli-
cations. Non-English language sources were excluded to ensure consistency and coherence in
the analysis.
The selected literature was organized thematically to facilitate a comprehensive analysis of
key dimensions. Themes such as “Entrepreneurship and Economic Growth”, “Innovation and
Entrepreneurial Ecosystems”, “Social Entrepreneurship and Inclusive Development”, “Policy
Interventions and Regulatory Frameworks”, and “Environmental Entrepreneurship and Green
Growth” were delineated to guide the review process. This thematic organization aimed to un-
cover patterns, trends, and gaps in the existing body of knowledge.
An iterative process of quality assessment was employed to ensure the inclusion of credible and
rigorous studies. Peer-reviewed journals, academic presses, and reputable institutions were pri-
oritized. The research methodology of each included study was critically examined to ascertain
the robustness of the findings and the reliability of the methodology employed.
The synthesis process involved extracting key findings, methodologies, and theoretical frame-
works from each selected source. Comparative analysis was conducted to identify converging
and diverging perspectives across the literature. Through this iterative process, the research
aimed to construct a cohesive narrative that encapsulates the current state of knowledge on en-
trepreneurship and sustainable development in developing countries.
It is important to acknowledge certain limitations inherent in the methodology. The reliance on
existing literature implies a potential bias in the interpretation of findings. Additionally, while
efforts were made to ensure a comprehensive search, it is possible that some relevant sources
may have been inadvertently excluded.
This literature review methodology provides a structured approach to synthesizing existing
knowledge, offering a foundation for understanding the complex interplay between entrepre-
neurship and sustainable development in developing countries. The thematic organization facil-
itates a nuanced analysis, allowing for the identification of key trends, gaps, and opportunities
within the current literature. The subsequent sections of this research paper build upon the in-
sights derived from this methodology to contribute meaningfully to the discourse on entrepre-
neurship and sustainable development.
4. FINDINGS
The main findings of this study are summarized in Table 1 highlighting the diverse ways in
which entrepreneurship contributes to sustainable development in developing countries, empha-
sizing the need for tailored policy interventions and support mechanisms to harness the full po-
tential of entrepreneurial activities for societal and environmental well-being.
Entrepreneurship drives economic growth in developing countries. This finding underscores
the critical role of entrepreneurship in driving economic growth, particularly in developing
countries where entrepreneurial activities contribute significantly to job creation, innovation,
and overall productivity. Governments and policymakers need to prioritize creating an enabling
environment for entrepreneurship by providing access to finance, reducing regulatory barriers,
and fostering a culture of entrepreneurship.
5
Entrepreneurship as a Catalyst for Sustainable Development in Developing Countries
Social entrepreneurship contributes to inclusive development. Social entrepreneurship address-
es social challenges and promotes inclusive development by prioritizing social impact alongside
financial sustainability. By empowering marginalized communities and addressing social ine-
qualities, social enterprises play a vital role in promoting social equity and improving overall
societal well-being. Policymakers should focus on providing support and incentives for social
enterprises to scale their impact and reach underserved populations effectively.
Environmental entrepreneurship promotes sustainable practices. Environmental entrepreneur-
ship focuses on addressing environmental challenges through innovative solutions and sustain-
able practices. By integrating environmental sustainability into business models, environmental
entrepreneurs contribute to building a greener economy and mitigating environmental degra-
dation. Governments can support environmental entrepreneurship through policy frameworks,
incentives for green innovation, and fostering collaboration between businesses and environ-
mental organizations.
Table 1. Main findings
Entrepreneurship
drives economic
growth in developing
countries
Entrepreneurship plays a crucial role in stimulating economic growth by creating jobs,
fostering innovation, and driving productivity. Through entrepreneurial activities,
individuals seize opportunities, mobilize resources, and contribute to overall economic
development. This finding underscores the importance of fostering an entrepreneurial
ecosystem that supports small and medium-sized enterprises (SMEs), encourages
innovation, and facilitates access to finance and markets.
Social
entrepreneurship
contributes to
inclusive development
Social entrepreneurship addresses social issues such as poverty, inequality, and
access to basic services by leveraging innovative business models. Social enterprises
prioritize social impact alongside financial sustainability, thereby contributing to
inclusive development. This finding highlights the transformative potential of social
entrepreneurship in empowering marginalized communities, improving livelihoods,
and promoting social equity. Effective policy support and capacity-building initiatives
are essential to nurture and scale social enterprises for maximum social impact.
Environmental
entrepreneurship
promotes sustainable
practices
Environmental entrepreneurship focuses on addressing environmental challenges such
as climate change, pollution, and resource depletion through innovative solutions and
sustainable practices. Environmental entrepreneurs develop green technologies, adopt
eco-friendly production processes, and promote sustainable consumption patterns.
This finding underscores the importance of integrating environmental sustainability
into entrepreneurial ventures and fostering a green economy. Regulatory frameworks,
incentives, and public-private partnerships are key drivers in supporting environmental
entrepreneurship and promoting sustainable development.
Source: Own research
The literature review underlines the importance of entrepreneurial ecosystems in shaping the
success and sustainability of entrepreneurial ventures. Effective entrepreneurial ecosystems,
as identified in the literature, include not only financial support but also mentorship networks
and a culture that encourages risk-taking. Tailoring these ecosystems to the specific needs and
challenges of individual developing countries is crucial, recognizing that a one-size-fits-all ap-
proach may not be effective. The discussion on social entrepreneurship emphasizes its poten-
tial to drive inclusive development. Beyond economic indicators, the literature points to the
transformative impact of enterprises with a social mission. As this study considers the impli-
cations, it becomes apparent that integrating social entrepreneurship into development agen-
das can address societal challenges and contribute to broader goals of inclusivity. Policymak-
ers are encouraged to recognize the unique contribution of social enterprises and design strat-
egies that support their growth, ultimately fostering a more equitable and inclusive socio-eco-
nomic landscape.
6
8th International Scientific Conference EMAN 2024
Selected Papers
The discussion on policy interventions highlights their important role in shaping entrepreneur-
ial landscapes. While acknowledging the positive impact of well-defined policies, it is crucial
to consider the contextual nuances of developing countries. This study emphasizes the need for
adaptive and context-specific policy frameworks that address the diverse challenges faced by
entrepreneurs. Furthermore, the research suggests that ongoing evaluation and improvement of
policies based on empirical evidence are essential for ensuring their effectiveness over time. En-
vironmental entrepreneurship emerges as a strategic path for aligning economic development
with environmental sustainability.
This study finds how enterprises prioritizing ecological responsibility and green technologies
can contribute to the broader goals of sustainable development. Policymakers are encouraged to
explore incentives and frameworks that promote the growth of environmental entrepreneurship,
recognizing its potential to address urgent environmental issues.
5. CONCLUSION AND RECOMMENDATIONS
This study underlines the important role of entrepreneurship in driving economic growth, fos-
tering innovation, promoting social inclusivity, and contributing to environmental sustainabil-
ity. Entrepreneurship, particularly embodied by SMEs, emerges as a potent force for economic
growth within developing countries. The literature consistently emphasizes the capacity of en-
trepreneurial ventures to generate employment, foster income growth, and catalyze overall eco-
nomic expansion. The discussion on entrepreneurial ecosystems highlights the importance of
supportive environments that extend beyond financial assistance. Mentorship networks, a cul-
ture that encourages risk-taking, and institutional backing are identified as critical components.
Recognizing the diverse contexts within developing nations, policymakers are urged to tailor
entrepreneurial ecosystems to local needs, ensuring that they exploit the unique strengths of
each region.
Social entrepreneurship emerges as a powerful force for addressing societal challenges and pro-
moting inclusive development. This research suggests the integration of social entrepreneurship
into development agendas, encouraging policymakers to recognize and support the unique con-
tributions of these ventures. Policy interventions play a central role in shaping the entrepreneur-
ial landscape. While acknowledging their potential positive impact, this study underlines the
need for adaptive, context-specific policies. Ongoing evaluation and improvement based on em-
pirical evidence are crucial to ensuring the long-term effectiveness of policies supporting en-
trepreneurship in developing countries. Environmental entrepreneurship emerges as a strategic
path for aligning economic development with environmental sustainability. The discussion re-
minds policymakers to explore incentives and frameworks that promote the growth of environ-
mental entrepreneurship, recognizing its potential to address environmental challenges.
Several recommendations arise for policymakers, researchers, and practitioners. Policymak-
ers are encouraged to formulate adaptive and context-specific policies that foster supportive
entrepreneurial ecosystems, recognize the unique contributions of social enterprises, and pro-
mote environmental entrepreneurship for sustainable and inclusive development. Researchers
are suggested to go deeper into empirical investigations, exploring the complexities of entrepre-
neurship in diverse developing contexts. Practitioners are suggested to leverage these insights in
designing and implementing initiatives that exploit the catalytic power of entrepreneurship for
lasting socio-economic and environmental impact.
7
Entrepreneurship as a Catalyst for Sustainable Development in Developing Countries
The research highlights the critical role of policy interventions in shaping the entrepreneurial
landscape within developing countries. Policymakers are encouraged to craft adaptive and con-
text-specific policies that foster supportive entrepreneurial ecosystems. This includes measures
to provide financial assistance, mentorship networks, and regulatory frameworks that stimulate
innovation and sustainable business practices.
This study underscores the transformative potential of social entrepreneurship in addressing soci-
etal challenges and promoting inclusive development. Policymakers and development practition-
ers are urged to recognize and integrate social entrepreneurship into broader development agen-
das. This involves creating an enabling environment that supports the growth of enterprises with
a social mission, ultimately contributing to poverty alleviation and community development.
The research identifies environmental entrepreneurship as a strategic avenue for aligning eco-
nomic development with environmental sustainability. Policymakers are prompted to explore
incentives and frameworks that promote the growth of environmental entrepreneurship. This
includes supporting ventures prioritizing ecological responsibility and green technologies and
fostering a symbiotic relationship between economic growth and environmental stewardship.
Given the importance of entrepreneurial ecosystems, this study suggests the need for capaci-
ty-building initiatives. Educational institutions, non-governmental organizations, and govern-
ment agencies are encouraged to invest in programs that equip aspiring entrepreneurs with the
necessary skills and knowledge. This includes fostering a culture that encourages risk-taking,
creativity, and innovation.
The research calls for scholars to explore interdisciplinary collaborations and conduct further
empirical studies that unravel the contextual nuances shaping the relationship between entre-
preneurship and sustainable development in specific regional and cultural contexts. This im-
plies the need for ongoing academic inquiry to deepen our understanding of the dynamic inter-
play between economic, social, and environmental dimensions.
Recognizing the diverse challenges faced by developing countries, this study implies the need
for global collaboration and knowledge exchange. International organizations, academic institu-
tions, and development agencies are encouraged to facilitate platforms for sharing best practic-
es, lessons learned, and innovative approaches to entrepreneurship for sustainable development.
Building on the literature emphasizing the importance of supportive ecosystems, the research
suggests the development of entrepreneurial training programs. These programs can equip in-
dividuals with the skills needed to navigate the challenges of entrepreneurship, fostering a cul-
ture that encourages risk-taking and innovation.
Acknowledging the dynamic nature of entrepreneurship and the potential evolution of policy ef-
fectiveness, this study implies the importance of ongoing evaluation and iterative policy devel-
opment. Policymakers are encouraged to regularly assess the impact of their interventions, in-
corporating feedback and evidence-based insights to refine and adapt policies over time.
In conclusion, the implications of this study extend beyond academic discourse to practical con-
siderations for policymakers, practitioners, and researchers engaged in the pursuit of sustaina-
ble development through entrepreneurship in developing countries.
8
8th International Scientific Conference EMAN 2024
Selected Papers
This study offers some limitations. The study’s reliance on a literature review may limit the
depth of analysis compared to empirical research methods. Future studies could complement
this review with primary research, such as surveys, interviews, or case studies, to provide a
more in-depth understanding of entrepreneurship and sustainable development in developing
countries. The chosen timeframe (2000 to the present) may exclude earlier seminal works or re-
cent developments. Future studies could explore historical perspectives and extend the review
to ensure a more comprehensive understanding of the evolution of entrepreneurship and sus-
tainable development initiatives.
Recognizing the diverse contexts of developing countries, future research could adopt a more
nuanced approach by conducting separate analyses for specific regions or countries. This would
allow for a deeper understanding of context-specific entrepreneurial dynamics and sustainable
development initiatives.
Conducting longitudinal studies to track the evolution of entrepreneurship and sustainable devel-
opment in developing countries over time can capture changes, trends, and the long-term impact
of various interventions. Performing cross-country comparative analyses to identify patterns and
differences in entrepreneurial ecosystems and sustainable development outcomes could help poli-
cymakers tailor strategies to specific regional and cultural contexts. Research focusing on under-
standing the cultural and regional nuances that influence entrepreneurship and sustainable devel-
opment could involve collaborative efforts with local communities to ensure a more contextual-
ized and culturally sensitive analysis. Evaluating the impact of specific policy interventions on en-
trepreneurship and sustainable development outcomes could involve rigorous impact assessments
to gauge the effectiveness of policies in different developing country contexts.
Conducting a comparative analysis of environmental entrepreneurship models across develop-
ing countries to identify successful strategies and potential areas for improvement could inform
the development of tailored policies supporting environmentally sustainable ventures. Evalu-
ating the effectiveness of entrepreneurial training programs in developing countries can pro-
vide valuable insights for future initiatives. Exploring opportunities for global collaboration and
knowledge exchange between developed and developing countries could foster a more inclusive
and diverse understanding of entrepreneurship for sustainable development.
Addressing these limitations and pursuing these future research directions can contribute to a
more comprehensive and nuanced understanding of the intricate relationship between entrepre-
neurship and sustainable development in developing countries.
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8th International Scientific Conference EMAN 2024 – Selected Papers
ht tps://doi.org/10. 31410/E MAN.S.P.2024.11
https://orcid.org/0000-0002-8394-8504
https://orcid.org/0000-0003-2454-6342
https://orcid.org/0000-0002-5039-6643
https://orcid.org/0000-0002-8150-7633
Estimating Trade Facilitation in a Regional Integration Initiative:
Leveraging the Logistics Performance Index
Irena Kikerkova1
Predrag Trpeski2
Ljuben Kocev3
Jasna Tonovska4
Keywords:
Trade Facilitation;
Trade Logistics;
Gravity model;
Logistic Performance Index
(LPI);
TRACECA
Abstract: This study examines trade determinants, with a particular focus
on logistics within the context of a regional integration initiative. A gap in
the literature concerning the application of gravity models to the TRACECA
initiative is identified through the literature review. Subsequently, an analy-
sis of the legal framework underpinning TRACECA is undertaken. Utilizing
the World Bank’s Logistic Performance Index (LPI) within a gravity model
framework, the study evaluates the impact of trade facilitation within the
TRACECA region. Findings indicate positive associations between trade and
GDP, common language, and shared borders, while distance exerts a neg-
ative influence. The research underscores the role of the LPI in facilitating
trade within TRACECA, advocating for collaborative endeavors to enhance
logistics, remove latent barriers, and streamline customs procedures. Fur-
thermore, the study advocates for increased investment to strengthen
TRACECA’s trade facilitation initiatives, emphasizing the necessity of mutual
political commitment to advance regional trade.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
The enforcement of the WTO Trade Facilitation Agreement (TFA) back in 2017, switched the
focus of deeper trade liberalization from classical to the many hidden non-tariff and admin-
istrative barriers to trade (NTBs). Since, numerous research articles have pointed out advantag-
es, savings, and increments of profits if TFA is fully implemented. Despite these findings, in
the period from 2017-2019, new NTBs appeared at a several times quicker pace than the pace
of their elimination.
The failure of the multilateral trading system, as well as the high level of restrictiveness to trade
of the old/new NTBs, pressed many national economies to undertake initiatives on deeper trade
liberalization at the regional instead of multilateral level. This tendency has become even more
intense since the outburst of the COVID-19 pandemic.
The initiative on the Transport Corridor Europe Caucasus Asia (TRACECA) was launched in
Brussels in 1993. It is an EU initiative founded upon a program on technical assistance for the
development of a transport corridor on the west-east axis from Europe, across the Black Sea,
through the Caucasus and the Caspian Sea to Central Asia. In 1998, five Central Asian republics,
three Caucasian republics, and four European countries, among which two EU member-states,
signed the “Basic Multilateral Agreement on International Transport for Development of the Eu-
rope-the Caucasus-Asia Corridor” in Baku. Ten years later, the Islamic Republic of Iran joined the
1 Ss. Cyril and Methodius University in Skopje, Faculty of Economics – Skopje, Republic of North Macedonia
2 Ss. Cyril and Methodius University in Skopje, Faculty of Economics – Skopje, Republic of North Macedonia
3 Ss. Cyril and Methodius University in Skopje, Faculty of Economics – Skopje, Republic of North Macedonia
4 Ss. Cyril and Methodius University in Skopje, Faculty of Economics – Skopje, Republic of North Macedonia
Received: April 17, 2024
Accepted: August 28, 2024
Published: December 17, 2024
12
8th International Scientific Conference EMAN 2024
Selected Papers
agreement. Thus, an initiative that covers 47 routes with a total of 45,198 km of international roads
and highways, 93,474 km of railway lines, 6,960 nautical miles of ferry routes, and 16 seaports
connected by Ro-Ro communication, was created. Before the COVID-pandemics the volume of
total TRASECA trade exchange of goods amounted to 65 million tons of cargo, of which 40.4%
were oil and oil products; 12.4% were ores; 11% were foodstuffs; 8.8% chemicals; 6.5% were con-
struction materials; 5.4% cereals; 4.7% metals and metal ware; and 11% other goods (Permanent
Secretariat of the Intergovernmental Commission TRACECA, 2020).
To enable deeper insight into the efficiency of the TRACECA initiative and to measure its
achievements and failures of trade facilitation up to date, this study incorporates an LPI-varia-
ble calculated for TRACECA members in a gravity model. The structure of the paper is as fol-
lows: summary; introduction, literature review; overview of enacted legal acts within TRACE-
CA; the gravity model and results; and conclusion.
2. LITERATURE REVIEW
Since the 1970s, gravity models, based on the Newtonian gravity theory, have been broad-
ly used in research on trade flows. Translated in economic terms, the basic assumption in the
gravity model for economic purposes is that bilateral trade flows between neighboring econ-
omies that share common borders and that have bigger GNP per capita are more intense than
with trade partners geographically more distant and/or with a limited economic potential. The
model may also include several different variables that measure trade facilitation and logistic
performance effects. Hence, it became the theoretical framework for measuring the strengths
and weaknesses of trade liberalization within different regional initiatives. Abundant literature
on gravity models used for different regions in the world is available, however, published pa-
pers using this model for the TRACECA initiative cannot be found. At the same time, a paper
by Bugarčić et al. (2020) includes LPI in a gravity model in assessing trade facilitation effects
in Western and Eastern Europe and Western Balkan. That was the motivation to create a grav-
ity model for TRACECA member-states that would include the LPI variable, which would ena-
ble to analysis of trade facilitation effects within the region.
Research work on trade facilitation started after the Ministerial Conference of the WTO in Sin-
gapore in 1996, as the necessity of elimination of administrative barriers to trade as a form of
non-tariff barriers was never tackled under the GATT from 1947. In 2003 a research paper by
Wilson et al. (2003) pointed out the strong negative impact of these kinds of barriers on the eco-
nomic development in the Asia-Pacific region. Two years later, these authors researched air and
maritime infrastructure, customs environment, regulatory environment, and e-business infra-
structure for 75 countries using panel data in a gravity model, which pointed out that the effects
of undertaking trade facilitation measures might differ among different economies. However, if
such measures were implemented to the level of half of the world average in the four analyzed
areas, the trade might increase by 377 billion American dollars (Wilson et al., 2005).
In the meanwhile, the World Bank, the World Bank Group, the OECD, and the WTO developed
methodologies to follow trade facilitation impact and economic effects. A study by the World
Trade Organization (2015) even stated that the increase in exports from the trade facilitation pro-
cess might reach at least 9.1% and would be especially beneficial in the case of developing and
less developed countries. These highly optimistic results could be realized by shortening the time
needed for imports by 47%, and the time needed for exports by 91% on average.
13
Estimating Trade Facilitation in a Regional Integration Initiative:
Leveraging the Logistics Performance Index
Decreux and Fontagné (2009) in modeling trade facilitation assumed that administrative barri-
ers behave as iceberg costs.
Zaki (2010) first used a gravity model to measure the bilateral trade effects from administra-
tive barriers by estimating the time to export and to import, finding out that time to import has
a higher negative impact on trade than time to export. In another paper, Zaki (2014) also stated
that trade facilitation had an especially positive effect on sectors that show higher sensitivity to
time, such as food; textiles, and electronics. He also found that the long-run welfare effects of
trade facilitation are much higher than the short-run ones and that positive effects from this pro-
cess led to export diversification, as well.
In their works many authors, like Beverelli et al. (2015), Moïsé and Sorescu (2013), and Fontagne
et al. (2016), made estimations on various intensities of favorable effects of implementing the
WTOs TFA, emphasizing its positive effect on exports.
A literature set concerning logistic performance and the LPI has a starting point that states
that logistic performance is tightly correlated with international competitiveness (OECD,
2005). Hausman et al. (2005), De Souza et al. (2007), and Mustra (2011) support OECD find-
ings, claiming that being part of the value chain, logistics is the fundament of efficiently
solved transportation, storage, and packaging issues. Their research also confirms that inef-
ficient logistics prolongs the time needed to import/export, thus significantly increasing costs
and reducing turnover.
Using the World Bank’s LPI for the creation of a regulatory restrictions index in the case of
ASEAN, Hollweg and Wong (2009) detected a negative correlation between them, pointing out
that countries that have fewer legal barriers obtain better logistic scores due to decreasing trade
costs and increasing competitiveness. Shortening the time of queuing at borders, leads also to
lower emission and pollution costs, which was proved in the study of Min and Kim (2010) based
on the combination of LPI with Data Development Analysis.
By using LPI as an explanatory variable analysis, Korinek and Sourdin (2011) confirmed that
the improvement of transport infrastructure has greater significance for exporters from mid-
dle-income countries, while at the same time improvements of administrative barriers have
greater importance for importers. Using the same index, Martí et al. (2014) found that logis-
tics is more strongly correlated to terms of transport in the bilateral trade exchange of com-
plex goods.
An abundant literature review pointing out the usefulness and the many analytical possibilities
of LPI in recent research throughout the world was published in a research paper by Aboul-Da-
hab and Ibrahim (2020).
3. THE LEGAL FRAMEWORK OF THE TRANSPORT CORRIDOR
EUROPECAUCASUSASIA TRACECA
The foundational document of the TRACECA - the Basic Multilateral Agreement on Interna-
tional Transport for Development of the Europe–Caucasus-Asia Corridor (MLA, 1998) was in-
itially signed for 10 years. Its validity has been continually extended for an additional period of
5 years according to Article 16.
14
8th International Scientific Conference EMAN 2024
Selected Papers
The original agreement is ratified by all 13 member-states: Armenia, Azerbaijan, Bulgaria,
Georgia, Iran, Kazakhstan, Kyrgyzstan, Moldova, Romania, Tajikistan, Turkey, Ukraine, and
Uzbekistan. The MLA remains open to accession to any State or Regional Economic Inte-
gration Organizations (Article 14). In addition, there have been 4 additional Protocols for its
amendment, but so far, they have not received the same recognition from the member states.
Out of the 4 protocols, only 2 have entered into force.
The MLA is comprised of the Basic Agreement and the Technical Annexes on international
road transport, international railway transport, international commercial maritime navigation,
and customs and documentation procedures (Article 10). The Technical Annexes are an integral
part of the MLA and are binding to member-states.
The MLA serves as the legal framework for promoting economic relationships, facilitating
trade, and improving transport links in the regions of Europe, the Black Sea, the Caucasus, the
Caspian Sea, and Asia. The main objectives are:
- Developing economic relations, trade, and transport communication in the regions of Eu-
rope, the Black Sea, the Caucasus, the Caspian Sea, and Asia;
- Facilitating access to the international market of road, air, and railway transport and com-
mercial maritime navigation;
- Facilitating international transport of goods and passengers and international transport of
hydrocarbons;
- Ensuring traffic safety, security of goods, and environmental protection;
- Harmonizing transport policy and the legal framework in the field of transport; and
- Creating equal conditions of competition between different types of transport.
The MLA stipulates that no taxes, duties, or other payments will be imposed for transport in transit, ex-
cept payments for transport and customs services, services related to transport, and payments for the
use of transport infrastructure (Article 5). Additionally, tariffs for transport transit services have to be
established based on preferential terms - if preferential terms and tariffs are established between two
Parties, then no less preferential terms and tariffs will apply to other Parties (Article 6). An exception
to this is the advantages granted by Bulgaria and Romania in virtue of their membership in the EU.
Another significant instrument for TRACECA is the Agreement on the Development of Multi-
modal Transport. The Agreement was adopted in 2009 in Cholpon-Ata, Kyrgyzstan. It entered
into force in 2011, and so far, it has been signed and ratified by six states: Armenia, Azerbaijan,
Georgia, Kyrgyzstan, Tajikistan, and Ukraine.
The main objective of the Agreement is to harmonize the legislation of signatories and to com-
pel them to implement a unified legal framework of multimodal transport (Article 2). Consid-
ering this objective, the Agreement aims to regulate broadly the rights and obligations of all
participants in multimodal transport operations, including transport organizations, multimodal
transport operators, consignors, consignees, and other physical and legal persons, acting on be-
half of the consignor carrying goods in multimodal services.
The Agreement is only applicable to the multimodal transport of goods, when it occurs between
the states-participants and transit through the territories of these countries, effected by the for-
warders registered on the territory of one of the Parties with the points of departure or destina-
tion on the territories of the states of the parties, with the use of all modes of transport.
15
Estimating Trade Facilitation in a Regional Integration Initiative:
Leveraging the Logistics Performance Index
4. STYLIZED FACTS AND THE EMPIRICAL MODEL AND RESULTS
The World Bank Logistic Performance Index (LPI) is an interactive benchmarking tool creat-
ed to help countries identify the challenges and opportunities they face in their performance on
trade logistics and what they can do to improve their performance. The LPI provides a general
picture of customs procedures, logistic costs, and quality of overland and maritime transporta-
tion infrastructure. As a weighted average, it scores the efficiency of the clearance process (i.e.,
speed, simplicity, and predictability of formalities) by border control agencies, including Cus-
toms; quality of trade and transport-related infrastructure (e.g., ports, railroads, roads, informa-
tion technology); ease of arranging competitively priced shipments; competence and quality of
logistics services (e.g., transport operators, customs brokers); ability to track and trace consign-
ments; and timeliness of shipments in reaching destination within the scheduled or expected de-
livery time (World Bank, 2023). They are a valuable instrument for monitoring and comparing
the logistics performance of economies.
Figure 1 shows an overview of the logistic performance measures across the TRACECA coun-
tries. These results point to an improvement in the state of logistics (average score of 2.7 in 2023,
compared to 2.4 in 2007).
Figure 1. Overall Logistic Performance Index score in TRACECA countries, 2007 and 2023
Source: World Bank, 2023
To investigate the factors influencing the international trade patterns of member-states within
the TRACECA initiative and to gauge the impact of their logistics performance, this study em-
ployed the gravity model as the conceptual framework. This model operates on the premise that
bilateral trade flows are positively correlated with the economic size of two countries, as meas-
ured by their GDP. Conversely, an increase in the geographical distance between trading part-
ners exerts a negative influence on their reciprocal trade. Distance serves as a proxy for trans-
portation costs and is quantified by the geographical separation between the respective capital
cities. Countries included in the analysis are Armenia, Azerbaijan, Bulgaria, Georgia, Iran, Ka-
zakhstan, Kyrgyzstan, Moldova, Romania, Tajikistan, Turkey, Ukraine and Uzbekistan.
Additional variables augment the model, such as dummy variables designed to control for the
effects of shared borders between countries and a common language, factors anticipated to
16
8th International Scientific Conference EMAN 2024
Selected Papers
bolster trade volumes. Furthermore, the baseline equation incorporates a summary LPI. The es-
timations are conducted utilizing the STATA statistical software, employing the Ordinary Least
Squares (OLS) model, without incorporating any specific effects. The dataset encompasses an-
nual trade flow data between TRACECA member-states for the period spanning from 2000 to
2023, totaling more than 3,000 observations.
The used data sources comprise information from various databases, including the Internation-
al Monetary Fund’s Direction of Trade Statistics (for export data), the International Monetary
Fund’s World Economic Outlook Database (for GDP data), the CEPII GeoDist database (provid-
ing data on geographical distances between specific economic centers within member-states)
(Mayer & Zignago, 2011), and the World Bank (for LPI data). It is worth noting that LPI scores
have been available since 2007, and the database that is used encompasses overall country LPI
scores for the years 2007, 2010, 2012, 2014, 2016, 2018, and 2023.
The following specification of the gravity model on panel data is used:
log(EXP
ijt
) = β
0
+ β
1
GDP
it
+ β
2
GDP
jt
+ β
3
DIST
ij
+ β
4
LPI
t
* + β
5
BORDER + β
6
LANG + u
ij
(1)
where EXP
ijt
– quantity of exports from country i to country j in year t expressed in millions of US
dollars; GDP
it
– GDP of country i in year t; GDP
jt
– GDP of country j in year t; DIST
ij
– average dis-
tance between countries i and j in kilometers; BORDER – binary variable equal to 1 for countries
that share a common border and 0 otherwise; LANG – binary variable equal to 1 for countries that
share a common language; u
ij
– standard error. A logarithmic transformation of the variables en-
ables interpreting the coefficients as elasticities. It is expected that most variables included in the
gravity model have a significant positive impact on total bilateral exports, except the distance var-
iable, which should have a negative effect on exports. The larger and closer the two countries are,
the higher the volume of their exports can be expected.
The focus of the paper is on examining the effects of LPI so that other variables have a con-
trolling character. The variable LPIt* refers to the product of the values of logistics performance
indices of both trading partners. This variable makes it possible to see jointly how changes in
specific LPI affect exporters and importers. The variable LPIt* is constructed as the product of
a specific LPI for importer and exporter.
LPIt* = LPItj * LPIti (2)
The results from the analysis are presented in Table 1.
Table 1. Results from the gravity model
Dependent variable: Log of exports
(1) (2)
Log of exporting country's GDP 0.446*** 0.442***
(0.042) (0.043)
Log of importing country's GDP 0.652*** 0.645***
(0.042) (0.043)
Log of distance -1.012*** -1.012***
(0.270) (0.268)
Joint LPI 0.006*
(0.006)
17
Estimating Trade Facilitation in a Regional Integration Initiative:
Leveraging the Logistics Performance Index
Common language 1.431** 1.429**
(0.694) (0.688)
Common border 0.379 0.381
(0.502) (0.498)
Constant 6.583*** 6.611***
(2.081) (2.065)
Observations 3,462 3,462
Number of id 155 155
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Source: Own calculations
5. CONCLUSION
Results from the gravity model on the TRACECA initiative mostly convey findings of similar
research in the case of other regional initiatives. However, the outcomes have yielded several
noteworthy discoveries as elucidated within the confines of this scholarly exposition. The foun-
dational specification of the model adheres entirely to the anticipated repercussions of the es-
sential gravity model variables. Specifically, the GDP of trading partners manifests a positive
and statistically significant impact on trade, whereas geographical distance exhibits a detrimen-
tal and statistically significant influence on trade. Furthermore, the inclusion of dummy varia-
bles designed to control for the presence of common borders and a shared language both yield
positive and statistically significant results.
However, it is imperative to underscore that the most pivotal variable of all, denoted as the
LPI, is intimately associated with the ramifications of heightened trade facilitation among
member-states of the TRACECA initiative. The results point to many existing hidden and
non-hidden barriers to trade that are not compliant with the trade facilitation process and cre-
ate additional costs to trade. TRACECA authorities have already undertaken additional ini-
tiatives to support and enhance trade facilitation at the regional level by eliminating some of
the most frequently experienced challenges by traders from member-states, among which the
most visible are the need for harmonization and simplification of customs procedures; im-
provement of customs efficiency through digitalization and simplification of customs formal-
ities; introducing mechanisms for systematic information exchange among customs authori-
ties and potential use of electronic queueing systems at border crossings; elimination of ex-
isting (non)physical barriers and bottlenecks at border crossings; considering the conclusion
of an Agreement on Mutual Recognition of Authorized Economic Operators, thus minimiz-
ing requirements for equipment on different checkpoints; digitalization of International Cus-
toms Transit System; and others.
Being aware of the changing geopolitics and of the potential for container transport through
TRACECA corridors special emphasis is put on harmonization and simplification of transit
procedures and a strong support of multimodal transport operations. The success of multimodal
transportation, however, depends on the usage of internationally recognized and accepted trans-
port transit documents. However, only five of the TRACECA countries provide usage of TIR
carnet, while the Central Asian countries additionally request a permit for carriage of goods.
The underscored assertion from the empirical model confirms that by intensifying coopera-
tive efforts aimed at enhancing logistic performance, TRACECA member-states may discern
a favorable and statistically significant impact on their aggregate exports. Besides enhancing
18
8th International Scientific Conference EMAN 2024
Selected Papers
logistical performance, TRACECA members should also increase investment and provide all
necessary resources to support and continue the process of digitalization and simplification
of customs procedures, to implement internationally recognized good practices and accepted
forms and documents on transit, as well as to find strength to express mutual political will to
support and enhance trade facilitation by all means.
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Leveraging the Logistics Performance Index
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8th International Scientific Conference EMAN 2024 – Selected Papers
https://doi.org/10.31410/EMAN.S.P.2024.21
https://orcid.org/0009-0007-5307-554X
Understanding Transfer Pricing Dynamics:
Evidence from Related Party Transactions in EU Public Companies
Renata Fulop1
Keywords:
Transfer pricing;
Related party transactions;
Multiple linear regression;
Influencing factors;
EU context
Abstract: This research explores the determinants influencing transfer pric-
ing practices within the EU business landscape, driven by rising related party
transactions leading to significant fiscal scandals involving companies like
McDonald’s France, BlackRock, and Maersk Oil and Gas in 2022. After an
investigation into its transfer pricing arrangements, the US fast-food com-
pany agreed to pay €1.25 billion to the French tax authority. All these cas-
es underscore the gravity of the issue. Data was manually collected from
annual reports and databases like Thomsons Reuters and Bloomberg, fo-
cusing on companies across seven EU countries: France, Germany, Poland,
Ireland, Hungary, the Netherlands, and Romania. Using multiple linear re-
gression models, the study analyzes independent variables such as compa-
ny size, leverage ratio, profitability, market to book ratio, controlling share-
holders, and corporate income tax rate. The study aims to provide valua-
ble insights into the factors shaping the concept, emphasizing the need for
greater transparency, accountability, and trust in financial operations with-
in the EU framework.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
The evolving landscape of global business has fostered the expansion of multinational com-
panies (MNCs), extending their operations beyond domestic boundaries. One significant
challenge confronting these entities is the disparity in tax rates and regulations across countries.
Such variations compel MNCs to engage in transfer pricing (TP) strategies which serve as a stra-
tegic tool to optimize profit from sales (Prat ama, 2018). The higher the increase in sales, the less
likely the company is to engage in tax avoidance, because the high sales signify substantial prof-
it, which may discourage management from resorting to corporate tax avoidance (Faradisty et al.,
2019). However, when faced with substantial tax liabilities, companies might be tempted to engage
in tax avoidance practices to minimize their tax burdens, including the strategic shifting of in-
come to foreign affiliates in lower-tax jurisdictions (De Simone et al., 2019). Such actions can lead
to penalties and damage the company’s reputation. These unethical practices not only raise mor-
al and ethical concerns but also compromise the transparency and integrity of the company’s fi-
nancial practices. Companies need to strike a balance between maximizing profits and maintain-
ing ethical tax compliance to foster trust among stakeholders and uphold their corporate integrity.
Given the diverse tax regulations and rates across EU member states, TP practices among pub-
lic companies within this region justify the thorough investigation. Each company’s approach to
tax planning and compliance is unique and influenced by a range of factors, such as company
size, leverage ratio, profitability, market to book ratio, controlling shareholders, and corporate
income tax rate. Future research could further explore these relationships and provide a more
refined understanding of the influencing factors.
1 Babeș-Bolyai University, Mihail Kogâlniceanu Street, No.1, 400084, Cluj-Napoca, Romania
Received: April 20, 2024
Accepted: September 10, 2024
Published: December 17, 2024
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8th International Scientific Conference EMAN 2024
Selected Papers
2. LITERATURE REVIEW
Existing literature on the determinants of TP is notably limited, primarily due to a predomi-
nant focus on transactional outcomes rather than exploring the drivers of TP as a dependent
variable. Researchers have traditionally concentrated on transactions involving affiliated par-
ties, particularly sales to and purchases from related entities, often utilizing them as proxies for
overall affiliated transactions. While efficient related party transactions (RPTs) play a pivotal
role in advancing a company’s economic objectives by minimizing transaction costs and opti-
mizing resource allocation (Pozzoli & Venuti, 2014), it’s essential to recognize the dual nature
of these dealings. Abusive RPTs can lead to detrimental outcomes, facilitating an unjust trans-
fer of value from minority shareholders to controlling shareholders, thereby eroding the over-
all company value (Gordon et al., 2004; Wong & Jian, 2003). Furthermore, the strategic use of
RPTs for income shifting, particularly to affiliates in low-tax jurisdictions, is a common prac-
tice among MNCs to minimize global tax liabilities (De Simone et al., 2019). The monitoring
and enforcement activities of tax authorities also play a critical role in shaping these practic-
es, as stronger oversight can deter aggressive TP and enhance financial reporting quality (Han-
lon et al., 2019). Consequently, while beneficial RPTs contribute positively to company perfor-
mance, abusive practices underscore the critical importance of transparency and fair practices
in such transactions.
Previous research has extensively examined the determinants of RPTs within corporate set-
tings, focusing on various independent variables that influence these transactions. Among these
variables, company size has garnered significant attention. Researchers have highlighted its
relevance in shaping the frequency and magnitude of RPTs (Cheng & Leung, 2014). Yeh et al.
(2012) further demonstrate that in the context of the Taiwan Stock Market, larger companies
are more likely to participate in RPTs due to their expansive operational networks and com-
plex ownership structures, which facilitate such transactions. However, smaller companies may
have fewer resources or incentives to engage in such transactions. Thus, the following hypoth-
esis are proposed:
Hypothesis 1: Larger companies engage in a greater frequency and magnitude of RPTs com-
pared to smaller companies due to their complex organizational structures and diverse business
operations.
Another crucial determinant explored in the literature is the leverage ratio of companies. Re-
searchers have found that companies with higher levels of debt may be more inclined to conduct
RPTs, to mitigate financial risks or optimize tax planning strategies (Jian & Wong, 2010). The
presence of government intervention might also play a role in this context, as firms with gov-
ernment backing may face different financial pressures, impacting their RPT behavior (Berk-
man et al., 2009). The following hypothesis are proposed:
Hypothesis 2: Companies with higher levels of debt exhibit a higher propensity for conducting
RPTs as a strategy to mitigate financial risks or optimize tax planning strategies.
Profitability is a significant factor influencing the extent and nature of RPTs. Studies have sug-
gested that highly profitable companies may be more likely to engage in RPTs to exploit mar-
ket opportunities and optimize their financial outcomes. Conversely, companies facing finan-
cial challenges may resort to RPTs as a means of enhancing their financial performance or
23
Understanding Transfer Pricing Dynamics:
Evidence from Related Party Transactions in EU Public Companies
concealing underlying weaknesses. Chen et al. (2015) provide evidence that companies expe-
riencing financial distress are more likely to use RPTs to manage earnings, thereby obscuring
their financial difficulties and presenting a more favorable financial appearance. The following
hypothesis are proposed:
Hypothesis 3: Highly profitable companies are more likely to engage in RPTs to exploit market
opportunities compared to financially challenged companies, which may resort to RPTs to en-
hance their financial performance or conceal underlying weaknesses.
The market-to-book ratio has also emerged as a key determinant in the literature. This ratio re-
flects investors’ expectations regarding a firm’s prospects and growth potential. Research indi-
cates that companies with high market-to-book ratios may be more prone to conducting RPTs,
as they seek to align their financial activities with market sentiments and shareholder expecta-
tions (Jiang et al., 2010). MNCs often use TP strategies to shift profits across borders, and these
practices are influenced by various factors, including market valuations and ownership struc-
tures (Cristea & Nguyen, 2016). Moreover, RPTs can be utilized as a mechanism for signaling
value to the market, thereby influencing investors’ perceptions and stock valuations (Ryngaert
& Thomas, 2007). The following hypothesis are proposed:
Hypothesis 4: Companies with high market-to-book ratios are more prone to conducting RPTs,
aligning their financial activities with market sentiments and shareholder expectations, which
may serve as a mechanism for signaling value to the market.
Controlling shareholders exert a significant influence on RPTs, as they often possess the au-
thority to initiate or approve transactions with related parties. Prior studies have shown that
the presence of dominant shareholders correlates positively with the frequency and magnitude
of RPTs, as these individuals may prioritize their interests over those of minority shareholders
(Bertrand et al., 2002; Johnson et al., 2000). Moreover, controlling shareholders may RPT as a
means of extracting private benefits or consolidating their control over the company (Duru et
al., 2016). The following hypothesis are proposed:
Hypothesis 5: The presence of dominant shareholders positively correlates with the frequency
and magnitude of RPTs, as these individuals may prioritize their personal interests over those
of minority shareholders and may engage in RPTs to extract private benefits or consolidate con-
trol over the company.
Lastly, the corporate income tax rate influences companies’ decisions regarding RPT. Research
suggests that companies operating in jurisdictions with higher corporate tax rates may engage
in RPTs as a means of tax optimization, by transferring profits to related entities located in ju-
risdictions with more favorable tax regimes Hanlon and Heitzman (2010). Lower corporate tax
rates may reduce the incentive for companies to engage in such transactions for tax planning
purposes, although other factors such as regulatory compliance and business considerations
may still influence their prevalence (Clausing, 2003; Huizinga & Laeven, 2008). The following
hypothesis are proposed:
Hypothesis 6: Companies operating in jurisdictions with higher corporate tax rates are more
likely to engage in RPTs as a means of tax optimization by transferring profits to related enti-
ties in jurisdictions with more favorable tax regimes.
24
8th International Scientific Conference EMAN 2024
Selected Papers
The literature underscores the multifaceted nature of RPT and highlights the diverse array of
factors that influence their occurrence within corporate settings. By examining the interplay
between company-specific characteristics, institutional factors, and regulatory environments,
researchers can gain valuable insights into the drivers and implications of RPTs, thereby in-
forming policymakers, practitioners, and stakeholders alike.
Each of these hypotheses can be tested empirically using statistical methods and data analysis
techniques to understand the relationship between the independent variables and the occurrence
of RPT within corporate settings.
3. RESEARCH METHOD
The research method employed aligns with a quantitative descriptive approach, focusing on
analyzing the determinants that shape TP practices within the EU business landscape. Through
the utilization of multiple linear regression models, this research aims to clarify the relation-
ships between independent variables such as company size, leverage ratio, profitability, market
to book ratio, controlling shareholders, and corporate income tax rate and RPTs among EU pub-
lic companies. TP refers to a policy established by a company to determine the price of trans-
actions conducted between the company and its affiliated entities. These transactions are meas-
ured through RPTs. It is generally presumed that companies engage in TP when conducting
transactions with affiliate companies to ensure that both parties derive significant benefits from
this practice (Yulia et al., 2019).
The data collection process for this study involved thorough sourcing from annual reports and
databases such as Thomson Reuters Eikon (2022) and Bloomberg L.P. (2022) and the financial
statements of companies for the year ending 2022. A diverse sample was drawn from seven EU
countries: France, Germany, Poland, Ireland, Hungary, the Netherlands, and Romania. This
selection ensures a comprehensive representation of the EU business landscape, allowing for
the exploration of potential variations in TP behaviors across diverse regulatory and econom-
ic environments.
This study primarily examines RPTs, specifically related party sales and related party purchas-
es, which serve as proxies for RPTs. They are defined as the average of the percentage of related
party sales to total net sales and the percentage of related party purchases to total net purchases.
An explanation of the operational definitions of each variable used in the study is in Table 1.
Table 1. Definition of variables
Dependent Variable Symbol Measurement
Related party transactions RPTs RPTs=(Percentage RP Sales + percentage RP Acquisitions)/2
Independent Variables
Company size CSIZE Ln Total Asset Natural log of total assets at the end of the year.
Leverage ratio LEV Firm leverage measured by total liabilities divided by total
assets.
Profitability ROA Income before interest, tax, depreciation, and amortization
divided by total assets.
Market to book ratio MTB Market value of equity /total stockholders’ equity.
Corporate income tax rate CIT Corporate income tax rate of the country.
Source: Own processing
25
Understanding Transfer Pricing Dynamics:
Evidence from Related Party Transactions in EU Public Companies
The examination of research variables progresses through multiple stages, beginning with de-
scriptive analysis, followed by classical assumption testing, and hypothesis testing.
To test the hypothesis, this study employs the following regression model:
RPTit = αit + β1CSIZEit + β2LEVit + β3ROAit + β4MTBit + β5CITit + ɛit
(1)
Where:
RPTit = Related party transactions for companies i years t
CSIZEit = Size for companies i years t
LEVit = Leverage ratio for companies i years t
ROAit = Return on Asset for companies i years t
MTBit = Market to book ratio for companies i years t
CITit = Corporate income tax for companies i years t
ɛit = Error for companies i years t
Results of the descriptive statistic test are shown by the values of the minimum, maximum,
mean, and standard deviation of the research sample. The results of the test are presented in the
following table 2.
Table 2. Results of the Descriptive Statistic Test
NMinimum Maximum Mean Std. Deviation
DV R P T 102 0.0000000 90.58891875 11.790535 18.52154287
IV CSIZE 102 15.8365583 27.05834314 21.017089 3.038423752
IV LEV 102 0.0000000 0.611231000 .174049 .1558944134
IV ROA 102 -.4170 03188 2.5953169 78 .075336 .27177828 4 4
IV CS 102 0.0000000 99.40264870 43.541194 29.97330473
IV MTB 102 -.4 41140536 10.56800509 1.896136 1.905603605
IV CIT 102 .090 .299 .19267 .058368
Source: Own processing
The standard deviation (18.52) is notably higher than the mean (11.79). This indicates that
the data variation for RPT used as a proxy for TP, is relatively high, suggesting heterogenei-
ty within the dataset. The descriptive statistics in Table 2 reveal varying degrees of data dis-
persion and homogeneity across the research variables, with notably higher standard devia-
tions observed for variables such as RPT, while others such as CSIZE demonstrate relative-
ly lower dispersion.
We used the Pearson correlation coefficient method to examine the relationships between the
dependent variable and the independent variables (Table 3).
The obtained correlation coefficients, ranging from 0 to 1, indicate the presence of a positive
correlation, suggesting that, generally, an increase in one variable is associated with a propor-
tional increase in the other (Table 4).
The multiple correlation coefficient measures the strength and direction of the linear relation-
ship between the independent variables (IVs) and the dependent variable (DV). In this mod-
el, R is 0.414, indicating a moderate positive correlation. This adjusts the R Square value to ac-
count for the number of predictors in the model and the sample size. It provides a more accurate
26
8th International Scientific Conference EMAN 2024
Selected Papers
estimate of the proportion of variance explained by the model. Here, Adjusted R Square is 0.119,
indicating that approximately 11.9% of the variance in the DV is explained by the IVs after ad-
justing for the number of predictors (Table 5).
Table 3. Correlations
RPTit
(DV )
CSIZEit
(IV)
LEVit
(IV)
ROAit
(IV)
CSit
(IV)
MTBit
(IV)
CITit
(IV)
Pearson
Correlation
RPTit (DV) 1.000 -.092 -.152 -.033 .359 -.090 -.136
CSIZEit (IV) -.092 1.000 .092 -.095 -.506 .015 .676
LEVit (IV) -.152 .092 1.000 -.077 -.184 .103 -.027
ROAit (IV) -.033 -.095 -.077 1.000 .196 -.094 -.134
CSit (IV) .359 -.506 -.184 .196 1.000 -.261 -.372
MTBit (IV) -.090 .015 .103 -.094 -.261 1.000 .069
CITit (IV) -.136 .676 -.027 -.134 -.372 .069 1.000
Sig.
(1- tailed)
RPTit (DV) ..180 .064 .371 .000 .183 .086
CSIZEit (IV) .180 ..180 .172 .000 .439 .000
LEVit (IV) .064 .180 ..220 .032 .151 .394
ROAit (IV) .371 .172 .220 ..024 .173 .089
CSit (IV) .000 .000 .032 .024 ..004 .000
MTBit (IV) .183 .439 .151 .173 .004 ..245
CITit (IV) .086 .000 .394 .089 .000 .245 .
N
RPTit (DV) 102 102 102 102 102 102 102
CSIZEit (IV) 102 102 102 102 102 102 102
LEVit (IV) 102 102 102 102 102 102 102
ROAit (IV) 102 102 102 102 102 102 102
CSit (IV) 102 102 102 102 102 102 102
MTBit (IV) 102 102 102 102 102 102 102
CITit (IV) 102 102 102 102 102 102 102
Source: Own processing
Table 4. Coefficient test
Model Summaryb
Model R R Square Adjusted R Square Std. Error of the Estimate
1.414a.171 .119 17.38 4 0 21
a. Predictors: (constant)., IV CIT, IV LEV, IV MTB, IV ROA, IV CS, IV CSIZE
b. Dependent Variable: DV RPT
Source: Own processing
Table 5. A NOVA a
Model Sum of Squares df Mean Square FSig.
1
Regression 5938.403 6989.734 3.275 .006b
Residual 28709.400 95 302.204
Total 346 47.803 101
a. Predictors: (constant)., IV CIT, IV LEV, IV MTB, IV ROA, IV CS, IV CSIZE
b. Dependent Variable: DV RPT
Source: Own processing
The regression model is statistically significant (F = 3.275, p = .006), indicating that the IVs
collectively have a significant effect on RPT. This is further supported by the ANOVA results,
which show that the regression model accounts for a significant portion of the variability in
RPT (Regression Sum of Squares = 5938.403, Residual Sum of Squares = 28709.400). These
27
Understanding Transfer Pricing Dynamics:
Evidence from Related Party Transactions in EU Public Companies
findings suggest that the independent variables, including CIT, LEV, MTB, ROA, CS, CSIZE,
collectively influence the occurrence of RPT within the sample.
A positive coefficient for CSIZE (B = 1.364, p = .110) indicates that larger companies tend to en-
gage in more RPTs. Similarly, the positive coefficient for CS (B = 0.264, p < .001) suggests that
companies with CS are also associated with increased RPT. Variables such as LEV, ROA, MTB,
and CIT do not show statistically significant relationships with RPT. Collinearity statistics indi-
cate low multicollinearity among the IVs, reinforcing the reliability of the model’s results.
Table 6. Coefficientsa
Unstandardized Coefficients
Standardized Coeff icients Correlations Collinearity
Statistics
Model BStd. Error Beta tSig. Zero-
order Partial Part Tolerance VIF
1
(Constant) -16.862 16.710 -1.009 . 315
CSIZE it (IV) 1.36 4 .846 .224 1.611 .110 -.092 .163 .150 .452 2. 210
LEV it (IV) -13.011 11.429 -.110 -1.138 .258 -.152 -.116 -.106 .943 1.061
ROA it (IV) -8.282 6. 531 -.122 -1.268 .208 -.033 -.129 -.118 .950 1.053
CS it (IV) .264 .071 .428 3.697 .000 .359 .355 .345 .652 1.533
MTB it (IV) .272 .955 .028 .285 .776 -.090 .029 .027 .904 1.106
CIT it (IV) -47.43 0 40.885 -.149 -1.160 .249 -.136 -.118 -.108 .525 1.903
Source: Own processing
4. FUTURE RESEARCH DIRECTIONS
Future research in this domain could explore deeper into the nuanced dynamics of transfer pric-
ing practices, particularly within the context of evolving regulatory landscapes and advance-
ments in technology. With the increasing globalization of business operations and the prolifera-
tion of digital transactions, there is a growing need to explore the implications of digitalization
on transfer pricing strategies and compliance frameworks. Additionally, investigating the role
of emerging technologies such as blockchain and artificial intelligence in facilitating or disrupt-
ing transfer pricing practices could provide valuable insights into future trends and challenges
in this field.
5. CONCLUSION
In conclusion, this study contributes to the understanding of TP practices among EU public
companies by identifying key determinants influencing RPTs. The findings highlight the sig-
nificant influence of company size and controlling shareholders on RPTs, underscoring the im-
portance of transparency and ethical governance in TP arrangements. Moving forward, ad-
dressing the complexities and challenges associated with TP requires a multi-faceted approach
that leverages advancements in technology, regulatory frameworks, and corporate governance
practices to promote fair and sustainable business conduct in the global economy.
The positive association between controlling shareholders and RPTs underscores the need for
robust governance mechanisms to prevent potential abuse of power and protect the interests of
minority shareholders. Duru et al. (2016) emphasize the importance of board independence in
mitigating the influence of powerful insiders, such as controlling shareholders, which is crucial
in reducing the risks associated with RPTs. Moreover, the effectiveness of tax authority mon-
itoring and enforcement in curbing aggressive TP practices should not be underestimated, as
28
8th International Scientific Conference EMAN 2024
Selected Papers
highlighted by Hanlon et al. (2019). Their study suggests that stronger oversight by tax author-
ities can significantly improve financial reporting quality and reduce the likelihood of abusive
RPTs. The link between tax aggressiveness and other unethical practices, such as accounting
fraud, as stated by Lennox et al. (2017), highlights the broader implications of TP strategies on
corporate governance and financial integrity.
However, it’s essential to acknowledge the nuances and complexities inherent in transfer pricing
dynamics, as highlighted by previous research. While our study identified significant relation-
ships between company size and controlling shareholders with RPTs, other factors such as lever-
age ratio, profitability, market to book ratio, and corporate income tax rate did not yield statistical-
ly significant results, which contrasts findings by Jian and Wong (2010) and Hanlon and Heitzman
(2010). This discrepancy underscores the need for further research to investigate deeper into the
multifaceted nature of transfer pricing practices and their underlying determinants.
Moving forward, addressing the complexities and challenges associated with transfer pricing
requires a multi-faceted approach that leverages advancements in technology, regulatory frame-
works, and corporate governance practices. Future research endeavors should aim to explore
additional factors influencing transfer pricing practices within the EU context, such as regula-
tory compliance, industry-specific dynamics, and the impact of global economic trends. By fos-
tering a deeper understanding of transfer pricing dynamics and their implications, policymak-
ers, practitioners, and stakeholders can collaboratively work toward promoting fair and sustain-
able business conduct in the global economy.
Acknowledgment
I thank my supervisor, Dr. Adela Deaconu for her assistance and guidance.
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https://doi.org/10.32479/ijefi.7640
8th International Scientific Conference EMAN 2024 – Selected Papers
https://doi.org/10.31410/EMAN.S.P.2024.31
https://orcid.org/0000-0003-0504-7601
Impact of COVID-19
on Sustainable Development in Western Balkans
Denada Liça1
Keywords:
COVI D -19 ;
Western Balkans;
Sustainable development
Abstract: The COVID-19 pandemic, a global crisis of unprecedented scale,
has caused profound impacts on societies, economies, and the environ-
ment. This study investigates the relationship between the pandemic and
its effects on the Western Balkans, with a specific focus on environmental
and socioeconomic dimensions. While certain positive outcomes such as a
reduction in greenhouse gas emissions and a surge in the Information Tech-
nology and Communication (ITC) sector have been observed, the overall im-
pact poses a substantial threat to sustainable development (SD). This study
offers a comprehensive overview by identifying challenges faced by West-
ern Balkans countries, assessing policy responses, and providing insights for
a resilient and sustainable recovery.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
The COVID-19 pandemic has started in an era of unprecedented global challenges, influ-
encing various aspects of society, economy, and the environment (Impola, 2023; Lee et al.,
2023; Mota et al., 2022; OECD, 2020). This research paper aims to analyze the relationship be-
tween the pandemic and its effects on the Western Balkans region, focusing on the environ-
mental and socioeconomic dimensions. Drawing upon an extensive review of existing litera-
ture, this study aims to provide a comprehensive overview of the multifaceted impacts of COV-
ID-19, shedding light on both positive and negative repercussions. The initial exploration re-
veals certain positive outcomes stemming from the pandemic, particularly in the context of en-
vironmental sustainability (Adams, 2006; Craiut et al., 2022; Mishra, 2022; Novillo-Villegas et
al., 2022; Thanasi-Boçe et al., 2023). A notable reduction in greenhouse gas emissions has been
observed, attributed to lockdowns, travel restrictions, and changes in industrial activities. Addi-
tionally, the Information Technology and Communication (ITC) sector, along with allied indus-
tries, has experienced a boost in operations, showcasing the adaptability and resilience of cer-
tain economic sectors during these challenging times (Mishra, 2022; UNDP, 2020).
However, the overall impact of the pandemic on the Western Balkans region suggests a threat
to sustainable development (SD). Despite the temporary environmental benefits, the broader
socioeconomic landscape has experienced significant disruptions, exposing to risk the gains
achieved in sustainable development over the years (Gashi & Liça, 2023). The erosion of pro-
gress in areas such as poverty alleviation, education, and healthcare raises concerns about the
long-term repercussions on the region’s socio-economic structure (Borojo et al., 2022). To un-
derstand the nuances of these impacts, the paper explores the specific challenges faced by the
Western Balkans countries. Factors such as the reliance on tourism, disruption of global sup-
ply chains, and the vulnerability of certain sectors have aggravated the socio-economic conse-
quences of the pandemic (Gashi & Liça, 2023). The study also investigates the effectiveness of
1 Aleksander Moisiu University of Durres, Faculty of Business, Department of Management, Rr. Taulantia,
L.1, 2001, Durres, Albania
Received: March 28, 2024
Accepted: June 30, 2024
Published: December 17, 2024
32
8th International Scientific Conference EMAN 2024
Selected Papers
policy responses and mitigation measures implemented by the governments in the region, aim-
ing to identify best practices and areas that require further attention.
This research paper provides a nuanced analysis of the environmental and socioeconomic im-
pacts of COVID-19 in the Western Balkans. By synthesizing evidence from the literature, it
offers insights into the complex interplay between the pandemic and sustainable development
in the region. The findings contribute to a better understanding of the challenges faced by the
Western Balkans countries and provide a basis for formulating targeted strategies to mitigate
the negative consequences and promote a more resilient and sustainable recovery.
Finally, the objectives of this study are as follows:
1. Explore the environmental impacts of COVID-19:
Assess the extent of reduction in greenhouse gas emissions during lockdown periods.
Analyze satellite imagery and air quality data to quantify the environmental impact.
Explore the factors contributing to changes in emissions and their implications for
environmental sustainability.
Investigate the role of the ITC sector in mitigating environmental impacts.
Assess the resilience of digital technologies in facilitating remote work and reducing
the carbon footprint.
Identify opportunities for leveraging technological innovation to promote sustaina-
bility beyond the pandemic.
2. Investigate socioeconomic consequences:
Examine the pandemic’s impact on poverty levels and income inequality in the West-
ern Balkans.
Assess disruptions to education systems, including school closures and remote learn-
ing challenges.
Investigate strains on healthcare infrastructure and access to essential services, par-
ticularly for vulnerable populations.
Explore the differential impacts of the pandemic on various sectors, including tour-
ism, manufacturing, and agriculture.
Evaluate the resilience of supply chains and the capacity of industries to adapt to
changing market dynamics.
Identify sector-specific challenges and opportunities for sustainable development in
the post-pandemic recovery phase.
3. Assess threats to sustainable development in Western Balkans:
Assess the extent to which gains in sustainable development are eroded by the
pandemic.
Identify key indicators of regression, such as setbacks in environmental conservation
efforts and social inclusion initiatives.
Explore strategies for safeguarding and reinforcing sustainable development goals
amidst global crises.
Investigate disparities in the pandemic’s impact across demographic groups, regions,
and socioeconomic strata.
Analyze the intersectionality of factors such as gender, age, ethnicity, and geograph-
ic location in shaping vulnerability.
Propose policies and interventions to address inequities and foster a more inclusive
and resilient society.
33
Impact of COVID-19 on Sustainable Development in Western Balkans
2. LITERATURE REVIEW
The imposition of strict lockdowns and travel restrictions across the Western Balkans resulted in an
unintentional reduction in greenhouse gas emissions. The decrease in industrial activities, transpor-
tation, and overall economic slowdown contributed to improved air quality (International Energy
Agency, 2020; Le Qué et al., 2020; Mishra, 2022). Moreover, satellite imagery and air quality mon-
itoring stations documented a visible decline in pollutants, showcasing the direct link between human
activities and environmental degradation. This unintentional “green” outcome, raises questions about
the long-term sustainability of achieving environmental goals through drastic, short-term measures.
Contrary to sectors experiencing economic downturns, the Information Technology and Communi-
cation (ITC) sector emerged as a lamp of resilience and adaptability during the pandemic (Borojo et
al., 2022; Hale et al., 2021; UNDP, 2020). With remote work becoming the norm, the demand for digi-
tal services, online communication platforms, and e-commerce experienced an unprecedented surge.
This unexpected boost not only sustained the ITC sector but also demonstrated its potential to drive
economic activity in times of crisis. The accelerated digital transformation highlighted the impor-
tance of investing in technological infrastructure and fostering innovation for future environmental
and economic sustainability (Di Maria et al., 2022; Jo et al., 2020; Mubarak & Petraite, 2020). While
the reduction in greenhouse gas emissions and the resilience of the ITC sector present positive as-
pects of the pandemic, it is crucial to approach these outcomes with caution. The environmental ben-
efits resulting from lockdowns and economic slowdowns are temporary and come at the cost of eco-
nomic and social disruptions.
As countries seek to rebuild their economies, there is a need to explore sustainable practices that de-
couple economic growth from environmental degradation (Le Quéré et al., 2020). The stream in dig-
italization also brings attention to the energy consumption of the ITC sector, prompting considera-
tions for green technologies and energy-efficient practices to ensure a harmonious balance between
technological advancement and environmental stewardship (UNDP, 2020).
While the positive environmental outcomes of the pandemic offer a panorama of the potential for
change, the overall impact on sustainable development in the Western Balkans shows a more complex
picture. Lockdowns and economic contractions have disproportionately affected vulnerable popula-
tions, pushing many back into poverty. The interruption of educational systems and healthcare ser-
vices, coupled with economic uncertainty, threatens to reverse progress made in achieving Sustain-
able Development Goals (SDGs) (World Bank, 2022). The dependence on tourism, a vital economic
driver for many countries in the region, faced an unprecedented downturn with global travel restric-
tions. This not only impacted businesses directly involved in the tourism sector but also affected an-
cillary industries such as transportation, hospitality, and local enterprises. The consequences of this
vulnerability extend beyond economic downturns to encompass social well-being, cultural preserva-
tion, and regional development.
The pandemic’s impact on sustainable development has been far from uniform across society. Exist-
ing inequalities have been exacerbated, with marginalized communities facing heightened challeng-
es. Access to healthcare, educational resources, and economic opportunities has become more un-
equal, emphasizing the need for targeted policies that address these disparities. The disproportion-
ate effects on women, youth, and minority groups necessitate a nuanced approach to sustainable de-
velopment that considers social equity as an integral component (Borojo et al., 2022; UNDP, 2020;
World Health Organization, 2020).
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8th International Scientific Conference EMAN 2024
Selected Papers
3. METHODOLOGY
The methodology used in this study is focused on a comprehensive literature review framework. The
objective was to synthesize existing scholarly works, reports, and articles that investigate the environ-
mental and socioeconomic impacts of the COVID-19 pandemic in the Western Balkans. The literature
review served as the primary method for data collection and analysis, drawing from diverse sources
to present a holistic understanding of the subject matter.
A systematic search strategy was devised to identify relevant literature. Databases such as PubMed,
Scopus, Web of Science, and Google Scholar were utilized. The search terms included variations
of “COVID-19”, “Western Balkans”, “environmental impacts”, “socioeconomic impacts”, and relat-
ed keywords. The inclusion criteria encompassed studies published between January 2020 and the
knowledge cutoff date of January 2022, ensuring the incorporation of the most recent and relevant
findings.
Articles were screened based on their relevance to the research objectives. Inclusion criteria prior-
itized studies specific to the Western Balkans, focusing on the environmental and socioeconomic re-
percussions of the COVID-19 pandemic. Peer-reviewed articles, reports from reputable organizations,
and academic publications were prioritized to maintain the credibility and validity of the information.
The selected literature underwent a rigorous data extraction process. Key variables of interest includ-
ed environmental outcomes (e.g., changes in greenhouse gas emissions), socioeconomic impacts (e.g.,
effects on employment, poverty), and sector-specific analyses (e.g., tourism, information technology).
Extracted data were organized and synthesized to derive meaningful insights and identify patterns,
trends, and disparities across the Western Balkans countries.
Thematic analysis was applied to categorize and interpret the literature into overarching themes. The
emergent themes were then used to develop a conceptual framework that guided the organization and
presentation of the findings. This thematic framework enabled a structured exploration of both posi-
tive and negative impacts, as well as specific challenges faced by the Western Balkans in the context
of sustainable development.
The methodology acknowledges certain limitations inherent in a literature review approach. The po-
tential for publication bias and variations in research methodologies across studies may influence the
comprehensiveness and generalizability of the findings. Additionally, the dynamic nature of the COV-
ID-19 pandemic presents challenges in capturing real-time data. Reflexivity was maintained through-
out the review process to critically evaluate the sources, minimize bias, and ensure the robustness of
the synthesized information.
Ethical considerations primarily revolved around the responsible use of existing scholarly works. Prop-
er citation and acknowledgment of authors were ensured to uphold academic integrity. Additionally,
efforts were made to select studies conducted with ethical standards, recognizing the sensitivity of re-
search related to public health, socioeconomic disparities, and environmental impact.
Rigor and validity were maintained through a meticulous and systematic approach to the literature re-
view. A transparent and replicable methodology, adherence to inclusion criteria, and the utilization of
peer-reviewed sources contributed to the reliability of the synthesized information. Critical engage-
ment with the literature and continuous reflexivity further enhanced the robustness of the research.
35
Impact of COVID-19 on Sustainable Development in Western Balkans
4. FINDINGS
The main findings of this study are summarized in Table 1 providing insights into the envi-
ronmental, socioeconomic, and developmental implications of the COVID-19 pandemic in the
Western Balkans region.
Table 1. Summary of findings
Findings
Environmental impacts
- Significant reduction in greenhouse gas emissions during lockdown periods.
- Temporary improvement in air quality observed across the Western Balkans.
- Resilience of the Information Technology and Communication (ITC) sector.
Socioeconomic
consequences
- Setbacks in poverty alleviation, education, and healthcare.
- Disproportionate impacts on vulnerable populations.
- Vulnerability of specific sectors, such as tourism and global supply chains.
Threats to sustainable
development
- Erosion of gains in sustainable development, particularly in environmental
conservation and social inclusion.
- Unequal distribution of pandemic effects exacerbating existing disparities.
- Challenges in achieving Sustainable Development Goals (SDGs).
Source: Own research
4.1. Environmental Impacts
During periods of lockdown and reduced economic activity, there was a noticeable decline in
greenhouse gas emissions across the Western Balkans region. Factors such as decreased indus-
trial output, reduced transportation, and limited energy consumption contributed to this de-
cline. Corresponding with the reduction in emissions, there was a temporary improvement in
air quality observed in many areas of the Western Balkans.
Satellite imagery and air quality monitoring stations documented lower levels of pollutants, result-
ing in clearer skies and better respiratory conditions for inhabitants. Despite the disruptions caused
by the pandemic, the ITC sector demonstrated resilience and adaptability. The increased reliance
on digital technologies for remote work, online education, and virtual communication contribut-
ed to the sector’s stability and growth. This digital transformation highlighted the importance of
technological innovation in fostering environmental sustainability and economic resilience.
4.2. Socioeconomic Consequences
The pandemic exacerbated existing socioeconomic disparities and posed significant challeng-
es to poverty alleviation efforts, education systems, and healthcare infrastructure. Vulnera-
ble populations, including low-income individuals, marginalized communities, and rural resi-
dents, faced heightened risks of economic hardship, educational disruption, and limited access
to healthcare services. Vulnerable demographic groups, including women, children, the elderly,
and persons with disabilities, bore a disproportionate burden of the pandemic’s socioeconom-
ic consequences. Structural inequalities in access to resources, employment opportunities, and
social support networks exacerbated disparities, amplifying the vulnerability of marginalized
populations to the adverse effects of the crisis.
Certain sectors of the economy, such as tourism and global supply chains, were particularly vul-
nerable to the disruptions caused by the pandemic. The abrupt halt in international travel and trade
restrictions severely impacted tourism-dependent economies, leading to widespread job losses,
36
8th International Scientific Conference EMAN 2024
Selected Papers
business closures, and economic downturns. Similarly, disruptions in global supply chains disrupt-
ed manufacturing and trade activities, exacerbating economic uncertainties and vulnerabilities.
4.3. Threats to Sustainable Development
The pandemic posed significant challenges to the progress made in achieving sustainable de-
velopment goals in the Western Balkans. Gains in environmental conservation, social inclusion,
and economic stability were eroded by the pandemics disruptive effects, jeopardizing efforts to
build resilient, inclusive, and sustainable societies. The unequal distribution of pandemic effects
exacerbated existing disparities and inequalities within the Western Balkans region.
Socioeconomic factors such as income level, education attainment, and geographic location in-
fluenced individuals’ and communities’ vulnerability to the pandemic’s impacts, highlighting
the need for targeted interventions and policy responses to address systemic inequities. The
pandemic underscored the interconnectedness of global challenges and the urgency of advanc-
ing sustainable development agendas. Achieving Sustainable Development Goals (SDGs) in the
aftermath of the pandemic requires coordinated efforts across sectors and stakeholders, with a
focus on building resilience, promoting equity, and fostering environmental stewardship.
5. CONCLUSION AND RECOMMENDATION
The Western Balkans’ heavy reliance on tourism as a major economic driver has revealed inherent
weaknesses. The sudden and prolonged decline in international tourist arrivals severely impacted
countries that had heavily invested in tourism infrastructure. The loss of revenue not only affected
businesses directly involved in the tourism sector but also reverberated through the broader econo-
my, impacting employment, cultural preservation, and local development projects.
The disruption of global supply chains exposed vulnerabilities in the economic structures of West-
ern Balkan countries. Industries reliant on imported raw materials and components faced produc-
tion delays and increased costs, affecting both large enterprises and small businesses. This disrup-
tion highlighted the importance of building resilient, diversified economies that can face external
shocks and reduce dependence on global supply chains.
Governments in the Western Balkans responded to the challenges posed by the pandemic through
various policy measures and mitigation strategies. These included economic stimulus packages,
support for businesses, and social safety nets. However, the effectiveness of these measures var-
ied, and the paper aims to assess their impact on mitigating the threats to sustainable development.
In summary, the threats to sustainable development in the Western Balkans brought about by the
COVID-19 pandemic are multifaceted. The vulnerability of specific sectors and unequal impacts
underscore the need for targeted and inclusive policies. As the region faces the recovery phase, ad-
dressing these challenges will be pivotal to ensuring a sustainable and equitable future.
The COVID-19 pandemic has caused a multifaceted impact on the Western Balkans, with conse-
quences across environmental, socioeconomic, and developmental spheres. The positive environ-
mental outcomes, including the reduction in greenhouse gas emissions and the resilience of the In-
formation Technology and Communication (ITC) sector, provide insights into potential avenues
for future sustainability. However, these positive aspects must be considered in the context of the
broader threats to sustainable development that have emerged during this global crisis.
37
Impact of COVID-19 on Sustainable Development in Western Balkans
The erosion of hard-fought gains in poverty alleviation, education, and healthcare raises alarms
about the fragility of progress achieved in the region. Lockdowns and economic contractions have
disproportionately affected vulnerable populations, exacerbating existing inequalities. The inter-
ruption of educational systems and healthcare services adds urgency to the need for adaptive and
inclusive policies that prioritize the most marginalized.
The vulnerability of specific sectors, such as tourism and those dependent on global supply chains,
highlights the need for diversified and resilient economic structures. The heavy dependence on
tourism offers economic benefits while leaving countries open to external shocks. Similarly, dis-
ruptions in global supply chains have underscored the importance of regional self-sufficiency and
the need for adaptive strategies in the face of unforeseen challenges.
As the Western Balkans face the post-pandemic recovery phase, the effectiveness of policy re-
sponses and mitigation measures will be crucial. Governments have implemented various meas-
ures, including economic stimulus packages and support for businesses, yet the efficacy of these
efforts remains a subject of scrutiny. The lessons learned from the pandemic should inform fu-
ture policies, emphasizing the importance of sustainable practices, social equity, and economic
resilience.
In moving forward, it is important to create a balance between economic recovery and environ-
mental management, recognizing that long-term sustainability requires a holistic and inclusive ap-
proach. The challenges presented by the pandemic serve as a call to action for policymakers, busi-
nesses, and communities to re-evaluate and reshape developmental strategies.
This research contributes to the ongoing discourse on the intersection of global crises, environmen-
tal sustainability, and socioeconomic development. By understanding the Western Balkans’ experi-
ence during the COVID-19 pandemic, stakeholders can gather valuable insights for building a more
resilient and sustainable future.
This study provides some implications. The research underscores the need for Western Balkans
countries to reassess their developmental strategies. The pandemic has exposed vulnerabilities in
sectors such as tourism and global supply chains. Policymakers should consider more diversified
and resilient economic structures that can withstand external shocks, ensuring sustainable devel-
opment in the face of uncertainties. Given the unequal impacts of the pandemic on vulnerable pop-
ulations, there is a pressing need for targeted policies that enhance socioeconomic resilience. This
involves addressing disparities in access to healthcare, education, and economic opportunities.
Governments and stakeholders should prioritize inclusive measures to protect the most marginal-
ized communities. While the reduction in greenhouse gas emissions during lockdowns provides a
glimpse of environmental benefits, it is essential to balance short-term gains with long-term sus-
tainability. Policymakers should explore sustainable practices that decouple economic growth from
environmental degradation, ensuring a harmonious balance between economic recovery and envi-
ronmental stewardship. The resilience of the Information Technology and Communication (ITC)
sector during the pandemic highlights the importance of investing in technological innovation.
Governments and businesses should consider strategies to further develop and leverage digital
technologies, not only for economic growth but also as tools for environmental monitoring and sus-
tainable practices. The disruptions in global supply chains emphasize the importance of building
38
8th International Scientific Conference EMAN 2024
Selected Papers
regional self-sufficiency. Western Balkans countries should explore opportunities for regional col-
laboration and cooperation to reduce dependence on external sources. This could involve joint ef-
forts in research and development, resource sharing, and the creation of more resilient and integrat-
ed regional economies.
The disproportionate impacts on specific demographic groups highlight the need to prioritize so-
cial equity in recovery plans. Governments should design policies that address existing inequalities
and create opportunities for marginalized populations. This includes targeted support for women,
youth, and minority groups to ensure an inclusive and equitable recovery. Finally, the effectiveness
of policy responses and mitigation measures should be thoroughly evaluated. Policymakers can
learn valuable lessons from the success or shortcomings of implemented measures during the pan-
demic. This knowledge will be instrumental in shaping future crisis response strategies and build-
ing a more adaptive and resilient governance framework.
This study offers some limitations. First, it primarily focuses on the Western Balkans region. The
findings may not be directly applicable to other regions with distinct economic, social, and envi-
ronmental contexts. Future research could explore the comparability of outcomes across different
geographical areas. Second, this study is based on available literature up to a specific cut-off date.
Given the dynamic nature of the pandemic and its aftermath, there might be ongoing developments
that are not captured in this study.
Researchers should consider the temporal limitations and conduct follow-up studies to assess the
evolving impacts. Third, this study acknowledges correlations between the pandemic and observed
outcomes but may not establish causal relationships definitively. There might be other confounding
factors influencing the observed trends. Future research could employ more rigorous methodolo-
gies, such as longitudinal studies and statistical modeling, to better understand causation.
Finally, while this study refers to the vulnerability of specific sectors, a more in-depth sector-spe-
cific analysis is warranted. Future studies could explore the nuances of how individual industries
within the Western Balkans were affected, identifying sector-specific challenges and opportunities
for sustainable development.
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8th International Scientific Conference EMAN 2024 – Selected Papers
ht tps://doi.org/10. 31410/E MAN.S.P.2024.41
https://orcid.org/0009-0004-0638-1761
https://orcid.org/0000-0002-0684-7590
The Dynamics of Direct Procurement in Albania: A 14-Year Analysis
Etion Kapedani1
Edlira Martiri2
Keywords:
Direct procurement;
Public procurement;
Savings;
Competition;
Albania
Abstract: Governments spend part of taxpayers’ money through Public
Procurement. Depending on the scope and requirements, public bodies use
different forms of contracting: open tenders, requests for proposals, etc. By
far, the most problematic form is Direct Procurement because it significantly
limits the competition from the private sector, unlike other forms of procure-
ment where competition is a given. It is precisely the scope of this study to
examine the dynamics of Direct Procurement in Albania from 2009 to 2022.
In this study period, Albania spent 581 Million Euros via Direct Procure-
ment in 18,990 different contracts. This study finds that although savings
amounted to 2.1%, significantly lower than other forms of procurement that
are more competitive, Albania has been decreasing the usage of Direct Pro-
curement. Data shows a considerable decline trend in the number of con-
tracts and amount of funds dedicated to an un-competitive procedure such
as Direct Procurement.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
In 2020, Public Procurement (PP) in Albania accounted for 14% of the Gross Domestic Product
(GDP) (Public Procurement Agency, 2021), similar to the European Union (OECD, 2021), while
on a global scale it made up 12% of GDP (Bosio et al., 2022). PP is the process in which public
funds are spent for the purchase of goods, works and services in the free market (Arrowsmith et
al., 2021), and due to its size, PP can have large economic effects (Ghossein et al., 2018).
Since these are public funds, governments spend these funds after a competitive process. Pre-
vious research has identified an increase in savings in cases of good competition (Shrestha &
Pradhananga, 2010). Because Albania was part of the Communist Block 1945-1990, after the fall
of the Berlin Wall, we have the first instances of PP with the implementation of the United Na-
tions model law. For the first time, the concepts of transparency, non-discrimination and com-
petition were introduced to Albania. This model regards competitive procedure as the general
rule and reserves Direct Procurement (DP) as the exception (Bardhi, 2016). Since DP is consid-
ered to be the exception, it is precisely the objective of this paper to analyse the dynamics of its
usage from 2009-2022 and determine whether this type of procedure is a significant portion of
public procurement in Albania.
The Hypotheses of this paper are:
1. The usage of Direct Procurement in Albania has been diminishing over time.
2. Direct Procurement is not a significant portion of public procurement in Albania.
The interplay of these factors holds significant implications for the government’s allocation of re-
sources and influences the broader competitive environment within procurement. Recognizing
and comprehending these dynamics is essential for policymakers and stakeholders alike. It serves
1 University of Tirana, Faculty of Economy, Rr. A. Broci 1, 1001, Tirana, Albania
2 University of Tirana, Faculty of Economy, Rr. A. Broci 1, 1001, Tirana, Albania
Received: March 28, 2024
Accepted: June 18, 2024
Published: December 17, 2024
42
8th International Scientific Conference EMAN 2024
Selected Papers
as the foundation for crafting strategies aimed at nurturing a procurement landscape character-
ized by strong competition and transparency. By remaining vigilant of these evolving dynamics
and taking proactive measures to address them, policymakers can make informed decisions that
streamline resource allocation while upholding principles of accountability and fiscal prudence.
2. LITERATURE REVIEW
A large amount of firms competing for the same public contract should bring positive results to
procurement (Fly nn, 2018). Often competition is deemed to have the potential to increase the effi-
ciency in the purchasing process by lowering prices and increasing the quality of goods, works and
services being bought (Baily et al., 2021). Because of the large share that public procurement has on
GDP, its success becomes even more relevant for government operations (Fazekaz & Blum, 2021).
There are times when public procurement can become an instrument for fostering better social out-
comes (Uenk & Telgen, 2019). Examples of this would be procurement contracts that develop par-
ticular parts of the country that have been under-developed for decades. Scholars have determined
that the correct implementation of public procurement is considered to profoundly affect employ-
ment (Wontner et al., 2020), while other scholars have emphasized the dividends of best practices
(Guarnieri & Gomes, 2019). Furthermore, research has also advocated for cost optimization of pub-
lic procurement because they are ultimately shared by the taxpayers (Balaeva et al., 2019).
PP is located at the junction of public bodies and private companies, thus at considerable risk of
corruption (Coviello et al., 2022). Scholars have defined procurement corruption as the aim to
orient the contract to the favored bidder (Fazekas & Kocsis, 2020) although competition is con-
sidered an additional source of inefficiency in PP (Grega et al., 2019). Although competition is a
well-established notion (Atkinson, 2020) because it brings efficiency in the usage of public mon-
ey (Hanák & Serrat, 2018), researchers identified links between political donations and contract
awards in some cases (Titl & Geys, 2019). Scholars have also identified cartel behaviour and
scarcity of competition in PP (Aaltio et al., 2023; Jääskeläinen & Tukiainen, 2019). It is also im-
portant to note that public infrastructure, contracted through procurement, is a vital prerequi-
site for private investments (Castro et al., 2023).
Since the fall of the Berlin Wall, Albania has made considerable progress in PP, although lacks
in recent studies. In 2003, only 31% of procurement contracts underwent open tenders (World
Bank, 2006). The lack of transparency created major difficulties for private companies to access
public procurement, bringing a large level of corruption (Kashta, 2020). This situation was sig-
nificantly improved in 2009 by the implementation of an Electronic Procurement System with
immediate effect. The average number of bids per tender increased from 2.2 in 2008 to 7.0 in
2009 drastically increasing competition (Public Procurement Agency, 2009).
What is Direct Procurement? The legal and Regulatory framework in Albania, just like in the
EU, foresees many different forms of public procurement. The largest part of these procedures
are competitive, meaning that many private companies can bid to offer the same good, work
or services. At the same time, this framework anticipates that given a set of particular circum-
stances, public institutions can use DP to hire a private company to do the job.
Why Direct Procurement is so highly regulated? The European Court of Justice considers
the wrongful application of Direct Procurement as a strong violation of EU rules in the field of
public procurement (Puisto, 2019). There is a consensus among scholars that contracts with a
43
The Dynamics of Direct Procurement in Albania: A 14-Year Analysis
single offer lack the necessary competition to offer the best value for money (la Cour & Ølyk-
ke, 2017) and in some cases, there is enough evidence to result in inefficiency (Baltrunaite et al.,
2021). However, due to COVID-19, many countries have softened their stringent regulation of
DP for a limited time (Decarolis et al., 2020). Nevertheless, public organizations must pay atten-
tion to the usage of DP because it is not transparent and not efficient, and at times can be con-
nected to corruption (Gallego et al., 2021). There is also evidence of electoral consequences that
procurement might have (Dahlström et al., 2019).
Direct Procurement Today? We should underline the fact that most of the forms of public
procurement are not DP. Although some scholars have argued that the usage of DP would in-
crease the level of participation for small and medium enterprises (Mendoza Jinez & Hernán-
dez López, 2022), its large-scale application would have a negative impact on the economy. This
study attempts to analyze the dynamics of Direct Procurement in Albania for a 14-year study
period between 2009 and 2022.
3. METHODOLOGY
We implemented a quantitative approach to gauge the level of usage of DP in Albania through
a longitudinal 14-year study period that allows us to examine trends and changes. By analyzing
historical data, this methodology improves model identification connected to the research ob-
jective. This method ensures rigor and accuracy in addressing the research questions.
Our primary source of data was the Public Procurement Agency (PPA), while secondary sourc-
es were the Audit Office and Public Procurement Commission. Every year PPA publishes an an-
nual report containing information about all types of procurement forms, including DP, amount-
ing to 1,200 pages in PDF format. We identified the most important parameters in these reports,
extracted the relevant variables, and integrated them into statistical software. Some of the annu-
al metrics used in this research are allocation of funds, expenditure of funds, funds saved, num-
ber of contracts, etc. Since the implementation of the Electronic Procurement System in 2009,
our study focuses on data starting in that year, until 2023, allowing a full investigation of DP
in Albania. Via statistical software, we implemented linear regression as a statistical method to
determine temporal trends in all aspects of DP. We formulated a research hypothesis, which un-
derwent considerable testing to determine whether the usage of DP is increasing or decreasing
and whether its usage has a considerable effect on public procurement in general.
It is important to accept certain limitations of our research methodology. As with all quantita-
tive analysis, there could be innate limitations to the veracity and completeness of data available
via public procurement annual reports. This study does not include public-private partnerships,
auctions, and secret contracts, while all values in this research do not include value-added tax,
typically at 20%. By adopting a quantitative research approach and by using rigorous analysis
techniques, this study attempts to create a view of DP in Albania. The findings resulting from
this methodology offer a substantial contribution to understanding the challenges and opportu-
nities in public procurement in Albania.
4. RESEARCH RESULTS
In this section, we will provide an expose of our analysis and results of this research. Our prima-
ry focus is the analysis and evaluation of the dynamics within DP for an extensive study period
44
8th International Scientific Conference EMAN 2024
Selected Papers
of 14 years starting in 2009 and ending in 2022. We will introduce a graphical representation
of the metrics we used per each Hypothesis, accompanied by linear regression to determine the
trend of each metric.
4.1. Savings in Direct Procurement
Because the literature agrees that DP is not the most efficient way to spend public money be-
cause the lack of competition does not offer the best value for money, in this section we are go-
ing to analyze the incurred savings in DP for the study period.
Figure 1. Percentage (%) of funds saved per each of the 14-years in the study period
Source: Authors elaboration based on PPA reports
Figure 1 identifies a negative trend in the percentage (%) of savings for DP in Albania. Al-
though DP is considered inherently non-competitive, in 2009 savings were at 6.2% while in
2022 they were about 1.0%. It should also be noted that in 2020, during COVID-19, savings
were un-normally high. However, the linear regression used demonstrates a negative trend in
DP savings for the 14 years of the study period.
4.2. Funds spent in Direct Procurement
Given that DP is non-competitive and the percentage (%) of savings has been diminishing over
time, it is important to analyze the amount of funds that are contracted via this procedure. If
they are increasing that would mean that competition is diminishing, and the opposite would be
true as well.
Figure 2 details the amounts of expenditure in DP. As seen above, although these funds have
experienced an increase, the overall trend is negative. In 2009, about 29 Million Euros were
spent via DP while in 2022 this amounted to 11 Million Euros. The linear regression identifies a
downward trend in DP amounts. In other words, less money is spent via a non-competitive pro-
cedure such as DP, indicating the approval of Hypothesis 1.
45
The Dynamics of Direct Procurement in Albania: A 14-Year Analysis
Figure 2. Amount of public funds used each year in DP between 2009 and 2022
Source: Authors elaboration based on PPA reports
4.3. Number of Contracts in Direct Procurement
In order to evaluate even better the dynamics of DP in Albania would be opportune to analyze
the number of contracts conducted via this procedure. Figure 3 does precisely that.
Figure 3. Number of tenders/contract in DP for the period 2009-2022
Source: Authors elaboration based on PPA reports
46
8th International Scientific Conference EMAN 2024
Selected Papers
Figure 3 demonstrates a substantial decrease in the number of contracts for DP. They started in
2009 with 1,182 contracts and although they increased for a few years, they are reduced to only
157 in the year 2022. The linear regression offers a statistical orientation to the drastic reduc-
tion of DP contracts in Albania.
Figure 2 and Figure 3 un-ambiguously confirm Hypothesis 1. In other words, Albania is dimin-
ishing the usage of Direct Procurement, as evidenced by lowering public funds and contracts is-
sued under this form of PP.
4.4. The significance of Direct Procurement
Previously we proved the drastic reduction of DP in Albania. Now we are going to analyze the
significance of DP in the overall public procurement framework in Albania. We are now going
to compare the share in percentage (%) that DP has overall.
Table 1. Percentage (%) of Funds and Contracts spent via DP
Years % of Contracts DP/PP % of Funds DP/PP
2009 23.39% 5.52%
2010 37.6 6% 17.64%
2011 28.89% 8.43%
2012 28.21% 12.73%
2013 33.25% 15.66%
2014 31.22% 11.29%
2015 42.88% 10.83%
2016 32.07% 7.75%
2017 31.81% 7.62%
2018 9.40% 3.88%
2019 3.40% 2.53%
2020 7.36% 3.01%
2021 2.53% 3.30%
2022 2.78% 0.93%
Source: Authors’ elaboration based on PPA reports
It is clear from Table 1 that the percentage (%) of DP funds when compared to the overall pub-
lic procurement funds is continuously diminishing. Furthermore, the percentage (%) of DP
contracts when compared to public procurement contracts is even less important. This demon-
strates that DP is becoming less significant when compared to the other types of procurement
in Albania, approving Hypothesis 2.
5. FUTURE RESEARCH DIRECTIONS
As non-EU Balkan countries aspire to EU membership, understanding and improving public
procurement practices become essential steps towards harmonization with EU standards. These
countries can learn from the challenges and successes they have faced to improve their procure-
ment policies, as well as for smooth integration into the EU. Furthermore, promoting transpar-
ency and accountability in public procurement is essential for the entire region. Transparent and
competitive procurement processes foster public trust, ensuring that taxpayer funds are used ef-
ficiently and effectively to meet the needs of citizens.
Further work in this area is needed to address the issues identified and pave the way for better
practices in the field of public procurement. Future research could explore the specific types of
47
The Dynamics of Direct Procurement in Albania: A 14-Year Analysis
procurement such as goods, works and services, or specific public sectors such as Health, Edu-
cation, Transport, etc. Even comparative PP research between Albania and other Balkan coun-
tries could bear importance. These studies would provide even more specific/targeted results
that would help policymakers focus their efforts.
6. CONCLUSION
Our analysis evidences an improvement regarding DP. In Albania, the usage of DP has become
less significant. By choosing to limit this non-transparent and non-competitive procedure, Al-
bania’s progress should be evaluated positively. At the same time, it should be noted that this
conclusion pertains to only a small part of Albania’s public procurement, and in order to eval-
uate the overall procurement performance all other types of contracts should be evaluated. Re-
gardless, the large reduction of DP should be applauded.
In conclusion, understanding the dynamics of public procurement is a fundamental aspect of
ensuring good governance, sustainable economic growth and equitable development. By pro-
actively addressing procurement challenges and continuously striving to increase competitive-
ness, stakeholders can foster a fair, transparent and efficient public procurement ecosystem that
benefits all citizens and economies in the region.
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8th International Scientific Conference EMAN 2024 – Selected Papers
https://doi.org/10. 31410/EMAN. S.P.2024.51
https://orcid.org/0000-0001-5857-0821
An Empirical Study on the Relationship Between Economic Growth
and Globalization in Albania Based on a VAR Model
Kladiola Gjini1
Keywords:
Albania;
Economic growth;
Globalization;
Var model
Abstract: This paper examines Albania’s economic trajectory over the pe-
riod 1980-2022, employing a Vector Autoregression (VAR) model to unravel
the intricate relationship between economic growth and globalization. As
Albania underwent significant transformations during this period, marked
by shifts in political structures and economic policies, our analysis seeks to
disentangle the nuanced dynamics at play.
Our findings aim to shed light on whether economic growth in Albania is a
driver or a consequence of globalization, unravelling the complex interplay
between domestic economic activities and global forces. In conclusion, this
paper not only adds to the understanding of Albania’s economic evolution
but also provides a methodological contribution through the application of
the VAR model.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
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commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
Before the ’90s studies on economic growth have indeed often emphasized the role of physi-
cal capital accumulation as a driver of long-term economic development. But when the rate
of physical capital accumulation surpasses the rate of population growth, it can lead to a situa-
tion where the marginal product of capital decreases, known as diminishing marginal returns to
capital. This can happen due to several factors such as the limited availability of complementa-
ry factors of production (like labour or technology) or inefficiencies arising from diminishing
returns in production processes (Grossman, 2015).
After the ’90s, the focus of many researchers was on human capital or ‘accumulation of knowl-
edge, often known as ‘technology’. International knowledge spillovers refer to the process
through which knowledge developed in one country can benefit other countries and contrib-
ute to economic growth. The research has found evidence of substantial international knowl-
edge spillovers but also shows that there is still room for further integration of the world econ-
omy to raise knowledge stocks around the globe. Trade and foreign direct investment may act
as conduits for knowledge transmission. International knowledge spillovers tend to accelerate
growth in all countries, as the cost of further innovation declines in every country with advanc-
es made elsewhere.
There are two offsetting effects of globalization on economic growth: 1) the scale effect and 2)
the competition effect. The scale effect means that innovators can afford the opportunity to ex-
ploit their new ideas on a larger stage, boost the incentives for knowledge acquisition, and gain
profits not only domestically but also on sales abroad.
The competition effect requires successful innovators to share the market not only with other
domestic firms but also with those producing abroad, to present an offsetting disincentive for
1 University of Elbasan ‘Aleksandër Xhuvani’, Faculty of Economics, Economics Department, Albania
Received: April 8, 2024
Accepted: July 8, 2024
Published: December 17, 2024
52
8th International Scientific Conference EMAN 2024
Selected Papers
knowledge acquisition. In a more global economy, the two effects coexist and determine the
overall impact on economic growth.
Globalization is a multifaceted phenomenon that brings about transformation across various as-
pects of global society (Moghaddam, 2012).
Albania underwent significant transformations during the period under study, including shifts
in political structures and economic policies. The analysis seeks to understand the intricate re-
lationship between economic growth and globalization in Albania. The study aims to unravel
the complex interplay between domestic economic activities and global forces.
The research contributes to the broader understanding of factors influencing Albania’s econom-
ic growth in the context of globalization.
The primary objective is to analyze Albania’s economic trajectory from 1980 to 2022. The Vec-
tor Autoregression (VAR) model is employed to understand the relationship between economic
growth and globalization in Albania.
After a brief introduction about a concise overview of the paper’s objectives, section two con-
ducts a literature review on globalization and growth, synthesizing existing scholarly contri-
butions in these areas. It lays the groundwork for the subsequent analysis and discussion. Sec-
tion three provides the methodology and results, outlining the approach used to gather data and
conduct various statistical estimations. This section is crucial for comprehending the research
methodology and ensuring transparency throughout the study. Section four concludes and pro-
poses potential avenues for future research.
2. LITERATURE REVIEW
The literature underscores the symbiotic relationship between economic growth and globaliza-
tion, wherein each phenomenon reinforces and amplifies the dynamics of the other. As econo-
mies become increasingly interconnected and interdependent, policymakers and scholars alike
must recognize the multidimensional nature of globalization and its implications for sustaina-
ble and inclusive growth.
This literature review synthesizes key insights and perspectives on how economic growth fos-
ters globalization and how globalization, in turn, drives economic growth.
Scholars have long recognized the catalytic role of economic growth in promoting globaliza-
tion. Economic expansion generates surpluses and capital accumulation, facilitating investment
in trade, technology, and infrastructure. As highlighted by Dollar and Kraay (2003) sustained
economic growth enhances a country’s comparative advantage in global markets, fostering spe-
cialization and exchange across borders. Empirical studies by Frankel and Romer (2009) and
Sachs and Warner (2001) underscore the positive correlation between GDP growth rates and in-
dicators of globalization, such as trade openness and foreign direct investment (FDI).
Moreover, rapid economic growth engenders structural transformations in production and con-
sumption patterns, spurring demand for imported goods and services. This phenomenon, known
as the “income effect”, amplifies cross-border trade flows and market integration (Baldwin &
53
An Empirical Study on the Relationship Between Economic Growth
and Globalization in Albania Based on a VAR Model
Martin, 2004). Additionally, rising incomes stimulate technological innovation and knowledge
diffusion, driving convergence in productivity levels and fostering cross-border collaboration
(Rodriguez & Rodrik, 2000).
Since the transition period, Albania has seen significant economic growth, ranking high
among transition economies since 1990. Moving from a closed, centrally-planned system to an
open-market economy, Albania initially had various economic challenges.
Close ties with Greece and Italy in trade, remittances, and banking make Albania vulnerable to
external economic pressures from eurozone debt crises and weak growth ( Taf il ica , 2017).
However, the impact of globalization on Albania has been mixed, with both positive and nega-
tive effects (Tafilic a, 2017).
Rad onshiqi’s (2017) findings support the notion that export promotion and broader trade strate-
gies in Albania have significantly contributed to the growth of exports and the overall econom-
ic advancement of the country.
Dragusha et al. (2023) research reinforces the idea that Albania’s long-term economic growth is
positively impacted by factors such as trade openness, export growth, and increased imports.
This indicates that a notable portion of Albania’s economic progress stems from its heightened
involvement in global trade and the subsequent expansion of both export and import operations.
Foreign trade plays a constructive role in fostering economic growth within Albania. Conse-
quently, to ensure sustainable economic development, Albania should prioritize the implemen-
tation of effective and well-suited trade policies and strategies (Shahini et al., 2016).
Globalization catalyzes economic growth by expanding market access, facilitating capital flows,
and promoting technological diffusion. The liberalization of trade and investment regimes, epit-
omized by initiatives such as the World Trade Organization (WTO) and regional trade agree-
ments, has dismantled barriers to commerce and facilitated the international exchange of goods,
services, and factors of production (Bhagwati, 2004).
Furthermore, globalization stimulates competition and efficiency gains by exposing domes-
tic industries to international benchmarks and best practices. Acemoglu and Restrepo (2019)
emphasize the role of competitive pressures in driving productivity growth and innovation, as
firms strive to optimize production processes and upgrade technological capabilities to remain
competitive in global markets.
Moreover, globalization enhances access to capital and technology, fostering investment in-
flows and knowledge spillovers across borders. Multinational corporations (MNCs), as agents
of globalization, play a pivotal role in diffusing technology, managerial practices, and organi-
zational innovations to host countries (Dunning, 2000). This process, known as “foreign direct
investment-led growth”, has been instrumental in driving structural transformations and indus-
trial upgrading in emerging economies (UNCTAD, 2020).
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8th International Scientific Conference EMAN 2024
Selected Papers
3. METHODOLOGY AND RESULTS
Economic growth and globalization are interconnected. Economic growth can influence glo-
balization and vice versa. Our two main hypotheses are:
Hypothesis One: Economic growth leads to globalization.
Hypothesis Two: Globalization leads to economic growth.
The first hypothesis suggests that economies that experience growth, can then contribute to in-
creased globalization. The second hypothesis implies that the process of globalization contrib-
utes positively to economic growth. Both hypotheses highlight the bidirectional relationship be-
tween economic growth and globalization, emphasizing the complex interplay of factors driv-
ing the interconnectedness of economies in the globalized world.
We use an unrestricted autoregressive model (unrestricted VAR) to analyze the existence of the
relationship between economic growth and globalization. VAR models are used to forecast sys-
tems of interrelated time series and also analyze the dynamic impact of random disturbances on
the system of variables. The data set covers data for Albania for the 1980-2022 periods. We con-
sider two variables economic growth (annual growth rate of GDP in percent) retrieved by Shane
(2009), and globalization (the KOF economic globalization index) retrieved by Dreher (2006).
According to Gygli et al. (2019), the KOF Globalization Index (KOFGI) is one of the most wide-
ly used and cited globalization indexes.
Steps of the analysis:
Step 1: Unit root test of variables
Step 2: Joint lag selection and VAR
Step 3: Stability test
Step 4: Residuals’ test
In our study, our variables are considered and treated as endogenous.
(1)
(2)
Here we are re-writing our two previous equations in a matrix form.
(3)
We begin our analysis by making a, unit test root of the two main variables of interest AGR and
KOF which we present in Table 1 below.
Table 1. Dickey-Fuller unit tests roots
Test statistics 1% critical value 5% critical value 10% critical value MacKinnon
Approximate p-value
AGR -4.289 -4.260 -3.548 -3.209 0.0033
KOF -2.501 -4.242 3.540 -3.204 0.3274
Source: Own calculations and processing
55
An Empirical Study on the Relationship Between Economic Growth
and Globalization in Albania Based on a VAR Model
Based on the Dickey-Fuller test results, the test statistic is less than the critical values at all sig-
nificance levels, and the p-value is less than 0.05 (assuming a significance level of 5%), so we
reject the null hypothesis of a unit root. This implies that the variable “AGR” is likely station-
ary. Also, we do not have sufficient evidence to conclude that the variable “KOF” is stationary.
Therefore, it may possess a unit root, suggesting non-stationarity in the data. To verify these re-
sults, we perform the Phillips–Perron test that a variable has a unit root, which also confirms
the stationarity for the AGR variable and non-stationarity for the KOF variable.
Since we are working with 2 different series, one stationary and the other one non-stationary,
we transform the series of KOF in the first difference [which is I (1)] to -KOF namely afterward
globalization.
After checking again for unit test roots, we can conclude that the series of globalization is like-
ly stationary, indicating that it does not possess a unit root and exhibits a stable behavior over
time. This approach aligns with the results achieved by Mutascu and Fleischer (2011) in a simi-
lar analysis conducted for the country of Romania.
(4)
The second step of our analysis includes the join lag selection. Based on the selection-order cri-
teria, a lag length of 2 is selected for the VAR model with the variables “AGR” and “globaliza-
tion”, presented in Table 2.
Table 2. Var lag order selection criteria
lag LogL LR df pFPE AIC HQIC SBIC
0-80.8739 .520453 5.02266 5.05318 5.11336
1-67.6826 26.383 40.000 .298456 4.46561 4.55717 4.73771*
2-62.2228 10.92* 40.027 .274196 4.37714 4.52972* 4.83062
3-58.0466 8.3524 40.079 .273566* 4.36646* 4.58008 5.0 0134
4-56.4783 3.1366 40.535 .321874 4.51384 4.78849 5.33011
The asterisk (*) denotes the selected lag length. LR (Likelihood Ratio) Test compares likelihood between mod-
els with and without lag. Lower FPE (Final Prediction Error) indicates better forecasting. AIC balances fit and
complexity, with lower values preferred. HQIC is akin to AIC but penalizes more for complexity. Lower HQIC
suggests a better fit. SBIC penalizes parameters, favoring lower values for better fit and complexity trade-off.
Source: Own calculations and processing
This lag length of two is chosen for its balance between model fit and complexity. The model
with lag 2 has the highest log likelihood, indicating a better fit compared to other lag lengths.
The likelihood ratio (LR) test indicates a significant improvement in model fit from lag 0 to lag
1 and from lag 1 to lag 2.
Consequently, the VAR model with lag 2 is the most appropriate for analyzing the relationship
between “AGR” and “globalization” within the specified timeframe.
The lagged AGR value at lag 1 has a statistically significant positive impact on the current
AGR value. It is reasonable to expect that past AGR values positively influence current AGR
levels in Albania. Economic growth in one period often sets the stage for continued growth
in subsequent periods, driven by factors like investment, productivity gains, and consump-
tion patterns.
56
8th International Scientific Conference EMAN 2024
Selected Papers
However, the coefficient for the lagged AGR value at lag 2 is not statistically significant, sug-
gesting no significant impact on the current AGR value. Our results suggest that there is insuf-
ficient evidence to conclude that changes in the AGR at lag 2 have a significant impact on the
current AGR value. This lack of significance could be due to several reasons. For instance, the
impact of AGR on itself may not be immediate; or lagged effects might take time to manifest,
and the significance of these effects may vary over different periods.
Lagged globalization values at lag 1 and 2 have no statistical significance on the AGR current
values. There are several reasons why this might be the case because globalization is a multi-
faceted phenomenon influenced by a wide range of factors, including trade policies, technolog-
ical advancements, cultural exchange, and geopolitical dynamics.
The impact of lagged globalization values may be diluted or overshadowed by other more im-
mediate or significant factors influencing current globalization levels. Furthermore, globaliza-
tion trends and dynamics can change over time due to various economic, political, and social
factors.
It is possible that historical patterns of globalization may not accurately predict current or fu-
ture trends due to structural changes in the global economy or shifts in policy and regulations.
Table 3. Unrestricted Vector Autoregression AGR and globalization estimates
Coef. Std . Err. z P > z [95%Conf. Inter val
AGR
L1. 0.498 0.167 2.980 0.003 0.170 0.826
L2. -0.283 0.214 -1.320 0.186 -0.703 0.136
globalization
L1. 10.108 17.950 0.560 0.573 -25.073 45.290
L2. -4.637 14.082 -0.330 0.742 -32.236 22.963
_cons -3.447 22.242 -0.150 0.877 - 47.041 40.147
globalization
AGR
L1. -0.008 0.0 01 -5.500 0.000 -0.011 -0.005
L2. 0.005 0.002 2.530 0. 011 0.001 0.008
globalization
L1. 0.420 0.154 2.730 0.006 0.118 0.721
L2. -0.190 0.121 -1.580 0.115 -0.427 0.046
_cons 0.805 0.191 4.220 0.000 0.432 1.179
Source: Own calculations and processing
The statistically significant negative impact of lagged AGR at lag 1 on current globalization
suggests that changes in AGR in the previous period indeed influence current levels of globali-
zation negatively. This means that when the AGR increases in the previous period, it tends to
lead to a decrease in globalization in the current period. The positive impact of lagged AGR at
lag 2 on current globalization may indicate delayed effects or the cumulative impact of econom-
ic growth on globalization over time.
Lagged globalization at lag 1 has a statistically significant positive impact on current globaliza-
tion, suggesting that changes in globalization in the previous period lead to an increase in cur-
rent globalization levels. The positive impact of lagged globalization at lag 1 on current globali-
zation aligns with expectations, as increased globalization in one period often fosters further in-
tegration into global markets and economic networks.
57
An Empirical Study on the Relationship Between Economic Growth
and Globalization in Albania Based on a VAR Model
The third step of our analysis is the VAR stability test. Results, presented in Table 4 below show
that our VAR model is stable and suitable for making reliable forecasts and analyzing the rela-
tionship between AGR and globalization.
Table 4. VAR stability condition test (Eigenvalue stability condition)
Eigenvalue Modulus
-0.367 -.7837342i 0.865
0.434 -.6505615i 0.782
0.610 -.2137716i 0.646
-0.144 -.2570699i 0.294
* All the eigenvalues lie inside the unit circle. VAR satisfies stability conditions.
Source: Own calculations and processing
And as step four we will perform the residuals’ test. We use the Lagrange-Multiplier test to un-
derstand whether the residuals at varying lags exhibit a correlation with each other.
Based on Table 5 below, all the p-values are relatively high and exceed conventional signifi-
cance levels (such as 0.05), we fail to reject the null hypothesis (H0) at each lag order. There-
fore, we do not have sufficient evidence to conclude that there is autocorrelation in the residuals
at these lag orders. Furthermore, to confirm our results we use also the Portmanteau test, which
provides no evidence to suggest that the residuals exhibit significant autocorrelation. With a
p-value higher than 0.05 our results suggest that we fail to reject the null hypothesis, so there is
no autocorrelation present in the residuals, supporting the assumption of randomness and inde-
pendence. They exhibit characteristics of white noise.
Table 5. LM autocorrelation test
lag chi2 Df Prob>Chi2
12.676 40.613
23.111 40.539
34.663 40.324
41.938 40.747
51.507 40.825
* H0: no autocorrelation at lag order
Source: Own calculations and processing
As a fourth step, we perform the residuals test. We check if the residuals of our model exhibit
heteroskedasticity. We perform the Breusch-Pagan test and find that there is no significant evi-
dence of heteroskedasticity in the residuals of the model based on the test.
Table 6 shows that with a p-value of 0.5666, which is greater than the commonly used signifi-
cance level of 0.05, we do not have sufficient evidence to reject the null hypothesis. Therefore,
based on this test, we fail to reject the assumption of homoskedasticity.
Table 6. Breusch-Pagan test for heteroskedasticity
Test BP DF p-value
BP Breusch-Pagan 1.136354 20.5665574
Source: Own calculations and processing
Performing a series of impulse functions allows us to trace the effects of shocks to one of the
innovations on both current and future values of our endogenous variables, AGR (economic
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8th International Scientific Conference EMAN 2024
Selected Papers
growth) and globalization. Impulse response functions provide insights into how the system re-
acts to shocks over time. By analyzing these responses, we can understand the dynamic impact
of specific shocks on the variables of interest.
For instance, if we apply a shock to economic growth (AGR), we can observe how AGR itself
and globalization respond in the short term, medium term, and long term. This analysis helps in
understanding the transmission and persistence of shocks, contributing to a more comprehen-
sive understanding of the systems behavior.
Based on the IRF and FEVD results, we can make the following observations regarding the ef-
fects of shocks in AGR and globalization. Short-Term (Immediate Response): Shocks in AGR
have an immediate and strong impact on AGR itself, with most of the variance explained by its
own shocks. Globalization shows a relatively smaller immediate response to shocks in AGR, in-
dicating a lagged effect or weaker connection in the short term. Medium-Term (Several Time
Steps Ahead): AGR continues to exhibit a significant response to its own shocks in the medium
term, although the magnitude of the response diminishes over time. Globalization’s response to
shocks in AGR remains significant but decreases gradually over the medium term, suggesting
a slower adjustment to changes in AGR. Long-Term (Extended Time Horizons): The long-term
response of AGR to its own shocks remains persistent but gradually diminishes, indicating a po-
tential stabilization or saturation of the effect. Globalization’s response to shocks in AGR con-
verges to a stable level in the long term, suggesting a more gradual and sustained adjustment
over extended periods. The results confirm the second hypothesis.
Figure 1. Accumulated Response of AGR to globalization and vice-versa
Source: Own calculations and processing
4. CONCLUSION
Based on the results of the VAR model analysis conducted on the relationship between eco-
nomic growth and globalization in Albania from 1980 to 2022, several key findings emerge.
The analysis indicates the presence of a causal relationship between economic growth and
59
An Empirical Study on the Relationship Between Economic Growth
and Globalization in Albania Based on a VAR Model
globalization in Albania. Specifically, changes in globalization levels have a significant impact
on economic growth in the country. The findings provide valuable insights for policymakers
in Albania regarding the importance of fostering globalization to stimulate economic growth.
Policies aimed at promoting trade liberalization, attracting foreign investment, and improving
overall economic indicators may contribute to sustained economic growth and integration into
the global economy.
Based on the results, our second hypothesis is confirmed. Globalization means that trade bar-
riers will be reduced, increasing trade opportunities for Albania. Businesses can expand glob-
ally and export easily. Additionally, globalization attracts foreign investments, which, in turn,
lead to investments in industry, infrastructure, and technology, creating more job opportuni-
ties and contributing to economic development for the country. Moreover, globalization allows
firms to collaborate with other international firms, promoting efficiency, competitiveness, pro-
ductivity, and innovation.
The study contributes to the existing literature on the relationship between economic growth
and globalization, particularly in the context of Albania. It adds empirical evidence and insights
that can inform future research and policy decisions in the country.
The study’s limitations are partly attributable to significant events in Albania during 1991 and
1997. These events, which encompassed the shift from a planned to a market economy and a civ-
il war marked by violent riots, may have introduced substantial noise and outliers into the dataset.
Future research directions could focus on examining how different sectors of the economy re-
spond to globalization and contribute to economic growth. Moreover, future research can fo-
cus on investigating the environmental effects stemming from globalization and its relationship
with economic growth.
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8th International Scientific Conference EMAN 2024 – Selected Papers
https://doi.org/10.31410/EMAN.S.P.2024.61
https://orcid.org/0000-0003-2259-1481
The Appreciation of the National Currency in Albania:
Does Informality Matter?
Emiljan Karma1
Keywords:
Exchange rate;
EURO / LEK;
ARDL Approach
Abstract: This study aims to identify the factors that contributed to the ap-
preciation of the Albanian LEK against the EURO, given the increasing euroi-
zation of the Albanian economy. The study uses ARDL analysis and quarter-
ly data from 2008Q1–2023Q3 to examine the primary influences on curren-
cy exchange rate variations, as per economic theory.
The study’s findings indicate that conventional economic variables have lit-
tle impact on exchange rate variations. However, the study found that remit-
tances and GDP do have a significant impact on the EUR/LEK exchange rate.
This study also leaves room to highlight the role of informality in explaining
this phenomenon. Therefore, policymakers may need to intervene in this situa-
tion, through formal channel transactions (using financial institutions), which
must be carried out in the LEK currency, and secondly, through a monetary in-
tervention aimed at creating a more balanced EURO/LEK exchange rate.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
Over the past decade, the Albanian economy has experienced a steady and rapid appreciation
of its local currency, the LEK, in comparison to the official currencies of the European Un-
ion and the British Pound. According to the Bank of Albania, between 2011 and 2023, the val-
ue of the Lek appreciated by 22% relative to the British Pound and by 23% relative to the cur-
rency of the European Union (Bank of Albania, 2023). The exchange rates between the US dol-
lar and Swiss franc have remained relatively stable over the same period, with only minor an-
nual fluctuations.
Since the Albanian economy is mostly integrated with European Union countries (70 per cent
of Albania’s foreign debt is in euro currency), this trend of the European currency exchange
has brought important consequences for many actors operating in the Albanian market or that
are affected by developments in the Albanian economy, such as the government, exporters
and importers, incoming and outgoing tourists, individuals and families who are influenced
by emigration income (remittances). Many analysts and researchers speak of a Euroization of
the Albanian economy (Della Valle et al., 2018; Narazani, 2013; Xhepa, 2002). The Euro circu-
lation in Albania seems to have created the appropriate ground for the national currency not
to play its role as an official payment instrument in the country being effectively replaced by
the euro currency.
All Western Balkan countries, except Albania, have either pegged their currency to the Euro or
adopted it as their official currency (Lane, 2022). Serbia and North Macedonia have exchange
rates that remain stable over time, with North Macedonia officially pegging the Macedonian
Denar to the Euro (Jakimova et al., 2022).
1 Catholic University Our Lady of Good Counsel, Faculty of Economic, Political and Social Sciences, Rruga
Dritan Hoxha 23, 1064, Tirana, Albania
Received: March 28, 2024
Accepted: August 20, 2024
Published: December 17, 2024
62
8th International Scientific Conference EMAN 2024
Selected Papers
Albania is the only country in the Western Balkans with a flexible exchange regime for its of-
ficial currency. The Central Bank only intervenes through the monetary offer within the coun-
try. Albania has been discussing a possible link with the euro currency for years to maintain
exchange rate stability (Xhepa, 2002). However, the Bank of Albania has stated that the condi-
tions for such a significant move for the Albanian economy have not yet matured, on the con-
trary, according to the Bank of Albania, it is time to think about the de-euroization of the econ-
omy (Bank of Albania, 2023a).
In the current conditions in the country, the Lek appreciation has both winners and losers. The
Albanian government is a major beneficiary of this situation as it aims to reduce foreign debt
service. In Albania, 70% of foreign debt is denominated in Euros. In the first quarter of 2023,
the cost of external debt decreased by 6 million euros, while in 2022, it decreased by 16 million
euros. However, the overvaluation of the Lek in 2022 has resulted in significant losses for Al-
banian exporters, particularly producers with foreign orders, who have lost 225 million euros.
Additionally, Albanian families relying on remittances from emigrants would require an extra
97 million euros to maintain the same purchasing power as last year due to the devaluation of
the euro in 2023 compared to 2022: this equates to approximately 506 euros per family (Deda,
2023; Revista Monitor, 2023). The figures demonstrate the extent of the phenomenon and the
consequences of the high appreciation of the local currency on the Albanian economy. This re-
search will examine the factors that determine the Lek appreciation, drawing on economic theo-
ry and various empirical studies. The reasons given by the Central Bank of Albania for the over-
valuation of the local currency will be examined based on this information.
The research is divided into five sections. Section 2 presents the theoretical and empirical con-
tributions regarding the determining factors of exchange rate fluctuations. The third section
discusses the methodology and variables used, while the fourth section presents the results
of the empirical research and the findings discussion. The final section presents the research
conclusions.
2. LITERATURE REVIEW
Countries that fully adopt a flexible exchange rate system adjust to the open currency market
based on the demand and relative supply of other currencies. Unlike countries that use a fixed
exchange rate regime, markets with a flexible exchange rate are subject to fluctuations resulting
from market movements, including speculative ones. The exchange rate is influenced by sever-
al factors and different theories explain exchange rate fluctuations: Interest Rate parity theory,
Purchasing Power Parity theory, Demand Pull Theory, and Balance of Payment theory of ex-
change (Khan et al., 2019; Peel & Taylor, 2002).
According to the interest rate parity hypothesis, changes in the future exchange rate and the
difference in short-term interest rates control the evolution of the exchange rate between two
currencies. This connection is based on the idealization of markets and the flawless interchange-
ability of financial assets among nations. The hypothesis assumes the absence of arbitrage op-
portunities, meaning that investors do not differentiate between local and international assets.
According to this hypothesis, a currency’s appreciation or depreciation is determined by the dif-
ference in interest rates between the two countries. According to the Demand-Pull theory, an
increase in demand for goods and services leads to an increase in their prices in the domestic
market. This, in turn, causes the local currency to devalue compared to other currencies in the
63
The Appreciation of the National Currency in Albania: Does Informality Matter?
international market in the long term. Similarly, the Purchasing Power Parity theory empha-
sizes that the exchange rate between two countries is in equilibrium when the purchasing pow-
er is the same in both countries. Consequently, fluctuations in purchasing power between two
countries will lead to corresponding changes in the exchange rate. According to the balance of
payment theory of exchange, a nation’s exchange rate volatility depends on the supply and de-
mand of money. If there is a negative balance of payments, the currency will devalue, and vice
versa. The theory of exchange known as the Balance of Payments (BoP) emphasizes that the ex-
change rate is determined by the supply and demand of foreign currency, rather than solely by
price fluctuations in local or international markets. This is in contrast to the Demand-Pull the-
ory and the Purchasing Power Theory.
The International Monetary Fund notes that while there are various theories explaining ex-
change rate fluctuations, there is no full consensus on the macroeconomic factors that deter-
mine these fluctuations, at least in the short term. The International Fund cites various studies
to explain that short-term fluctuations in exchange rates are due to market microstructure fac-
tors. However, in the long term, although not with a full consensus (referring to empirical stud-
ies), macroeconomic factors affect exchange rate fluctuations (IM F, 2003).
It is widely accepted that constant fluctuations in exchange rates create an unstable economic
climate, which can negatively impact foreign trade, foreign investments, and overall economic
development. Such fluctuations can also invalidate a country’s monetary policies if they persist
over a long period. Albania is a case in point: the general trend of the exchange rate reflects a
continuous and high appreciation of the local currency (Figure 1).
Figure 1. Exchange rate volatility Euro / Lek in Albania 2008q1 – 2023q3
Source: Bank of Albania, 2023
Various empirical studies have shown that trade openness has a positive effect on the long-term
equilibrium of exchange rates, particularly in countries with continuous and unchanging mar-
ket liberalization. In countries where openness to international trade fluctuates, exchange rate
fluctuations tend to increase as the degree of openness to international trade increases (Gant-
man & Dabós, 2018; Nguyen et al., 2022; Yang & Peng, 2023).
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8th International Scientific Conference EMAN 2024
Selected Papers
Empirical studies consider the Samuelson-Balassa hypothesis when examining the impact of Gross
Domestic Product on exchange rate fluctuations. This hypothesis explains that countries with a
sustained increase in production experience a long-term appreciation of their local currency. How-
ever, there is no complete consensus on this hypothesis among studies conducted in different coun-
tries. Bordo et al. (2017) compared data from 14 countries over 100 years and found that the impact
of productivity on exchange rate fluctuations varies depending on the country’s monetary regime.
It is important to note that different monetary regimes yield different results. Choudhri and Khan
(2005) found that the Samuelson-Balassa hypothesis holds in 16 developing countries. This means
that higher productivity in a country leads to a positive impact on the appreciation of the local cur-
rency. Wang et al. (2016) used the panel cointegration technique to analyse 20 developed countries
and 20 developing countries. They concluded that the Samuelson-Balassa hypothesis holds in de-
veloped countries, but there is little or no evidence to support it in developing countries.
According to Lopez et al. (2007), remittances have a significant impact on exchange rate fluctua-
tions in Latin American countries. The high level of remittances, which make up a large portion of
the GDP, can cause the local currency to appreciate and affect the export level for countries with
high remittance rates. Oleksiv and Mirzoieva (2022) used the Granger test and ARDL model to ar-
gue that remittances to Ukraine affect the appreciation of the local currency in both the short and
long term. Khurshid et al. (2017) used the GMM approach on monthly and annual data from 1992
to 2015 in Pakistan to show that remittances affect the devaluation of the local currency and have a
positive impact on the evolution of exports. According to the conclusions of this study, remittances
have an appreciation effect on the local currency, only when they are used for savings. The study
conducted by Nketiah et al. (2019) using data from the World Bank and the Bank of Ghana for the
period 1970-2016 and applying OLS estimators concluded that remittances do not have a signifi-
cant impact on the fluctuations of the exchange rate of the local currency.
The literature primarily focuses on the impact of exchange rate fluctuations on the evolution of for-
eign direct investment (FDI). According to Biswas and Dasgupta (2012), remittances and FDI have
an appreciating effect on the local currency. They used the Johansen multivariate co-integration
test to process the data for India from 1994-95Q1 to 2009-10Q4. Iavorschi’s (2014) study found that
an increase in FDI levels has a positive effect on the Lei/Euro exchange rate over the medium and
long term. The study used multiple linear regression to analyze the Romanian market from 2007 to
2023. In an analogous way as with FDI, the improvement of the current account in the balance of
payments exerts an appreciating impact on the local currency.
There is no complete consensus on the impact of government spending on exchange rate fluctua-
tions. The neoclassical and Keynesian schools have differing views on this matter. Gidey and Nuru
(2022) studied the impact of government spending in Ethiopia during the period 2001q1 - 2016q1.
They concluded that government spending causes an appreciation of the local currency in an open
country like Ethiopia, confirming the arguments of Keynesian economists. Miyamoto et al. (2019)
investigated the impact of military government spending in 125 different countries and found that
the results differ between developed and developing countries. In developed countries, a deval-
uation of the local currency and a decrease in consumption were observed, whereas in develop-
ing countries, the impact was different. Bajo-Rubio and Berke (2016) also found that government
spending affects exchange rate fluctuations. The valuation of the Euro currency in Spain depends
on whether the exchange rate is based on the CPI or export prices. In the former case, a direct re-
lationship between government spending and the exchange rate is verified, while in the latter case,
an adverse relationship is observed.
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The Appreciation of the National Currency in Albania: Does Informality Matter?
There is a limited number of studies on the factors that affect the currency rate of Albania. In their
study, Ahmetaj and Bejtja (2019) analyzed the fluctuations in the Euro/Lek exchange rate between
2001Q1 and 2017Q1. They concluded that exchange rate fluctuations are influenced by net foreign
assets and relative productivity. The report also highlights the stability of Albania’s monetary poli-
cies concerning the volatility of currency rates in the domestic market. Kozmai (2023) investigated
the effects of macroeconomic variables on exchange rate variations in Albania using quarterly data
from 2008q1 to 2022q2 and the OLS regression statistical model. The study revealed that the macro-
economic factors examined had a considerable influence on fluctuations in exchange rates. Howev-
er, the interventions made by the Bank of Albania to stabilize the situation did not have a significant
impact. According to Bal kanweb (2018) and the Bank of Albania (2023a), the appreciation of the local
currency is attributed to positive economic performance, commercial developments, foreign invest-
ments, and progress of remittances resulting from structural improvements in the Albanian economy.
3. DATA AND METHODOLOGY
Table 1 shows the statistical information used by the ARDL model to simulate the volatility of
the Albanian exchange rate between 2008Q1 and 2023Q3. The statistics were provided by the
Bank of Albania, INSTAT, and Trading Economics.
Table 1. Variables statistical description
Variable Obs Mean Std. Dev Min. Max.
ER – Exchange rate (Euro/Lek) 63 130,85 9,80 103,5 141,7
INF – Inf lation rate 63 2,60 1,67 0,7 7,9
REM – Remittances (% GDP) 63 6,15 1,77 3,81 10,91
IR – Interest Rate 63 2,98 1,90 0,80 6,20
FDI - Foreign Dir. Inv. (% GDP) 63 8,33 2,12 5,59 14,45
GE – Gov. Expenditure (% GDP) 63 10,17 1,14 6,89 12,34
TD – Trade Deficit (% GDP) 63 22,96 4,2 16,54 34,32
GDP – Gross Dom. Prod. (mill. Euro) 63 2957 918 1925 5684
Source: Own processing
To comply with the application criteria of the ARDL approach, the above data are presented in
logarithmic form in the representative equation of the ARDL model. Based on 63 observations for
this study, the euro reached its highest value against the lek in the second quarter of 2011 (141.7
lek) and its lowest value, with an average of 130.85 lek, in the third quarter of 2023 (103.5 lek).
The present study is conducted by applying the Autoregressive Distributed Lag model (ARDL)
analysis. Following the theoretical and empirical framework the ARDL model is derived as
follows:
lnERt = β0 + β1lnINFt + β2REMt + β3IRt + β4FDIt + β5GEt + β6TDt + β7GDPt + εt (1)
where εt is the error term, and the other variables are represented in logarithmic value.
Following the ARDL assumptions, stationarity was first checked at level I(0) and first order I(1).
To rule out the possibility of stationarity at second order I(2), which would not allow the use of
the ARDL approach, Table 2 shows that the results of the three tests - Phillips Perron, Dickey
Fuller, and Kwiatowski-Phillips-Schmidt-Shin - confirm that the stationarity assumption is ap-
propriate for using the ARDL model.
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8th International Scientific Conference EMAN 2024
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Table 2. Stationarity tests
Variable Level First Difference
ADF PP KPSS ADF PP KPSS
lnER -55,08*** -30,57*** 0,18*** -249,71*** -183,45*** 0,14***
lnINF -2,55 -2,63** 0,25 -7,85*** -7,87*** 0,03***
lnREM -3,65*** -3,34*** 0,24 -14,19 -22,15 0,06***
lnIR -1,29 -1,35 0,21 -4,33*** -4,35*** 0,22***
lnFDI -6,94*** -6,95*** 0,04 -13,34*** -17, 8 8*** 0,04***
lnGE -4,77*** -4,38*** 0,22*** -15,22*** -21,80*** 0,06***
lnTD -4,52*** -4,26*** 0,22 -9,18*** -13,91*** 0,07***
lnGDP - 0,81 0,68 0,33 -16,63*** -20,89*** 0,14***
*p value < 10%; ** p value <5%; *** p-value <1%
Source: Own processing
Another assumption that must be met is the co-integrity of variables. The bounder test is used
to determine the F-statistic value to evaluate this condition. The test findings indicate that the
null hypothesis, which suggests no long-term link between the variables, can be rejected in sup-
porting the presence of cointegration when the F-statistic value exceeds the upper bound criti-
cal value for the 10%, 5%, and 1% significance levels (refer to Table 3).
Table 3. F – statistic values for co-integration test
Critical Value Bounds for K = 7
F-statistics = 6,521
sign i f icance 1% sig nif icance 5% signif icance 10%
I(0) I(1) I(0) I(1) I(0) I(1)
2,96 4,26 2,32 3,50 2,03 3,13
Source: Own processing
The two remaining assumptions concern the absence of autocorrelation between variables and
the uniformity of the error term (absence of heteroscedasticity). The Breusch Godfrey LM test
and the Durbin-Watson test can be used to verify the absence of serial correlation, while the
Cameron-Trivedi decomposition test can be used to determine the absence of heteroscedastici-
ty. Table 4 shows that there is no autocorrelation between the variables and that the error term’s
variance in the regression model is constant.
Table 4. Autocorrelation test and Homoscedasticity test
Test s Va l ue p-value
Breusch Godfrey 0,222 0,6375
Durbin – Watson 2,00 ---------
White 61 0,4397
Skewness 5,06 0,9850
Kurtosis 1,41 0,2358
Source: Own processing
4. RESULTS AND DISCUSSIONS
After confirming the stationarity and cointegration, we can look for the existence of a long-
term relationship through the ARDL model with optimal lags defined through the AIC criteri-
on (1,0,1,1,2,0,0,2). Table 5 presents the empirical results of this research (Table 5).
The regression analysis shows that only remittances and GDP have a significant impact on the
fluctuation of the EURO/LEK exchange rate. An increase in remittances and GDP causes a
67
The Appreciation of the National Currency in Albania: Does Informality Matter?
small increase in the appreciation of the Lek currency. Other variables, such as inflation, inter-
est rate, government spending, foreign investments, and international trade, do not have a sig-
nificant effect on the exchange rate level.
Table 5. ARDL Long run approach
Variable Coefficient Std. Error t - statistic Prob.
lnINF 0,0340 0,026 1,30 0,200
lnREM -0,196 0,110 -1,77 0,083
lnIR -0,0520 0,036 -1,44 0,157
lnFDI -0,024 0,063 -0,38 0,703
lnGE -0,098 0,293 -0,34 0,739
lnTD 0,163 0,122 1,33 0,189
lnGDP -0,687 0,167 - 4,12 0,000
Constant 1,643 0,444 3,70 0,001
R-squared 0,9842
Adjusted R-squared 0,9794
F – statistics 204,57
Prob (F – statistic) 0,0000
Source: Own processing
The study’s results, which refer to other empirical studies, are unsurprising. As discussed in the
literature section, macroeconomic factors do not have a clear and unidirectional influence on
the fluctuation of the EURO/LEK exchange rate. However, it is questionable whether the pub-
lic statements of the Bank of Albania, which constantly assert that foreign trade, foreign invest-
ments, and the level of remittances have had a significant and large impact on the appreciation
of the lek, can be fully supported by the fact that the majority of macroeconomic and structur-
al factors do not explain the fluctuation of the exchange rate. The findings of this research align
with previous studies, which indicate that the euroization of the Albanian economy is not solely
due to the structural or macroeconomic factors of the Albanian economy (Kozmai, 2023; Gjo-
kutaj & Gjokutaj, 2023; Fortu zi, 2015).
The study suggests that in the context of a heavily euroized Albanian economy, the effective-
ness of monetary policy is limited, a view accepted and shared by the Bank of Albania. This
situation has a significant impact on the Central Bank’s objectives and outcomes. According to
economists, the euroization of Albania is influenced by non-structural and non-macroeconom-
ic factors. This study supports statistically this opinion accentuating the fact that the Albanian
economy is heavily reliant on the euro, and there are unclear legal and/or illegal monetary flows
that contribute to this growth.
5. CONCLUSION
Albania is the only Western Balkan country with a fully flexible exchange rate. This monetary
policy has advantages for a small economy, as demonstrated by economic theory. However,
the effectiveness of this policy appears to have diminished significantly. In large part, the LEK
has been replaced by the EURO in the Albanian market, which weakens the role of the Central
Bank in maintaining a flexible exchange rate regime.
This article analyses the exchange rate fluctuations during the period 2008q1 – 2023q3 and the
macroeconomic factors that may affect these fluctuations using the ARDL approach This study
concludes that, apart from remittances and GDP, macroeconomic factors, in general, do not
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8th International Scientific Conference EMAN 2024
Selected Papers
have a significant impact on the strong fluctuation of the exchange rate, and therefore the eu-
roization of the Albanian economy cannot be solely or mainly attributed to economic growth or
structural strengthening of the Albanian economy, as stated by Central Bank of Albania.
This study shows that due to economic dynamics, the strong trade relations with European Un-
ion countries, and the impossibility of controlling informality, it seems necessary to review the
flexible exchange rate regime. If Albania is not prepared to adopt the euro currency, it should
consider the monetary pegging of the national currency to the euro. All countries in the Western
Balkans, which share similar economic characteristics with Albania, are either formally or in-
formally pegged to the euro currency or have adopted it as their official currency. Such as mon-
etary pegging would create a stable economic environment, which is necessary for all econom-
ic actors to operate effectively.
Acknowledgment
This research was fully financed by the Catholic University Our Lady of Good Counsel, Tira-
na (Albania).
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Does the Customs Clearance Process Affect Economic Growth?
A Panel VAR Data Analysis*
Christos Katris1
Evangelos Daskalopoulos2
Aristeidis Mylonas3
Keywords:
Customs clearance process
effectiveness;
Panel VAR
Abstract: The scope of this paper is to investigate whether the Customs
clearance process can affect the economic growth in Greece. With the term
growth, we mean the GDP per capita and a more general concept as it is ex-
pressed in the Human Development Index which is addressed by the term
development. The considered variables are the “Logistics Performance In-
dex: Efficiency of the customs clearance process (1=low to 5=high)”, the
“Human Development Index”, the “GDP per capita growth rate” and oth-
er development and governance indicators from the World Bank. The re-
sults stem from the econometric design of the panel VAR approach where
the “Logistics performance index: Efficiency of customs clearance process
(1=low to 5=high)” is the considered dependent variable and the other var-
iables are the independent variables while the period is from 2000 to 2021
in our study.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
The traditional role of customs is collecting public revenue and simultaneously protecting pub-
lic health, the environment, cultural artifacts, etc. On the other hand, in today’s world of free
trade, it should also facilitate efficient cross-border movement of people and goods. A balance be-
tween the two needs to be struck. Vigilance by customs and regulatory authorities in many nations
has been motivated by the increasing risk to persons and the private and public sectors represented
by global commodities shipments (Hoffman et al., 2018). A key component of logistics and trade
facilitation is customs. As a result, research on trade facilitation and logistics contains the major-
ity of studies on the effects of the customs environment. The function of customs has undergone
substantial modification in the last fifty years in order to accommodate the growth of global trade.
Goods were transported in bulk via boxes or nets in a ship’s hold before containerization. The pro-
cess of unloading the cargo piece by piece took many days, allowing the customs officials ample
time to process the products and collect the duties. In addition to facilitating international trade,
transportation and logistics services are crucial to the expansion and improvement of the regional
economy. A deficient logistics infrastructure and operational procedures can be a major barrier to
global trade integration, therefore the caliber and effectiveness of logistics services can be impor-
tant for international trade (Devlin & Yee, 2005). Since each import and export are handled sepa-
rately during the transaction-by-transaction process of customs clearance, volume has a direct im-
pact on these processes. Customs administrations in the 27 European Member States examined
11.7 million tons of air cargo and 1.545 million tons of sea freight in 2007. 183 million customs
declarations were processed, or 5.5 declarations every second (Truel & Maganaris, 2015). Con-
versely, increased trade volume and economies of scale and scope in distribution and production
* Disclaimer: The views expressed in this publication are the sole responsibility of the authors and do not
necessarily reflect the views of the IAPR (Α.Α.Δ.Ε.).
1 Independent Authority for Public Revenue, Achaia Customs Region, Patras, Greece
2 Independent Authority for Public Revenue, Achaia Customs Region, Patras, Greece
3 Independent Authority for Public Revenue, Achaia Customs Region, Patras, Greece
Received: April 12, 2024
Accepted: August 20, 2024
Published: December 17, 2024
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8th International Scientific Conference EMAN 2024
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activities can be achieved through better trade-related logistics and a liberalized economic envi-
ronment. Investors require a friendly business environment to be willing to undertake risks (Siri-
opoulos et al., 2021). The decrease in asymmetric information would prompt certain companies to
adopt greater transparency policies (Daskalopoulos et al., 2016).
2. LITERATURE REVIEW
Sectoral linkages within the local economy are made possible through logistics services. Addi-
tionally, it establishes a link between the national and global economies. One of the goals of pro-
ducers is to safely and economically deliver their goods to consumers with the least amount of de-
lay possible. In order to satisfy the demand for goods and services for both domestic consump-
tion and international markets, a nation that adopts an open economy must engage in international
trade. When a nation can produce more goods and services than it needs domestically, it will en-
gage in exporting these goods and services to customers overseas. GDP is a crucial tool for help-
ing investors and policymakers make strategic decisions. The literature on international trade
flows emphasizes time and time again the influence of GDP, PPP, and logistics performance on
the volume of international trade. It has been stated that logistics is essential to trade facilitation,
which in turn promotes a country’s economic growth. GDP growth can be bolstered by increased
export activity and the productivity of goods and services. Logistics management, an internation-
al trade chain that includes organizing, carrying out, and managing the flow of goods and ser-
vices effectively and efficiently, including transportation, storage, distribution, regulatory mat-
ters, and information exchange between producers and consumers, is a major determinant of ex-
portation activities (Utami & Sitorus, 2015). A measure of the effectiveness of logistics manage-
ment, which aids in the inflow of goods and services, is logistics performance. A nations logis-
tics performance is measured by an indicator value known as the Logistics Performance Index
(LPI), which takes into account many factors, including the effectiveness of the customs agen-
cies’ operations (hereafter referred to as Customs Efficiency). The World Development Indicator’s
LPI values are presented as index scores ranging from 1 to 5, with a higher LPI value indicating
a better level of logistics performance in the nation. Some researchers have previously acknowl-
edged the importance of logistics performance to the economy. For example, Demilie and Mer-
on (2016) found that enhancing logistics performance can have a significant impact on econom-
ic development based on their analysis of panel data from countries in sub-Saharan Africa. Low-
GDP countries typically have ineffective logistics systems. This indicates that sustainable eco-
nomic growth can be determined by implementing efficient logistics systems by raising the val-
ue of LPI dimensions, such as the effectiveness of customs clearance. (Sharipbekova & Raimbek-
ov, 2018). The effectiveness and efficiency of the logistic system boosts the macroeconomic com-
petitiveness of the country and the microeconomic competitiveness of businesses (Sezer & Aba-
siz, 2017). Nevertheless, if we look at how the GDP and logistics performance dimensions of cus-
toms efficiency compare year over year, we can see that an increase in customs efficiency does
not always translate into an increase in GDP. Anderson and Van Wincoop (2004) investigated how
and to what degree the customs efficiency index (CEI) mediates the relationship between trade
costs (TC) and GDP. Trade costs are influenced by a variety of factors and can have a significant
impact on a nation’s trade and economic growth. A significant portion is made up of trade barri-
ers related to borders, transportation, and wholesale and retail distribution. Streamlining and fa-
cilitating customs procedures boost productivity and create an atmosphere that is more favorable
for commerce and economic growth (Saslavsky & Shepherd, 2014). Bensassi et al. (2015) empha-
sized the significance of logistics measures at the regional level and the positive impact that the
quantity, size, and quality of logistics facilities have on export flows. A few studies have looked
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Does the Customs Clearance Process Affect Economic Growth? A Panel VAR Data Analysis
at the impact of logistics performance on imports and exports across national borders using an in-
come-level approach, demonstrating that there are differences in overall LPIs between high-in-
come and low- and middle-income economies and that these differences have gotten a little worse
between low- and high-income economies since 2007 (Ga ni, 2017 ). Service time is a useful metric
for measuring the effectiveness of the Customs and Excise clearance process, which assesses the
ease and speed of customs service procedures for both import and export. In the case of the CIS,
logistics effectiveness influences a nation’s future international development in addition to its eco-
nomic growth (Sharipbekova & Raimbekov, 2018). Exports are significantly harmed by delays in
the customs clearance process, according to Martincus et al. (2013). Specifically, longer customs
delays result in slower export growth rates, which can naturally have a negative impact on GDP.
Apostolakis and Papadopoulos (2019) employed a panel VAR model in order to investigate the re-
lationship between financial stress, inflation and growth in nineteen advanced countries over the
period 1999-2016. Moreover, Mihci and Akkoyunlu-Wigley (2009) aimed to analyze the effects of
the Customs Union on technology-led growth in Turkey. Furthermore, Ped roni (2013) proposed a
structural approach to VAR analysis in panels and illustrated that the SVAR panel method could
be used to improve inference, not only for properties of the sample distribution but also for dynam-
ics of individual members of the panel that lack adequate data for a conventional time series SVAR
analysis. Boiwo et al. (2015) found that the EAC Customs Union has had a positive effect on trade
and economic growth in Kenya through a linear model approach. Many other papers are related to
customs themes. This work is according to our knowledge the first that attempts to study the im-
pact of the quality of the customs clearance process on economic growth and to the economic de-
velopment under a panel VAR framework.
The structure of this paper is the following: in section 2, the approach of panel VAR is de-
scribed, in section 3 our model is developed and in section 4, the conclusions are drawn.
3. THE PANEL VAR APPROACH
These models are widely used in the field of applied macroeconomics. The rationale behind
the use of these models is the capture of the dynamic interdependencies that are present in the
data using only a few restrictions. Shock identification can then be studied using impulse re-
sponse analyses. In VAR models, all variables are treated as endogenous and interdependent. In
the panel version, the structure is the same but a cross-sectional dimension is added to the rep-
resentation. Following Sigmund and Ferstl (2021), we consider an extended panel VAR model
that allows for p lags of m endogenous variables, k predetermined variables and n strictly exog-
enous variables. The representation of this model is the following:
(1)
Let yi,t Rm be an m × 1 vector of endogenous variables for the ith cross-sectional unit at time
t. Let yi,t-l Rm be an m × 1 vector of lagged endogenous variables. Let xi,t Rk be an k × 1 vec-
tor of predetermined variables that are potentially correlated with past errors. Let si,t Rn be an
n × 1 vector of strictly exogenous variables that neither depend on εt nor on εt-s for s=1,…,T. More-
over, the disturbances εit are independently and identically distributed (i.i.d.) for all i and t with
E[εit]=0 and Varit] =Σε. Σε is a positive semidefinite matrix. We assume that all unit roots of A
all inside the unit circle to assure covariance stationarity. Moreover, the cross-section i and the
time section t are defined as follows i=1,…, N and t=1,…,T. In this specification, we assume parameter
homogeneity for Al (m × m), B (m × k) and C (m × n) for all i.
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8th International Scientific Conference EMAN 2024
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3.1. The Data
The data are variables from the World Bank. The main variable we attempt to study is the
“Logistics performance index: Efficiency of customs clearance process (1=low to 5=high)”.
This variable is based on a World Bank survey and the scores are the averages among all the
respondents. Details of the survey methodology and index construction methodology can be
found in the Logistics Performance Index (LPI) Report (World Bank, n.d.). This work attempts
to study whether the aforementioned variable can affect the growth or the development of the
whole economy.
The variables we consider that reflect this condition are the following:
Firstly, the “Human Development Index” (HDI) which is published by the United Nations De-
velopment Programme (UNDP) and the data was found in the “Our World in Data” (OWID),
a non-profit organization which is a scientific online publication with the mission to publish
the “research and data to make progress against the world’s largest problems”. The data can be
found in the Human Development Index (HDI) (Herre & Arriagada, 2023).
Secondly, the “GDP per capita growth rate” is a World Bank development indicator and dis-
plays the annual percentage growth rate of GDP per capita based on constant local currency.
GDP per capita is gross domestic product divided by midyear population. GDP at purchaser’s
prices is the sum of gross value added by all resident producers in the economy plus any prod-
uct taxes and minus any subsidies not included in the value of the products. It is calculated with-
out making deductions for depreciation of fabricated assets or for the depletion and degradation
of natural resources.
An exogenous variable that may affect the relationship between the Customs efficiency varia-
ble and the economic development and growth variables are considered to be the “Trade (as %
of GDP)” which is also a development indicator from the World Bank and the World Bank gov-
ernance indicators which are: the “Control of Corruption: Estimate” which captures percep-
tions of the extent to which public power is exercised for private gain, including both petty and
grand forms of corruption, as well as “capture” of the state by elites and private interests. Esti-
mate gives the country’s score on the aggregate indicator, in units of standard normal distribu-
tion, i.e. ranging from approximately -2.5 to 2.5.
Furthermore, the “Government Effectiveness: Estimate” captures perceptions of the quality
of public services, the quality of the civil service and the degree of its independence from polit-
ical pressures, the quality of policy formulation and implementation, and the credibility of the
government’s commitment to such policies. Estimate gives the country’s score on the aggregate
indicator, in units of standard normal distribution, i.e. ranging from approximately -2.5 to 2.5.
Additionally, the “Political Stability and Absence of Violence/Terrorism: Estimate” meas-
ures perceptions of the likelihood of political instability and/or politically motivated violence,
including terrorism. Estimate gives the country’s score on the aggregate indicator, in units of
standard normal distribution, i.e. ranging from approximately -2.5 to 2.5.
Moreover, the “Rule of Law: Estimate” captures perceptions of the extent to which agents
have confidence in and abide by the rules of society and in particular the quality of contract
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Does the Customs Clearance Process Affect Economic Growth? A Panel VAR Data Analysis
enforcement, property rights, the police, and the courts, as well as the likelihood of crime and
violence. Estimate gives the country’s score on the aggregate indicator, in units of standard nor-
mal distribution, i.e. ranging from approximately -2.5 to 2.5.
Finally, the “Regulatory Quality: Estimate” captures perceptions of the ability of the govern-
ment to formulate and implement sound policies and regulations that permit and promote pri-
vate sector development. Estimate gives the country’s score on the aggregate indicator, in units
of standard normal distribution, i.e. ranging from approximately -2.5 to 2.5.
3.2. Selection of the Panel
The panel Data are selected through the consideration of 2 criteria. The first criterion is the con-
sideration of the Country Similarity Index for Greece, so in the panel are included the 10 most
similar countries with Greece, and the second criterion contains the countries which are top im-
porters and/or exporters of the country of Greece.
Country Similarity Index (Objective Lists, 2020): This index attempts to quantify how simi-
lar countries are to each other relative to other countries. The index is a statistically-based way
to measure this. The index weights equally five major aspects of countries: their demographics,
culture, politics, technology, and geography.
Finally, the panel includes Greece, China, Russia, Iraq, Germany, Italy, Turkey, Cyprus, Portu-
gal, Spain, Croatia, Montenegro, Bulgaria, Slovenia, Romania, and North Macedonia. The De-
pendent variable is the “Logistics performance index: Efficiency of the customs clearance pro-
cess (1=low to 5=high)” and the independent variables are the “Human Development Index”
(HDI) and the GDP per capita growth rate. Moreover, as variables that affect the Logistics per-
formance of the clearance process, are considered the “Control of Corruption: Estimate”, the
“Government Effectiveness: Estimate”, the “Political Stability and Absence of Violence/Terror-
ism: Estimate”, the “Rule of Law: Estimate”, the “Regulatory Quality: Estimate” and the “Trade
(as % of GDP)”. These variables are incorporated into our model as exogenous variables.
4. THE DEVELOPMENT OF THE MODEL
The scope here is to specify a suitable design for the data to study the impact of the Customs to
growth and/or development and vice-versa.
The considered model is the following:
(2)
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where yit=(y1,t,…,y N,t)’ is a vector of three variables in the model: Efficiency of Customs clear-
ance process, Human Development Index (HDI) and annual growth of GDP per capita. The var-
iables were extracted from the World Bank databases. The summary statistics of the input data,
spanning the period from the end of 2000 to 2021 are presented in Table 1.
Table 1. Descriptive Statistics of the Panel
Efficiency of Customs clearance process
Country Mean Median MIN MAX St. De v. Skewness Kurtosis
Test for
Normality
(Jarque-Bera)
Greece 2.9107 2.9570 2.3800 3.3608 0.2385 -0.8225 3.3423 2.5877 (0.274)
Germany 3.9889 3.9475 3.8700 4.1930 0.1173 0.4470 1.5671 2.6148 (0.271)
Cyprus 2.9216 2.8989 2.7700 3.1776 0.1470 0.3438 1.6477 2.1098 (0.348)
Turkey 2.9613 3.0000 2.5875 3.2327 0.1847 -0.5141 2.5537 1.1517 (0.562)
Bulgaria 2.6250 2.4950 2.4000 2.9700 0.1939 0.5813 1.6802 2.8359 (0.242)
Italy 3.3283 3.3439 3.1900 3.5409 0.1261 0.1899 1.6175 1.8844 (0.390)
China 3.1512 3.1825 2.9900 3.3715 0.14 4 6 0.0289 1.3740 2.4267 (0.297)
Russia 2.0838 2.0600 1.9400 2.4200 0.1486 0.6902 2.3601 2.1221 (0.346)
Iraq 1.9796 2.0394 1.7500 2.0700 0.1084 -0.6824 1.9691 2.6815 (0.262)
Portugal 3.2555 3.2450 3.1700 3.3732 0.0417 0.7472 4.7805 4.9531 (0.084)
Spain 3.3996 3.4175 3.1700 3.7505 0.2084 0.1596 1.5902 1.9152 (0.384)
Croatia 2.7095 2.7300 2.3600 3.1028 0.319 4 -0.0286 1.1577 3.1141 (0.211)
Montenegro 2.3348 2.1925 2.1700 2.8322 0.2137 0.8660 2.3253 3.16 68 (0.205)
Slovenia 2.9414 2.8050 2.5900 3.4200 0.2374 0.6042 2.1657 1.9764 (0.372)
Romania 2.6304 2.6000 2.3600 3.0000 0.1469 0.8743 3.7436 3.3097 (0.191)
North Macedonia 2.2207 2.2608 2.0000 2.5500 0.1876 -0.0612 1.5506 1.9393 (0.379)
Human Development Index
Country Mean Median MIN MAX St. De v. Skewness Kurtosis
Test for
Normality
(Jarque-Bera)
Greece 0.8626 0.8660 0.8100 0.8890 0.0223 -0.9195 2.9221 3.1055 (0.212)
Germany 0.9257 0.9285 0.8890 0.9480 0.0171 -0.5993 2.3370 1.72 (0.4232)
Cyprus 0.8560 0.8605 0.7970 0.8970 0.0293 -0.3754 2.3006 0.96523 (0.617)
Turkey 0.7592 0.7555 0.6700 0.8420 0.0625 0.0351 1.4229 2.2844 (0.319)
Bulgaria 0.7823 0.7920 0.7250 0.8100 0.0273 -0.7336 2.2361 2.5083 (0.285)
Italy 0.8766 0.8820 0.8410 0.8970 0.0151 -0.8885 2.9179 2.9007 (0.235)
China 0.6881 0.6955 0.5840 0.7680 0.0594 -0.2889 1.8094 1.6055 (0.448)
Russia 0.7960 0.8020 0.7320 0.8450 0.0346 -0.3821 1.9002 1.6442 (0.440)
Iraq 0.6416 0.6445 0.5790 0.6960 0.0388 -0.1087 1.4839 2.1504 (0.341)
Portugal 0.8312 0.8320 0.7910 0.8670 0.0251 -0.0654 1.6226 1.7549 (0.416)
Spain 0.8694 0.8700 0.8250 0.9080 0.0259 -0.1304 1. 8131 1.3538 (0.508)
Croatia 0.8215 0.8235 0.7590 0.8610 0.0304 -0.5274 2.2377 1.5526 (0.460)
Montenegro 0.7995 0.8095 0.7560 0.8370 0.0293 -0.4022 1.6347 2.3018 (0.316)
Slovenia 0.8865 0.8905 0.8210 0.9210 0.0274 -0.8007 2.8739 2.3655 (0.306)
Romania 0.7893 0.8075 0.7150 0.8320 0.0384 -0.8121 2.1031 3.1556 (0.206)
North Macedonia 0.7334 0.7395 0.6750 0.7840 0.0358 -0.2480 1.6857 1.8091 (0.405)
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Does the Customs Clearance Process Affect Economic Growth? A Panel VAR Data Analysis
GDP per capita growth (annual %)
Country Mean Median MIN MAX St. De v. Skewness Kurtosis
Test for
Normality
(Jarque-Bera)
Greece 0.0034 0.0122 -0.1002 0.0902 0.0486 -0.5966 2.7253 1.3744 (0.503)
Germany 0.0113 0.0117 -0.0545 0.0587 0.0246 - 0.7788 4.3396 3.8686 (0.144)
Cyprus 0.0136 0.0286 -0.0637 0.0609 0.0382 - 0.8161 2.3702 2.8054 (0.246)
Turkey 0.0369 0.0421 -0.0714 0.1051 0.0442 -0.8805 3.6216 3.1968 (0.202)
Bulgaria 0.0419 0.0443 -0.0338 0.0852 0.0337 - 0.7023 2.7482 1.8666 (0.393)
Italy 0.0011 0.0082 -0.0853 0.0758 0.0323 -0.6174 4.6997 4.0459 (0.132)
China 0.0809 0.0799 0.0200 0.1364 0.0243 -0.0039 3.9001 0.74264 (0.690)
Russia 0.0360 0.0434 -0.0783 0.1046 0.0438 -0.7516 3.3070 2.1577 (0.34)
Iraq 0.0163 0.0232 -0.3856 0.4903 0.1492 0.5597 7.8341 22.57 (<0.01)
Portugal 0.0065 0.0139 -0.0840 0.0522 0.0295 -1.3669 5.2203 11.37 (<0.01)
Spain 0.0068 0.0153 -0.1176 0.0541 0.0365 -1.8787 7.2503 29.501 (<0.01)
Croatia 0.0284 0.0399 -0.0818 0.179 9 0.0520 0.3723 5.3554 5.5938 (0.061)
Montenegro 0.0265 0.0331 -0.1521 0.1343 0.0549 -1.4386 6.7755 20.655 (<0.01)
Slovenia 0.0215 0.0309 -0.0838 0.0792 0.0370 -1.2959 4.5899 8.4744 (0.014)
Romania 0.0454 0.0477 -0.0473 0.1114 0.0436 -0.5734 2.7460 1.2647 (0.531)
North Macedonia 0.0248 0.0297 -0.0592 0.0630 0.0295 -1.3429 4.5493 8.8124 (0.012)
Source: Own research
Figure 1. Evolution over time for Customs Clearance Process Efficiency in Greece
Source: Own research
For the efficiency of the Customs clearance process, Germany, Italy, China, Portugal and Spain
display value over 3, while Greece is below this number. However, the evolution over time for
the country has its interest. In the last 3 years, the customs clearance process displayed an up-
ward trend but is below 3. Since 2015 the country has been above 3 in this index.
According to the annual growth of GDP per capita, we observe that China displays the greatest
growth and is the only country with no year of negative economic growth in terms of annual
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8th International Scientific Conference EMAN 2024
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growth of GDP per capita. This displays a constant increase in the people’s standard of living in
terms of money. The countries that follow are Romania, Bulgaria and Turkey, with the latter dis-
playing a clear difference between mean and median which shows no constant growth. Follow-
ing the Human Development Index (HDI) which takes into account the dimensions of health,
education and income Iraq has the lowest level which is expected. This country is followed by
China which displays very low HDI and these 2 countries are the only with HDI lower than
70%. The countries that follow are Turkey, Bulgaria and North Macedonia and they display (in
terms of mean and median) values under 80%. Normality cannot be rejected only for the Effi-
ciency of the Customs clearance process variable overall. To check the stationarity of the panel
data, we use the cross-sectionally augmented Im, Pesaran and Shin (IPS) test for unit roots in
panel models and variables found to be stationary.
4.1. Construction of the PVAR Model
The selection of lags is done via the BIC criterion and are considered models with 1-to-8-year
lags. The variables are exogenous (uncorrelated with the error idiosyncratic term for all peri-
ods). Additionally, in this work, we use the Generalized Method of Moments estimators, with
r forward orthogonal deviations transformation. The implementation of the model is realized
through the R package panelvar (Sigmund & Ferstl, 2021).
Table 2. Estimation of the PVAR model
Dependent variable Customs Variable HDI GDP per capita growth
Lag 1 Customs Variable 0.6453***
(0.1493)
0.0101
(0.0752)
0.0075
(0.1643)
Lag 1 HDI 0.1195
(0.1854)
-0.0005
(0.0243)
-0.0736
(0.1393)
Lag 1 GDP per capita growth -0.0615
(0.2031)
0.0582
(0.1235)
-0.1433
(0.1607 )
Trade (%.of.GDP) 0.0018
(0.0013)
0.0006
(0.0006)
0.0008
(0.0009)
Control of Corruption: Estimate -0.1149
(0.1388)
-0.0024
(0.0237)
0.1491
(0.2232)
Government Effectiveness: Estimate 0.2506**
(0.1234)
-0.0025
(0.0631)
0.0033
(0.1073)
Political Stability and Absence of
Violence/Terrorism: Estimate
0.0481
(0.2103)
-0.0164
(0.0420)
0.0178
(0.0951)
Rule of Law: Estimate -0.0351
(0.1573)
0.0099
(0.0325)
0.1243
(0.0906)
Regulatory Quality: Estimate -0.1568
(0.2232)
-0.0369**
(0.0184)
0.0233
(0.1693)
Note: No. of obs. = 320, No. of panels = 16, No. of Instruments: 1908. Robust standard errors in parentheses.
*** denotes significance at the 1% level. ** denotes significance at the 5% level. * denotes significance at the 10% level.
Source: Own research
The Sargan-Hansen-J-Test states that all the overidentifying restrictions are valid, thus the mod-
el is correctly specified and all eigenvalues of the matrix lie inside the unit circle, thus the mod-
el satisfies the stability condition. Some coefficients of the exogenous variables found to be sta-
tistically significant and we want to notice that only the “Regulatory Quality: Estimate” was
found to have a significant impact on the Customs variable.
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Does the Customs Clearance Process Affect Economic Growth? A Panel VAR Data Analysis
4.2. Granger Causality
Using the dependent variables of our model, the finding is that the “Efficiency of customs clear-
ance process” Granger-cause GDP per capita growth rate” (is the only significant relationship at
the 1% level and the only coefficient with the expected sign) and vice-versa while “Human Devel-
opment Index” (HDI) Granger-cause “Efficiency of customs clearance process”. The panel Grang-
er (non-)causality test is a combination of Granger tests (Granger, 1969) performed per individual.
The test is developed by Dumitrescu and Hurlin (2012), and a shorter exposition is given by Lopez
and Weber (2017). The Ztilde test is used and 2 lags are included in the auxiliary regressions. The
implementation of the test is performed using the R package plm (Croissant & Millo, 2008).
Table 3. Granger causality between variables
Variable Eff._customs_cl. pr. HDI GDP per capita gr. rate
Eff._customs_cl. pr. -0.73818 12.382***
HDI -1.7422*
GDP per capita gr. rate -1.7648*
Note: We have a balanced panel here. The dependent variable is on the x-axis and the independent variable on
the y-axis. The ZTilde statistics are reported. *** denotes significance at the 1% level. ** denotes significance
at the 5% level. * denotes significance at the 10% level.
Source: Own research
4.3. Panel Impulse Response Analysis
The impulse response analysis in a vector autoregression context is concerned with the re-
sponse of one (endogenous) variable to an impulse (shock (exogenous impulse)) in another (en-
dogenous) variable. In this work, is used the orthogonal impulse-response. Moreover, we used
the customs variable and is measured the impact of this variable on economic growth (GDP per
capita growth rate) and economic development (Human Development Index). Furthermore, is
measured the impact of these variables on the customs variable. Figure 2 displays these graphs.
Figure 2. Impulse Response Analysis of variables
Source: Own research
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8th International Scientific Conference EMAN 2024
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Based on Figure 2, the Customs variable is expected to affect economic growth (GDP per capita
growth rate) negatively by 0.9% after 1 year (its rational because money is needed in order to perform
a shock in the infrastructure for example) and all the other periods positively (are expected the gains
from this “shock”). Furthermore, the economic development (Human Development Index) variable
is expected to affect the Customs variable positively 1.07% after 5 years and 1.27% after 10 years.
5. SUMMARY AND FUTURE RESEARCH DIRECTIONS
In this work, we attempted to link customs efficiency with economic growth and with the more
general concept of development. For this purpose, we considered the variable “Logistics perfor-
mance index: Efficiency of customs clearance process (1=low to 5=high)” to represent the cus-
toms efficiency, the variable “GDP per capita growth rate” to represent the economic growth and
the variable “Human Development Index” (HDI) to represent economic development. The vehicle
to implement this linkage is the panel VAR model. Next, we defined our panel through the con-
sideration of 2 criteria (similarity index and/or top importers and/or exporters with the country of
Greece) and the model is estimated through the Generalized Method of Moments (GMM) estima-
tor. A Granger causality and an impulse-response analysis close the analysis. One future step is to
construct a panel with all countries that reflect the complete set of interactions. Another future re-
search direction could be the detection and the use of more targeted exogenous variables that are
uncorrelated with the error idiosyncratic term for all periods and the use of more targeted prede-
termined variables that are uncorrelated with the contemporaneous and all future idiosyncratic er-
rors but might be correlated with past errors. A third research direction could be the use of alter-
native models such as a structural VAR (SVAR) model. Finally, a future research plan is the adap-
tation of our model under the umbrella of other models such as the Solow Growth Model, and the
checking of the ability of our model for forecasting tasks. It is noted that the study has the limita-
tion of the selection of the panel according to some characteristics.
6. CONCLUSION
The main conclusion is that the Customs variable Granger-cause economic growth (GDP per
capita growth rate), thus an increase in the efficiency of Customs can affect positively the GDP
per capita growth rate. Economic policy should take this fact into account and the increased
quality of the Customs clearance process can lead to an increased GDP growth rate. Of course,
economic growth and more general economic development can lead to an increased quality of
the Customs clearance process. Finally, if an economic shock for customs takes place, is expect-
ed to affect economic growth (GDP per capita growth rate) positively after 1-year.
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8th International Scientific Conference EMAN 2024 – Selected Papers
https://doi.org/10.31410/EMAN.S.P.2024.83
https://orcid.org/0000-0002-6134-9068
https://orcid.org/0000-0003-1770-3952
https://orcid.org/0009-0006-1408-7866
Investment in Renewable Energy Sources:
Economic Profitability Factors in Croatia
Vlasta Roška1
Zvonko Merkaš2
Bartol Pavlović3
Keywords:
Green investment;
Renewable energy sources;
Photovoltaic systems;
Sustainable economy
Abstract: Green projects have become essential in contemporary econom-
ic conditions due to an increasing emphasis on environmental preserva-
tion and sustainable development. including investing in renewable ener-
gy sources. The main aim of this study is to explore the factors influencing
the economic viability of investing in photovoltaic systems, including initial
investments, return on investment, access to financing, infrastructure avail-
ability, maintenance costs, system reliability, price competitiveness of out-
put, and the legislative framework in Croatia. The study addresses the ex-
tent to which some of these factors influence the decision to invest in re-
newable energy sources using photovoltaic systems. The research was con-
ducted on 103 respondents who are users of photovoltaic systems. The first
hypothesis, that the decision to invest in renewable energy sources by in-
vesting in photovoltaic power plants is influenced not only by subsidies but
also by investment returns, increased property value, increased energy in-
dependence, and long-term protection against rising electricity prices is ac-
cepted. The second hypothesis was not confirmed because legislative and
other constraints do not affect investment decisions alongside an excellent
financial investment structure.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
Socially ambitious energy-climate goals, technological progress, and dynamic development
demand accelerated development and implementation of new technological solutions in re-
newable energy sources. Due to their crucial role in achieving sustainable development or en-
ergy-climate goals, investment opportunities analysis ranges from investments in photovoltaic
power plants to producing and using green hydrogen. In order to achieve ambitious energy-cli-
mate goals and intensify investments in renewable energy sources, it is necessary to explore the
factors influencing the economic viability of investing in renewable energy sources in Croatia.
Subsidies and new technologies offer entrepreneurs a real opportunity to reverse stagnant con-
ditions. The decision to invest in photovoltaic systems or other forms of renewable energy sourc-
es depends on various factors that may vary depending on the context, including the situation
in Croatia.
Relevant studies exploring the factors influencing entrepreneurial decision-making regarding
investment in renewable energy sources, one of the most frequently mentioned reasons for in-
vesting is undoubtedly the return on investment. For instance. Aziz and Jahan (2023) investigat-
ed the impact of development mechanisms on investments in renewable energy sources in de-
veloping countries. Based on data from 86 developing countries, the study revealed that regu-
latory support for renewable energy and various types of public investments play a significant
1 Libertas International University, Trg J. F. Kennedy 6b, 10 000 Zagreb, Croatia
2 Libertas International University, Trg J. F. Kennedy 6b, 10 000 Zagreb, Croatia
3 Libertas International University, Trg J. F. Kennedy 6b, 10 000 Zagreb, Croatia
Received: March 27, 2024
Accepted: June 17, 2024
Published: December 17, 2024
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8th International Scientific Conference EMAN 2024
Selected Papers
role. The results aimed to provide policymakers with more specific guidance on the need for
public investments supporting investments in renewable energy sources. Liu et al. (2023) found
that investment in green energy with financial incentives and targeted environmental policies
promotes the long-term transition to sustainable energy. Their research results indicate that the
interaction between financial incentives and environmental regulations has a more substantial
impact than their individual effects. Effective environmental regulations guide the flow of fi-
nancial resources towards the transition to renewable energy. Policymakers should formulate in-
tegrated policies to strengthen environmental regulations and develop the financial sector, re-
ducing financial barriers and introducing new green financial products.
Increasing investments in sustainable energy are influenced by efficient production technolo-
gies, regional differences in social acceptance, land availability for energy infrastructure, glob-
al production conditions, and reduced fossil fuel sector investments (Schmidt et al., 2019).
Social acceptance (Segreto et al., 2020) has proven to be a significant obstacle in implementing
renewable energy systems. While general acceptance of renewable energy sources is high, lo-
cal acceptance poses a barrier to developing renewable energy projects. A qualitative analysis
of 25 case studies concludes that understanding the impact of social acceptance enables the cre-
ation of strategies that promote the development of investments in renewable energy by mitigat-
ing public opposition. In a study related to investments. Kasumović and Altumbabić (2020) con-
clude that by identifying relevant factors of industrial competitiveness. industrial policy will fo-
cus on them, thus avoiding the wastage of scarce resources and facilitating the achievement of
industrial policy goals. Meanwhile, Serpe et al. (2022) argue that innovation is one of the main
factors leading to increased competitiveness of investments through the improvement of prod-
ucts, processes, organisation, and marketing, thereby enabling an increase in market share.
The main goal of this paper is to explore the extent to which factors influence the investment
process in renewable energy sources. Investment factors in photovoltaic systems and their sig-
nificance in achieving the set energy-climate goals are often interconnected and complex and
may vary depending on specific conditions and circumstances. Therefore, the final decision to
invest in photovoltaic systems in Croatia depends on analyzing all relevant factors.
2. ECONOMIC POTENTIAL OF INVESTING IN RENEWABLE ENERGY
The global economy has failed to address the challenges of increasing climate change risks
(Đuk& Mahmutefendić, 2021). Managing these risks requires long-term solutions, and the
increased business uncertainty demands constant adaptation. In the coming decades. socie-
ty will need to focus more on systematic macro-risk management, utilising project econom-
ics knowledge and skills to achieve sustainable business practices. Organisations must adopt a
purpose-driven approach in a sustainable economy, a prerequisite for achieving goals in an ev-
er-evolving business landscape.
Hariadi et al. (2023) explore whether investment in residential solar photovoltaic (PV) systems
can be increased through government policies, encouraging residents to invest in solar PV sys-
tems. The study examines the impact of PV system penetration on the distribution grid. It iden-
tifies the penetration level that complies with current regulations. It determines whether the in-
vestment policy in PV systems for these customers can be without disrupting the distribution
grid’s operation.
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Investment in Renewable Energy Sources: Economic Profitability Factors in Croatia
Moon et al. (2023) determine priority factors through an analytical hierarchy process based on
a survey of energy experts. The study highlights the importance of active policy implementa-
tion and consistency for renewable energy market development. It emphasizes the need for im-
proved grid infrastructure and system integration measures to support solar energy develop-
ment. The involvement of various stakeholders’ interests during policy-making can support sta-
ble market growth.
Solar energy. presented as a significant alternative to conventional energy sources (Fernández
Rodríguez & Pardo, 2023) faces a significant obstacle in its more comprehensive application due
to limited energy storage capabilities. Various factors affect the economic viability of invest-
ing in PV systems. One of them includes how solar radiation impacts PV panel output (Gol &
Ščasný, 2023). The study investigates whether an automatic single-axis solar tracking system is
economically optimal. Research innovations aim to utilize flexible solar panels on curved and
unconventional surfaces (Esmaeili Shayan et al., 2022).
Zhang et al. (2023) analyze the economic feasibility of investing in PV systems using net present
value, dynamic payback period, and internal rate of return. They compare green energy trading
with overall carbon power trading and conduct sensitivity analysis. The study concludes that in-
vesting in China is profitable. and distributed PV production is essential for addressing climate
change and promoting rural revitalization.
Unlike conventional energy systems. PV power plants do not require fuel consumption or hu-
man presence. Annual maintenance costs for PV power plants (Jäger-Waldau, 2014) are approx-
imately 1.5% to 2% of total investment costs annually.
The Levelized Cost of Electricity (LCOE) is an economic measure to assess electricity produc-
tion costs from a specific source. It represents the price at which electricity must be produced
from a particular source to cover all project costs over its lifetime. LCOE is considered a uni-
versal parameter defining each technology’s overall competitiveness (De Bastiani et al., 2023)
crucial for decision-making on project initiation. It can be calculated for different time horizons
but may vary depending on location, size, and technology.
From the research above. numerous interrelated and complex factors affect the economic viabil-
ity of investing in PV systems. In this study, two hypotheses are set. The first hypothesis states
that the decision to invest in renewable energy sources by investing in PV power plants depends
on the financing structure, through various financial and non-financial indicators such as finan-
cial incentives/subsidies reducing initial investment costs, return on investment within a rea-
sonable timeframe, increased property value with solar panel installation, reduced dependency
on traditional energy sources, and increased energy independence, long-term protection against
rising electricity prices. The second hypothesis states that legislative and other constraints and
an excellent financial investment structure influence investment decisions.
3. METHODOLOGY
The study’s main objective is to explore critical factors influencing the decision to invest in re-
newable energy, using PV systems as an example, and their significance in achieving set en-
ergy-climate goals. The study investigates factors affecting the economic viability of invest-
ing in PV systems, including initial investments, return on investment, access to financing,
86
8th International Scientific Conference EMAN 2024
Selected Papers
infrastructure availability, maintenance costs, system reliability, price competitiveness of out-
put, and legislative framework in Croatia. The methodology employed a questionnaire survey
for primary data collection and analysis. The research was conducted from October 15th to No-
vember 1st. 2023.
Respondents used a five-point Likert scale ranging from 1 - do not agree at all to 5 - always
agree to answer specific questions. The non-parametric Kruskal-Wallis H Test was used to test
the hypotheses in the SPSS program.
The total number of respondents is 103, including 99 individuals and four legal entities. Most re-
spondents (92%) use grid-connected PV systems, while the remaining 8% use off-grid systems.
Results indicate that 69% of respondents’ PV systems are in Continental Croatia, 9% in the Is-
tria and Northern Croatian Coast, and 18% in the Southern Croatian Coast. In comparison, 4%
are across Croatia.
Most respondents (54%) have been using PV systems for 0 to 2 years, 35% for 3 to 10 years, 7%
for more than 10 years, and 4% are installing PV systems.
The main research variables (Table 1) necessary for investment decision-making include finan-
cial incentives that reduce initial investment costs, reasonable return on investment, increased
real estate value with the installation of solar panels, reduced dependence on traditional ener-
gy sources and increased energy independence, long-term protection against rising electricity
prices, and financial structures of investment. The variable Reducing dependence on traditional
energy sources and increasing energy independence received the highest average rating of 3.76.
Table 1. Descriptive Statistics
Investing elements NMean S t d . Dev. Min. Max Percentiles
25th 50th (Med ian) 75th
Financial incentives that reduce
initial investment costs 103 1.79 1.185 1 5 1.00 1.00 2.00
Return on investment in a
reasonable period 103 1.92 1.289 1 5 1.00 1.00 3.00
Increased real estate value with
the installation of solar panels 103 1.67 1.175 1 5 1.00 1.00 2.00
Reducing dependence on
traditional energy sources and
increasing energy independence
103 3.76 1.133 1 5 3.00 4.00 5.00
Long-term protection against
rising electricity prices 103 3.56 1.218 1 5 3.00 4.00 5.00
Financial structures of investment 103 1.72 .785 1 4 1.00 2.00 2.00
Source: Own calculations
4. RESULTS OF RESEARCH AND DISCUSSION
Green projects involve producing or developing products, technologies, or supply chain com-
ponents primarily for renewable energy systems. The EU funds a variety of projects and pro-
grams. The priorities of the Cohesion Fund include the Ministry of Economy (European Par-
liament, 2021), promoting the production and distribution of energy derived from renewable
sources and supporting energy efficiency in all sectors. In 2021, approximately 3.500 GWh of
87
Investment in Renewable Energy Sources: Economic Profitability Factors in Croatia
electricity was generated from renewable sources, accounting for 23.1% of total production,
excluding large hydroelectric plants (Ministry of Economy, 2022). An investigation of 103 re-
spondents gave factors influencing decision-making in investing in Croatia’s photovoltaic (PV)
power plants. Cronbach’s alpha was calculated for each variable to test the scales reliability. Ac-
cording to the general rule of thumb, a result above 0.7 is considered good. Forty-seven per cent
(47%) of respondents financed the investment with their funds, while 53% utilised some form
of state incentives. Of these, 37% received 20% financial support for PV installation, 15% re-
ceived 40%, and only 2% received 60% non-refundable funds (Graph 1).
Graph 1. Financial structure of investment
Source: Own research
Results of the Kruskal-Wallis H test (Table 2) indicate a significance level of 0.01 for the var-
iables financial incentives that reduce initial investment costs (sig = 0.000) and increased real
estate value with the installation of solar panels (sig = 0.011). Results of the Kruskal-Wallis
H test indicate a significance level of 0.05 for the variables: and long-term protection against
rising electricity prices (sig = 0.025), reducing dependence on traditional energy sources and
increasing energy independence (sig = 0.043) and return on investment in a reasonable peri-
od (sig = 0.053).
Table 2. Kruskal Wallis Test of the Investment Decision
Chi-Square Df Asymp. Sig.
Financial incentives that reduce initial investment costs 19.4 87 3.000
Return on investment in a reasonable period 7. 6 67 3.053
Increased real estate value with the installation of solar panels 11.103 3.011
Reducing dependence on traditional energy sources and
increasing energy independence 8.146 3.043
Long-term protection against rising electricity prices 9.3 61 3.025
a. Kruskal Wallis Test
b. Grouping Variable: Financial structures of investment
Source: Own calculations
According to the Kruskal-Wallis H test, the alternative hypothesis is accepted. According to the
results of the analysis, Hypothesis One: The decision to invest in renewable energy by investing
in photovoltaic power plants depends on the structure of funding sources through various finan-
cial and non-financial indicators such as financial incentives/subsidies that reduce initial invest-
ment costs, return on investment in a reasonable period, increased real estate value with the in-
stallation of solar panels, reducing dependence on traditional energy sources and increasing en-
ergy independence, long-term protection against rising electricity prices, is accepted.
88
8th International Scientific Conference EMAN 2024
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Increasing energy independence is directly related to protection against long-term price in-
creases. The results show that 80% of respondents are satisfied between 75% and 100% of their
energy needs using photovoltaic power plants, while 9% are satisfied between 50% and 75%.
Only 11% of respondents produce more electricity than they need. i.e., for sale.
The questionnaire investigated how much users’ electricity bills decreased after the installation
of photovoltaic power plants (solar systems). Overall, for the entire territory of the Republic of
Croatia, 96% of users of photovoltaic power plants achieve significant financial savings by re-
ducing their bills by more than 50%, while 4% report reductions ranging from 25% to 50%.
These results confirm the effectiveness of photovoltaic power plants in providing financial ben-
efits for electricity bills in the Republic of Croatia.
The price of electricity is a factor that directly affects the economic viability of investing in photo-
voltaic power plants. It determines how much electricity costs respondents can save. The higher the
price of electricity, the more profitable the investment. The payback period is an indicator that de-
notes the time required to recoup the initial investment costs in a specific project or investment. The
average lifespan of investments in photovoltaic power plants is 25 years. The payback period, as the
ratio of profit to invested capital, is calculated in this case as the ratio of the annual fee for the sup-
plied electricity delivered to the distribution network (the result of the multiplication of the produced
electricity and the price of electricity (euro/kWh)) and the annual fee for the supplied electricity.
Table 3. Limitations of investing in solar panels
Test Statistics. b
Chi-Square Df Asymp. Sig.
Preparation of Documentation 13.292 3.004
Obtaining Permits 2.652 3.448
Maintenance and Repair of Panels 9.935 3. 019
Initial Capital 1.158 3.763
Installation on the Roof 5.193 3.15 8
a. Kruskal Wallis Test
b. Grouping Variable: Financial structures of investment
Source: Own calculations
From Table 3, it is evident that the results of the Kruskal-Wallis H test indicate a significance
level of 0.01 for the variable preparation of documentation, which is statistically significant
(p=0.004), and a significance level of 0.5 for the variable maintenance and repair of panels,
which is also statistically significant (p=0.019). The remaining variables are not statistically
significant. Therefore. Hypothesis Two: Legislative and other constraints influence investment
decisions with an excellent financial investment structure is not accepted. Based on the above
data, the constraints are not significant for decision-makers.
The economic evaluation of a project is the process of assessing the economic benefits and costs.
As the world increasingly turns to renewable energy sources to reduce greenhouse gas emissions
and ensure a sustainable energy future, understanding the financial aspects of solar systems be-
comes indispensable. Due to the promotion of technological development and the reduction of in-
vestment costs (in the case of solar power plants, fixed costs are practically the only operating
costs, as the cost of the energy source is approximately zero), there has been an exponential in-
crease in the penetration of renewable sources in the electricity sector (Mat, 1995). Evaluating
the economic potential of photovoltaic power plants is crucial in planning solar energy projects.
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Investment in Renewable Energy Sources: Economic Profitability Factors in Croatia
The majority of respondents, 77.7%. expect a return on their investment within 6 to 10 years,
12.6% within five years, and 9.7% in more than ten years. Croatian residents are culturally in-
clined towards property ownership. Therefore, respondents expect installing solar panels will
also increase property value.
5. GUIDELINES FOR FURTHER RESEARCH
Future research needs to expand to the economic sector. To support the transition to a low-car-
bon economy in all sectors by promoting renewable energy production and distribution (Eu-
ropean Parliament, 2021). The economic sector, both private and public, is the primary driver
of development in any country. Given the reporting requirements for sustainability (European
Commission, 2022) and the new EU sustainability standards (European Commission, 2023). it
is necessary to investigate further the profitability of investments, subsidies, and barriers that
arise for entrepreneurs in more efficient management of renewable energy use.
6. CONCLUSION
The European Green Deal (European Commission, 2019) is a basis for the green transition. It aims
for climate neutrality by 2050, strengthening the economy with green technology, creating a sustain-
able industry, and reducing pollution. In an ever-changing environment, changes happen while con-
stantly seeking opportunities and possibilities for sustainability, and socially, and environmentally
efficient management of global resources to manage risks and control adverse outcomes, primarily
economically.
The results of empirical research demonstrate the relationship between individual factors influenc-
ing the decision to invest in photovoltaic power plants. The empirical research analyses proposed fac-
tors: the structure of the initial investment, return on investment, availability of infrastructure, main-
tenance costs, system reliability, price competitiveness of outputs, and legislative framework in Cro-
atia. The research results highlight that the potential for significant long-term savings on energy bills
proved to be the most influential factor. The highest percentage of respondents rated the highest score
of 5. 69% of respondents gave an extremely high rating of 5 for the financial viability of photovoltaic
systems, while 29% rated it with a score of 4. Green finance promotes transparency and accountabil-
ity regarding financial activities’ environmental and social impacts. Only through continuous align-
ment with advanced practices can the economic benefits of renewable energy be maximized.
This research can benefit all individuals and legal entities in making investment decisions in photo-
voltaic power plants, as well as government services in overcoming constraints in project implemen-
tation. Solar energy is one of the critical resources in diversifying Croatia’s energy portfolio. Contin-
ued solar energy investment provides a foundation for sustainable and energy-efficient economic de-
velopment. Although the Republic of Croatia has recognized the potential of solar energy in reducing
dependence on traditional energy sources, there is a need for improvement and increased efficiency
of the administrative system for faster and easier implementation of green energy projects. Increas-
ing the capacity of solar power plants encourages the growth of green jobs, contributing to reducing
greenhouse gas emissions. Croatia aims to increase renewable energy consumption through subsi-
dies and co-financing programs, thereby creating its energy independence. Considering the natural
potential for exploiting various forms of energy such as wind energy, hydroelectric power plants, bi-
omass energy, and solar energy. Croatia needs an efficient and modern energy system that promotes
innovation and utilizes modern infrastructure solutions.
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8th International Scientific Conference EMAN 2024
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8th International Scientific Conference EMAN 2024 – Selected Papers
https://doi.org/10.31410/EMAN.S.P.2024.93
https://orcid.org/0000-0001-8282-6604
https://orcid.org/0000-0002-6138-3098
https://orcid.org/0000-0002-7899-0134
https://orcid.org/0000-0002-1781-7036
https://orcid.org/0000-0002-4256-9479
Portfolio Diversification in a New Era of Financial Markets
Rosa Galvão1
Rui Dias2
Cristina Palma3
Paulo Alexandre4
Sidalina Gonçalves5
Keywords:
Artificial intelligence;
Fintech;
Portfolio rebalancing
Abstract: The main purpose of this study is to understand the movements
between Fintech and AI stock indices, namely the Global Fintech, Artificial
Intelligence & BigData Index (IAIQ), Blockchain Index (ILEGR), Disruptive
Technology Index (IDTEC), in order to understand whether they behave as
diversifying assets for India’s main stock index (Nifty 50). The results show
no evidence that the Fintech and Artificial Intelligence (AI) stock indices, as
well as other related indices such as Blockchain and Disruptive Technology,
behave as diversifying assets concerning India’s main stock index, the Nifty
50, during the period from January 2020 to January 2024. In conclusion, in-
vestors should adopt a prudent approach when considering including these
assets in their portfolios and seek effective diversification through a variety
of assets and strategies.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
The rise of fintech companies is driving a significant transformation in the banking ecosys-
tem, inducing notable impacts on competitive dynamics, innovation, the expansion of fi-
nancial inclusion and the promotion of sustainable development. Fintechs employ technology to
provide a diverse range of financial services, including payment transactions to lending, invest-
ment and insurance solutions (Mumthas, 2022; Siska, 2022).
The COVID-19 pandemic has catalysed the accelerated adoption of digital technologies within
the banking sector, giving FinTechs substantial advantages. At the same time, traditional banks,
reacting to the intensification of competition from fintechs, are investing in innovation and sus-
tainability strategies in order to safeguard their position in the market and meet growing cus-
tomer demands for agile financial services that adapt to changing technologies (Le et al., 2021).
India is an emerging market for Fintech, fuelled by a vast population of almost 1.3 billion. A
significant proportion of this population is unbanked or underbanked, which places India as a
globally attractive scenario for developing and adopting financial technologies. Fintech compa-
nies are acknowledged as catalysts for change and bearers of innovative disruptions that have
the potential to redefine established financial industry paradigms. Over the last five years, the
fintech sector in India has experienced exponential growth, and the outlook is for even greater
expansion in the immediate future. This growth is driven by the convergence of factors such as
growing internet penetration, increased smartphone adoption and the demand for accessible and
convenient financial solutions (Bhatnagar et al., 2022; Mumthas, 2022; Yad av, 20 23).
1 Polytechnic Institute of Setúbal, School of Business and Administration, Setúbal, Portugal
2 ISG - Business & Economics School, CIGEST, Lisbon, Portugal; ESCAD – Polytechnic Institute of Luso-
phony, Lisbon, Portugal
3 Polytechnic Institute of Setúbal, School of Business and Administration, Setúbal, Portugal
4 Polytechnic Institute of Setúbal, School of Business and Administration, Setúbal, Portugal
5 Polytechnic Institute of Setúbal, School of Business and Administration, Setúbal, Portugal
Received: April 25, 2024
Accepted: September 26, 2024
Published: December 17, 2024
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8th International Scientific Conference EMAN 2024
Selected Papers
The study’s purpose is to analyse the combined movements between the Fintech and Artificial Intel-
ligence (AI) stock indices, specifically the Global Fintech, Artificial Intelligence & BigData Index
(IAIQ), Blockchain Index (ILEGR) and Disruptive Technology Index (IDTEC), to determine wheth-
er they have the characteristics of diversifying assets against India’s main stock index, the Nifty 50.
This research makes a significant contribution to the existing body of academic literature. This
study examines the feasibility of Fintech and AI stock indices acting as diversification mecha-
nisms in periods of uncertainty in the global economy. It is a crucial question for investors and
portfolio managers looking to mitigate the risks associated with their investment portfolios.
Currently, the literature on the impact of Fintech on capital markets is relatively limited. This
study helps to fill this gap by comprehensively analysing the interrelationships between Fintech
stock indices and India’s main stock index. From a practical point of view, understanding the in-
terconnection between Fintech and capital markets is crucial for sustainable economic develop-
ment. This study offers important insights to help policymakers and market participants make
more informed decisions about fostering financial innovation and promoting economic growth.
This paper is divided into Section 2 for the literature review, and Section 3 provides the data and
methodology. The results are discussed in Section 4. Section 5 provides the conclusion.
2. LITERATURE REVIEW
Fintechs ubiquitously dominate the contemporary financial fabric, characterised by their effec-
tive integration with technological advances in digitalisation, the internet, blockchain technolo-
gy and artificial intelligence tools. This phenomenon has led to a significant transformation in
the financial industry, with the introduction of innovative and sophisticated technological pro-
cesses, which aim to provide a wider range of financial products and services at an affordable
cost, thus democratising access to these resources and making it possible for economic agents
to make broader and more informed decisions (Alaassar et al., 2023; Li et al., 2022).
Alshater et al. (2024), Zhou and Li (2022), and Wang et al. (2023) analysed the dynamic relation-
ship between fintechs and traditional financial institutions. Zhou and Li (2022) show chang-
ing correlations between fintechs and the real estate sector, covering both their development
and operations. However, the dynamic connection between fintechs and the traditional finan-
cial sector has decreased since the outbreak of the 2020 pandemic. On the other hand, Alshater
et al.s (2024) study highlights the considerable levels of Fintech connectivity in the Asia-Pacif-
ic region, including Japan.
Furthermore, the short-term impacts between regional Fintech indices are substantially more pro-
nounced than long-term relationships. Wang et al. (2023) examined the interrelationship of Fin-
tech with various thematic indices. The authors identified an overall correlation between these in-
dices, highlighting that the MSCI USA benchmark index has the widest range of interactions with
emerging industries but does not significantly correlate with other stock market benchmarks.
In a complementary way, the study performed by Ha (2023) investigated the interrelationships
between the ETF indices ARK Fintech Innovation (ARKF), the ETF Global X Fintech (FINX)
and sustainable environmental assets. The author identified significant movements between
fintech indices and green bonds, calling into question the portfolio diversification hypothesis.
Moreover, Sharma et al. (2023) analysed the resilience of different asset classes during the pre
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Portfolio Diversification in a New Era of Financial Markets
and post-COVID-19 outbreak periods. The results revealed that Fintech-based assets proved
to be the most resilient class, followed by artificial intelligence (AI) funds and, finally, green
funds. In addition, the authors emphasised that AI funds and green assets exhibited character-
istics of diversifying assets in the long term. In contrast, Fintech-based assets manifested diver-
sification properties in both the short and long term, suggesting their usefulness as hedge and
refuge assets in times of uncertainty in the global economic scenario.
3. MATERIALS AND METHODS
3.1. Data
The indices used in the study are the price indices of Fintech-related indices, such as the Global
Fintech, Artificial Intelligence & BigData Index (IAIQ), Blockchain Index (ILEGR), Disruptive
Technology Index (IDTEC) and the Indian stock market (Nifty 50), for the period from 1 Jan-
uary 2020, to 31 January 2024, and were obtained from the Thomson Reuters Eikon database.
3.2. Methodology
This research began with the characterisation of the sample, using the main descriptive statis-
tics and the Jarque and Bera (1980) adherence test, which proposes the normality of the data. In
the second stage, the stationarity of the time series was validated using the panel unit root tests
of Breitung (2000), Levin et al. (2002), and Im et al. (2003). The Dickey and Fuller (1981), and
Phillips and Perron (1988) tests with Fisher’s transformation were estimated to validate the re-
sults and the quantile graphs. The VAR Granger Causality or Block Exogenety Wald Test mod-
el, which uses the Wald statistic, was estimated to assess whether the independent (or exoge-
nous) variables contain information that helps explain the behaviour of the dependent variable
and answer the research question.
4. R ESULTS
Figure 1 illustrates the trajectory of the returns of the Artificial Intelligence & Big Data Index
(IAIQ), Blockchain Index (ILEGR), Disruptive Technology Index (IDTEC) and the benchmark
Indian stock market index (Nifty 50) from January 2020 to 31 January 2024.
An analysis of these indices clearly and indisputably reveals the occurrence of significant struc-
tural disturbances in the markets in question. These disruptions, particularly marked in the first
few months of 2020, coincide with the emergence of the first wave of the COVID-19 pandem-
ic. In addition, 2022 saw notable fluctuations in the time series, indicative of further structural
disruptions. This particular volatility was driven by the Russian invasion of Ukraine and sub-
sequent concerns about the resulting rise in inflation. The authors Galvão and Dias (2024) and
Dias et al. (2024) also validated these results for the international financial markets.
Table 1 shows a summary of the main descriptive statistics in terms of returns for the time se-
ries of the Artificial Intelligence & Big Data Index (IAIQ), Blockchain Index (ILEGR), Disrup-
tive Technology Index (IDTEC) and the benchmark Indian stock market index (Nifty 50), over
the period from January 2020 to 31 January 2024. Regarding the mean returns, it can be seen
that the markets have positive values. Concerning the standard deviation, the IAIQ stock index
has the highest value (0.0161), indicating greater dispersion in relation to the average.
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8th International Scientific Conference EMAN 2024
Selected Papers
Figure 1. Evolution, in returns, of the financial markets
analysed from 1 January 2020 and 31 January 2024
Source: Own elaboration
The asymmetry and kurtosis coefficients were estimated to assess whether the return distribu-
tions follow a normal distribution. The values obtained for asymmetry and kurtosis were dif-
ferent from 0 and 3, respectively, suggesting that the distributions are not symmetrical and do
not have a shape similar to the normal distribution. The Jarque and Bera (1980) test was used to
validate these observations, which rejected the null hypothesis of normality of the distributions
at a significance level of 1%. This indicates that the returns of the stock indices analysed do not
follow a non-Gaussian distribution. The authors R. T. Dias et al. (2023), Santana et al. (2023), and
R. M. Dias et al. (2023) have also shown the presence of non-Gaussian distributions in the time
data related to the price indices of the international financial markets.
Table 1. Summary table of descriptive statistics, in returns, for the markets in question
for the period between 1 January 2020 and 31 January 2024
IAIQ IDTEC ILEGR NIFTY 50
Mean 0.00057 0.00025 0.00034 0.00053
St d . Dev. 0.0161 0.0154 0.0121 0.0124
Skewness -0.5721 -0.4389 -1.1244 -1.8073
Kurtosis 9.1936 8.5989 18.0030 25.4217
Jarque-Bera 1768.629 0 1431.9382 10260.7830 22996.0931
Probability 0.0000 0.0000 0.0000 0.0000
Observations 1070 1070 1070 1070
Source: Own elaboration
The stationarity assumptions of the time series for the stock price indexes Artificial Intelli-
gence & Big Data Index (IAIQ), Blockchain Index (ILEGR), Disruptive Technology Index (ID-
TEC) and the Indian stock market (Nifty 50), for the period from January 2020 to 31 Janu-
ary 2024, were validated by estimating the panel unit root tests, namely Breitung (2000), Lev-
in et al. (2002), Im et al. (2003), in validation, the Dickey and Fuller (1981), Phillips and Perron
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Portfolio Diversification in a New Era of Financial Markets
(1988) tests with Fisher Chi-square transformation. Stationarity was achieved by transforming
the original data into logarithmic first differences and validating stationarity by rejecting H0 at
a significance level of 1% (see Table 2).
Table 2. Summary table of the unit root tests, in returns, for the analysed markets
for January 2020 and 31 January 2024.
Group unit root test: Summary
Method Statistic P r o b.** Cross-sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* -95.3434 0.0000 44270
Breitung t-stat -41.5422 0.0000 44266
Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat -62.4319 0.0000 44270
ADF - Fisher Chi-square 1053.5631 0.0000 44270
PP - Fisher Chi-square 1053.5631 0.0000 44272
Notes:** Probabilities for Fisher tests are computed using an asymptotic Chi-square distribution. All other tests
assume asymptotic normality.
Source: Own elaboration
The quantile graphs in Figure 2 provide a visual representation of the distributions of the price
index returns of the Artificial Intelligence & Big Data Index (IAIQ), Blockchain Index (IL-
EGR), Disruptive Technology Index (IDTEC) and the Indian stock market (Nifty 50), from Jan-
uary 2020 to 31 January 2024.
Figure 2. Quantile evolution of the financial markets analysed
between 1 January 2020 and 31 January 2024
Source: Own elaboration
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8th International Scientific Conference EMAN 2024
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The graphs show two distinct lines: one in orange, representing the normal distribution curve, and
the other in blue, depicting the data distribution for each time series. When assessing the disper-
sion of the time series data in relation to the normal distribution curve, we see that none of the se-
ries completely overlaps the orange line, which suggests a certain asymmetry in the return distribu-
tions. This lack of overlap indicates that the return distributions of the assets analysed do not adhere
perfectly to a normal distribution. In other words, the data is not symmetrically distributed around
the mean. Instead, there is an asymmetry in the distributions, which suggests the presence of ex-
treme events or a greater concentration of data at one end of the distribution compared to the other.
Figure 3 shows the residual structure of the Autoregressive Vector Model (VAR) with Chole-
sky decomposition, applied to the Artificial Intelligence & Big Data Index (IAIQ), Blockchain
Index (ILEGR), Disruptive Technology Index (IDTEC) and the Indian stock market (Nifty 50),
over the period from January 2020 to 31 January 2024. To ensure the absence of autocorrelation
in the residuals, the LR information criterion was used, specifically the modified LR sequence
test (each test with a significance level of 5%), with a lag of 7 days. Subsequently, the LM test
was estimated, and autocorrelation was found to be absent for lag 8. Based on these results, it
can be inferred that the conditions for robustness in the SVAR results are met, due to the sta-
tionarity of the returns and the absence of autocorrelation in the residuals.
Figure 3. VAR Structural Residuals using Cholesky Factors between 1 January 2020 and 31
January 2024
Source: Own elaboration
The results of the Granger causality tests, as detailed in Table 3, stand out in the context of finan-
cial market analysis. The tests reveal the presence of 12 causal relationships between the various
indices analysed, representing all possible connections. Specifically, the stock indices related to
financial technology (Fintech) and artificial intelligence (AI), notably the Global Fintech and Ar-
tificial Intelligence & BigData Index (IAIQ), Blockchain Index (ILEGR), Disruptive Technology
Index (IDTEC), as well as the Indian stock market (Nifty 50), show bidirectional shocks.
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Portfolio Diversification in a New Era of Financial Markets
This phenomenon suggests that the Fintech and AI stock indices, together with the Nifty 50
index, do not have hedging or safe harbour characteristics. This lack of hedging or safe har-
bour characteristics raises significant questions about the effectiveness of portfolio diversifi-
cation. In other words, the ability to reduce risk through diversification may be jeopardised,
given the interrelationships observed between these market indices. These results are also
validated by the authors Teixeira et al. (2023), R. M. T. S. T. Dias et al. (2023), and R. M. Dias et
al. (2023), who show sharp movements in the international financial markets as a result of the
events of 2020 and 2022.
Table 3. Granger Causality / Block Exogeneity Wald Tests, for the full period
Null Hypothesis: Obs F-Statistic Prob.
IDTEC does not Granger Cause RIAIQ 1063 1.8582 0.0730
IAIQ does not Granger Cause IDTEC 1.5306 0.1529
ILEGR does not Granger Cause IAIQ 1063 5.6723 0.0000
IAIQ does not Granger Cause ILEGR 3.6168 0.0000
NIFTY 50 does not Granger Cause IAIQ 1063 5.6362 0.0000
IAIQ does not Granger Cause NIFTY 50 22.0275 0.0000
ILEGR does not Granger Cause IDTEC 1063 4.7877 0.0000
IDTEC does not Granger Cause ILEGR 3.2523 0.0000
NIFTY 50 does not Granger Cause IDTEC 1063 5.7334 0.0000
IDTEC does not Granger Cause NIFTY 50 28.3796 0.0000
NIFTY 50 does not Granger Cause ILEGR 1063 6.7376 0.0000
ILEGR does not Granger Cause NIFTY 50 26.1243 0.0000
Source: Own elaboration
5. CONCLUSION
This study aimed to investigate the movements between Fintech and AI stock indices, in-
cluding the Global Fintech, Artificial Intelligence & BigData Index (IAIQ), Blockchain In-
dex (ILEGR), Disruptive Technology Index (IDTEC), to determine whether these assets be-
have as diversifiers for India’s main stock index (Nifty 50).
The results of the Granger causality tests revealed 12 causal relationships between the indi-
ces analysed, covering all possible connections. Specifically, the indices related to financial
technology (Fintech) and artificial intelligence (AI), together with the Nifty 50 index, show
bidirectional shocks. This observation suggests the absence of hedging or safe harbour char-
acteristics in these indices. The lack of such characteristics raises important questions about
the effectiveness of portfolio diversification.
In conclusion, the ability to reduce risk through diversification may be compromised due to
the interrelationships observed between these market indices. The analysis, therefore, high-
lights the need for more sophisticated approaches to risk management and asset allocation in
an environment characterised by complex and interdependent relationships between the var-
ious financial instruments.
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https://doi.org/10.37602/ijrehc.2023.4103
Zhou, H., & Li, S. (2022). Effect of COVID-19 on risk spillover between Fintech and traditional fi-
nancial industries. Frontiers in Public Health, 10. https://doi.org/10.3389/fpubh.2022.979808
8th International Scientific Conference EMAN 2024 – Selected Papers
ht tps://doi.org/10. 31410/E MAN.S.P.2024.103
https://orcid.org/0000-0002-7899-0134
https://orcid.org/0000-0002-6138-3098
https://orcid.org/0000-0001-8282-6604
https://orcid.org/0000-0002-1781-7036
https://orcid.org/0000-0002-4256-9479
Further Unravelling Cryptocurrency Behaviour
Cristina Palma1
Rui Dias2
Rosa Galvão3
Paulo Alexandre4
Sidalina Gonçalves5
Keywords:
Cryptocurrencies;
Efficiency;
Long memories;
DFA;
Arbitrage
Abstract: The primary purpose of this study is to compare the levels of effi-
ciency between the Islamic cryptocurrency (HelloGold), the ecological cryp-
tocurrencies Cardano (ADA) and Stellar (XLM) and the traditional digital
currencies Bitcoin (BTC) and Ethereum (ETH) over the period from 24 Feb-
ruary 2022 to 28 January 2024. Analysing the DFA exponents reveals differ-
ent types of memory in the digital currencies time series. The Islamic digi-
tal currency HelloGold (HGT) exhibits short-term memory, suggesting prof-
it opportunities based on recent trends. In contrast, the green cryptocur-
rency Cardano (ADA) shows long-term memory, indicating the influence
of long-term events and trends on prices. The digital currency Stellar (XLM)
does not show a clear short-term or long-term memory trend, making it dif-
ficult to predict future movements. Meanwhile, Bitcoin (BTC) and Ethereum
(ETH) exhibit long-term memory, suggesting that their prices are affected
by long-term trends. These results have important implications for investors
and traders when adjusting their trading strategies according to the behav-
iour observed in cryptocurrency prices.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
Since Nakamoto’s (2008) description of a digital cryptocurrency, Bitcoin, the cryptocurrency
markets have expanded, and their total market capitalisation reached 800 billion dollars in Jan-
uary 2018. However, these markets subsequently went through a crisis, and their total market cap-
italisation fell to 100 billion dollars at the end of 2018. Thus, the changes in market capitalisation
suggest that investors treat cryptocurrencies as an asset, but that does not necessarily mean they
do not treat them as, for example, a currency. Moreover, economists consider that research into
the efficiency of the cryptocurrency market in the sense of Fama (1970) is essential to evaluate the
price mechanism of financial markets. Therefore, several recent studies on cryptocurrency mar-
kets aim to determine whether these markets are efficient (Chambino et al., 2023).
Islamic cryptocurrencies represent a recent innovation that is based on tangible assets such as
physical gold or fiat currencies. These technologies have been developed to meet the religious
needs of certain investors, using existing blockchain structures. The first cryptocurrency to be
certified by Al Maali Consulting under Islamic principles was OneGram. Each unit of One-
Gram is backed by at least one gram of physical gold, ensuring a stable minimum price. Oth-
er cryptocurrencies, such as HelloGold and X8X, have also obtained certification from Amanie
Advisors and the Shariyah Review Bureau (SRB), respectively. HelloGold offers a certified
1 Polytechnic Institute of Setúbal, School of Business and Administration, Setúbal, Portugal
2 ISG - Business & Economics School, CIGEST, Lisbon, Portugal; ESCAD – Polytechnic Institute of Luso-
phony, Lisbon, Portugal
3 Polytechnic Institute of Setúbal, School of Business and Administration, Setúbal, Portugal
4 Polytechnic Institute of Setúbal, School of Business and Administration, Setúbal, Portugal
5 Polytechnic Institute of Setúbal, School of Business and Administration, Setúbal, Portugal
Received: April 25, 2024
Accepted: July 15, 2024
Published: December 17, 2024
104
8th International Scientific Conference EMAN 2024
Selected Papers
alternative for asset preservation, backed by physical gold, while X8X uses a portfolio of eight
coins and gold to fight inflation while maintaining its liquidity. These initiatives aim to provide
Islamic investors with options that comply with Sharia principles (Emna & Anis, 2020; Wasiu z-
zaman et al., 2023).
Islamic cryptocurrencies are designed to comply with the financial principles of Islam, avoid-
ing speculation. In contrast to conventional cryptocurrencies, whose valuations are influenced
by subjective factors and external events, Islamic cryptocurrencies are generally linked to real
assets such as gold or silver, providing an intrinsic value that facilitates valuation. Some are is-
sued by companies with a history of profitability and dividend distribution, adding a more sol-
id basis to their valuation (Ali et al., 2023; Alois, 2016).
Financial markets are complex and often unpredictable due to investors’ copycat behaviour, in
which they follow the actions of other investors without considering economic or financial fun-
damentals. Recent studies, such as those by Dias, Chambino, Palma, et al. (2023), have shown
that stock markets have become more efficient during the COVID-19 pandemic due to a reduc-
tion in this copycat behaviour. However, in emerging cryptocurrency markets, as demonstrat-
ed by Ballis and Drakos (2020), investors tend to mimic and act irrationally, possibly due to the
lack of solid cryptocurrency fundamentals. This imitation behaviour has also been observed in
Islamic markets, as justified by Mnif et al. (2019) and partially confirmed in certain capital mar-
kets by Chaffai and Medhioub (2018).
The main purpose of this study is to compare the efficiency levels between Islamic cryptocur-
rencies (HelloGold), green cryptocurrencies (Cardano, Stellar) and traditional cryptocurrencies
(BTC and ETH) in the period from 24 February 2022 to 28 January 2024. As far as is known,
there is a gap in the literature regarding the comparison between these three families of cryp-
tocurrencies. For example, the author Rufino (2023) shows that the announcement of the 2020
pandemic caused the price of BTC to fall by 46%; however, the authors Garcia and Tolentino
(2021) show the presence of long memories in the digital currencies BTC and ETH. Further-
more, the authors Thazhungal Govindan Nair (2022) show exaggerated reactions to the persis-
tence of the digital currency markets during the 2020 pandemic.
Further to the introduction, the rest of the study is structured as follows. Section 2 reviews the
relevant literature. Section 3 details the data and methodology adopted in the analysis. The em-
pirical results are discussed in section 4, while section 5 concludes the study and discusses its
implications.
2. LITERATURE REVIEW
The 2020 pandemic has changed consumer behaviour in the cryptocurrency market, seen func-
tionally as online economic activities and institutionally as transactions carried out by partici-
pants. Before the pandemic, there was great enthusiasm for Bitcoin, but soon after the start of
the COVID-19 pandemic, its return fell by 46.5 per cent in one day. However, Bitcoin recovered
quickly and began a rise that lasted almost a year, with daily increases of 59.6% (Rufino, 2023).
Hawaldar et al. (2019) studied the efficiency of Bitcoin and Litecoin concerning the U.S. dollar,
finding evidence of random walk. On the other hand, the authors Mnif et al. (2019) investigat-
ed imitation behaviour in the Islamic stock and Sukuk markets, observing the greater intensity
105
Further Unravelling Cryptocurrency Behaviour
of imitation in Islamic stocks. Ballis and Drakos (2020) analysed the cryptocurrency market and
found evidence of copycat behaviour, indicating possible signs of (in)efficiency.
In 2023, the authors Dias, Chambino, Alexandre, et al. (2023) showed that cryptocurrencies have
positive and negative autocorrelations, which can reduce volatility and moderate price fluctua-
tions. The results also show persistence in cryptocurrency returns, suggesting long-term mar-
ket trends or patterns that individual and institutional investors can exploit. In a complementa-
ry way, Galvão and Dias (2024) demonstrate that clean energy indices, such as digital curren-
cies classified asdirty”, show autocorrelation in their returns and that prices are not independ-
ent and identically distributed (i.i.d).
3. MATERIALS AND METHODS
3.1. Data
The data is the index prices used in the study, Islamic cryptocurrency (HelloGold), green cryp-
tocurrencies (Cardano, Stellar) and traditional digital currencies (BTC and ETH) from 24 Feb-
ruary 2022 to 28 January 2024. The data was extracted from the Thomson Reuters Eikon data-
base in U.S. dollars.
3.2. Methodology
The research will be developed over several stages. The sample will be characterised using de-
scriptive statistics to check that the data follows a normal distribution, as well as the graphs. The
panel unit root tests of Breitung (2000), Levin, Lin et al. (2002), and Im et al. (2003), which pos-
tulate the same null hypotheses (unit roots), will be used to ensure that the time series follows
white noise (mean = 0; constant variance). The Dickey and Fuller (1981) and Phillips and Perron
(1988) tests with Fisher’s chi-square transformation and Choi’s (2001) unit root tests were also
estimated to ensure the results are robust.
The Detrended Fluctuation Analysis (DFA) model will be used to understand whether the geo-
political event has led to long memories in Islamic, ecological and traditional digital currencies.
DFA is an analysis method that examines time dependence in non-stationary data series. By as-
suming that the time series are non-stationary, this technique avoids spurious results when ana-
lysing the long-term relationships of the data series. The DFA has the following interpretation:
0 < α < 0.5 rie anti-persistent series; α = 0.5 series shows random walk; 0.5 < α < 1 persis-
tent series. The function of this technique is to examine the relationship between the values xk
and xk+1 at different points in time. For a better understanding, see the articles by Zebende et al.
(2022), Guedes et al. (2022), and Santana et al. (2023).
4. R ESULTS
4.1. Descriptive Statistics
Figure 1 shows the evolution, in returns, of the Islamic cryptocurrency (HelloGold), the ecolog-
ical cryptocurrencies Cardano (ADA) and Stellar (XLM) and the traditional digital currencies
Bitcoin (BTC) and Ethereum (ETH) in the period from 24 February 2022 to 28 January 2024.
Graphical observation shows the extreme volatility of these digital currencies in 2022, which
106
8th International Scientific Conference EMAN 2024
Selected Papers
can be associated with the Russian invasion of Ukraine. On the other hand, the XLM digital
currency shows a very significant drop in structure in the second half of 2023 (June), which can
be associated with an investigation opened by the SEC against Ripple Labs, the company that
co-founded Stellar.
Figure 1. Evolution, in returns, of the cryptocurrencies analysed from 24 February 2022 to 28
January 2024.
Source: Own elaboration
Table 1 shows the evolution, in returns, of the Islamic cryptocurrency (HelloGold), the ecolog-
ical cryptocurrencies Cardano (ADA) and Stellar (XLM) and the traditional digital currencies
Bitcoin (BTC) and Ethereum (ETH) from 24 February 2022 to 28 January 2024. Based on the
results, most returns during this period of uncertainty in the global economy are negative, ex-
cept for the cryptocurrency BTC (0.00015). Regarding the standard deviation, it was found that
the Islamic digital currency shows the highest dispersion in relation to the mean HGT (0.06948),
but no cause-effect could be found as it is the only cryptocurrency that works collaterally. In or-
der to verify that we are dealing with a Gaussian distribution, we tested the asymmetry and kur-
tosis to see if we had the reference indicators (0 for asymmetry and 3 for kurtosis). The asym-
metry values are different from zero (≠ 0), with the Islamic currency HGT (7.3748) once again
107
Further Unravelling Cryptocurrency Behaviour
standing out, and concerning kurtosis, HelloGold (165.373) also shows a value different from
its benchmark (≠ 3). To validate, we estimated the Jarque and Bera test (1980) and found that the
null hypothesis postulating the normality of the data was rejected at a significance level of 1%.
Regarding whether the time series are Gaussian distributions, asymmetry and kurtosis were
tested to verify whether reference indicators were met (0 for asymmetry and 3 for kurtosis). The
asymmetry values are different from zero (≠ 0), with the Islamic currency HGT (7.3748) once
again standing out, and concerning kurtosis, HelloGold (165.373) also shows a value different
from its benchmark (≠ 3). Jarque and Bera’s (1980) test was used to validate the data, and the null
hypothesis of normality was rejected at a significance level of 1%.
Table 1. Summary table of the main descriptive statistics for the cryptocurrencies analysed
from 24 February 2022 to 28 January 2024
ADA BTC ETH HGT XLM
Mean -0.00076 0.00015 -0.00017 -0.00137 -0.00065
St d . Dev. 0.04173 0.02868 0.03607 0.06948 0.03923
Skewness 0.0253 -0.4254 -0.3570 7.3748 2.3668
Kurtosis 7.14674 8.4162 7.7073 165.373 36.0939
Jarque-Bera 504.47 881.74 664.96 779759.77 32783.42
Probability 0.0000 0.0000 0.0000 0.0000 0.0000
Observations 704 704 704 704 704
Source: Own elaboration
Validation of the stationarity assumption for the financial markets analysed was fulfilled with the
Breitung (2000) panel unit root test. The results show that the time series have unit roots when
estimating the original price series. The logarithmic transformation in first differences had to be
performed to achieve stationarity, and the null hypothesis was rejected in all the estimated tests.
Table 2. Summary table of Breitung’s (2000) panel unit root test for the cryptocurrencies
analysed from 24 February 2022 to 28 January 2024
Method Statistic Prob.**
Breitung t-stat -12.9233 0.0000
Intermediate regression results on D(UNTITLED)
Series S.E. of Regression Lag Max Lag Obs
D(ADA) 0.03412 0 19 702
D(BTC) 1213.0716 0 19 702
D(ETH) 95.0969 0 19 702
D(HGT) 1.44e-05 17 19 685
D(XLM) 0.0075 0 19 702
Coefficient t-Stat SE Reg Obs
Pooled -0.113167 -12.9233 0.00875 3488
Source: Own elaboration
The DFA exponent analysis results provide valuable insights for trading strategies in the digi-
tal currency markets.
The Islamic digital currency HelloGold (HGT) exhibits short-term memory, which suggests that
recent events and short-term trends influence the prices of this cryptocurrency. This could mean
profit opportunities for traders by capitalising on these short-term price trends. On the other hand,
108
8th International Scientific Conference EMAN 2024
Selected Papers
the ecological cryptocurrency Cardano (ADA) exhibits long-term memory, indicating that the
prices of this digital currency are more affected by long-term events and trends. Investors can use
this information to adjust their portfolio management strategies with a broader time horizon.
Regarding the digital currency Stellar (XLM), no clear short-term or long-term memory trend
was identified, suggesting that its prices may follow a random walk, making it difficult to pre-
dict future movements. Meanwhile, the traditional cryptocurrencies Bitcoin (BTC) and Ethere-
um (ETH) show long-term memory, meaning that long-term events and trends influence their
prices. This could lead investors to adjust their strategies to consider this long-term memory
when managing their portfolios.
Table 3 shows the DFA exponents for the Islamic cryptocurrency (HelloGold), the green cryp-
tocurrencies Cardano (ADA) and Stellar (XLM) and the traditional digital currencies Bitcoin
(BTC) and Ethereum (ETH), for the period from 24 February 2022 to 28 January 2024. The
Detrended Fluctuation Analysis (DFA) exponents show that the digital currency HGT (0.37)
has short-term memories. The ecological digital currency ADA (0.53) has long-term memories,
while XLM (0.50) does not reject the random walk hypothesis. Regarding traditional cryptocur-
rencies, we found that BTC (0.52) and ETH (0.56) have long-term memories, i.e. the residuals
are not independent and identically distributed (i.i.d) or autocorrelated over time. In pragmatic
terms, detecting short-term and long-term memories in the time series of financial digital cur-
rencies can have significant implications for investors and traders. For example, if an asset ex-
hibits short-term memory, traders can try to capitalise on short-term price trends. On the other
hand, if an asset exhibits long-term memory, investors can use this information to adjust their
portfolio management strategies. Several authors corroborate these results: Horta et al. (2022)
and Dias et al. (2023), who show the presence of long memories during highly volatile events in
the international financial markets.
Table 3. DFA exponent for return. The values of the linear adjustments
for α DFA always had R2 > 0.99
Cryptocurrencies (Islamic) α DFA
(Conflict in 2022) Results
HGT 0.37**0.0022 Short-term memory
Cryptocurrencies (Green) αDFA
(Conflict in 2022) Results
ADA 0.53**0.0049 Long-term memory
XLM 0.500.0013 Random Walk
Cryptocurrencies (Traditional) αDFA
(Conflict in 2022) Results
BTC 0.52**0.0053 Long-term memory
ETH 0.56**0.0014 Long-term memory
Note: The hypotheses are H0: α = 0.5 and H1: α ≠ 0.5. ** I.C. at 95%.
Source: Own elaboration
5. CONCLUSION
The comparative analysis of efficiency levels between different cryptocurrencies, including Is-
lamic cryptocurrency (HelloGold), green cryptocurrencies (Cardano and Stellar) and tradition-
al digital currencies (Bitcoin and Ethereum), revealed distinct characteristics in their behaviour
patterns over time.
109
Further Unravelling Cryptocurrency Behaviour
The results obtained by analysing the DFA exponents highlight the presence of different types
of memory in the time series of these cryptocurrencies. While the Islamic digital currency
HelloGold (HGT) shows short-term memory, suggesting profit opportunities based on recent
trends, the green cryptocurrency Cardano (ADA) shows long-term memory, indicating the
influence of long-term events and trends on prices. On the other hand, the digital currency
Stellar (XLM) does not display a clear short-term or long-term memory trend, hindering the
prediction of future movements. As for the traditional cryptocurrencies, Bitcoin (BTC) and
Ethereum (ETH) both show long-term memory, suggesting that their prices are affected by
long-term trends.
In conclusion, the detection of different types of memory in the time series of digital currencies
can inform the decisions of investors and traders, allowing them to adjust their trading strate-
gies according to the time horizon and behaviour observed in cryptocurrency prices.
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ht tps://doi.org/10. 31410/E MAN.S.P.2024.111
https://orcid.org/0009-0007-0908-8191
https://orcid.org/0000-0002-3041-8833
Tech-Enabled Business Models in Banking for Financial Inclusion:
A Systematic Literature Review
Arjela Dervishaj1
Aida Bitri2
Keywords:
Financial inclusion;
Banking services;
Technology-enabled business
models;
Traditional banking operations;
Efficiency;
Accessibility;
Emerging economies;
Digitalization;
Bibliometric analysis;
Inclusive financial systems
Abstract: Financial inclusion refers to the principle of ensuring universal ac-
cess to fundamental banking services such as savings accounts, credit, and in-
surance, irrespective of individuals’ economic or social circumstances. In today’s
context, this equitable access is crucial for fostering active participation in eco-
nomic activities. This involves breaking down barriers that historically limited
access, especially for remote and financially disadvantaged groups, and lev-
eraging technology to create more efficient and accessible financial process-
es within financial service providers with a specific focus on banks in this case.
Research on the influence of technology-enabled business models in banks for
financial inclusion examines the impact of emerging technologies on trans-
forming traditional banking operations and fostering financial inclusion. His-
torically, traditional banking systems have been inefficient, time-consuming,
and expensive. New technology has transformed these financial processes,
making them more efficient and accessible.
This study explores the existing literature published in this domain from 2010
to 2024, aiming to conduct a thorough analysis and to better understand the
link between tech-enabled business models, banking and financial inclusion.
Through the use of the proper literature review strategy and the collection of the
relevant subset, this paper will support research and highlight significant gaps
and challenges in understanding and addressing financial inclusion, particu-
larly in the setting of digitalization of banking processes through their business
models in developing countries.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
Financial inclusion is the provision of financial services such as credit, savings, insurance,
and money transfers to low-income individuals. While these services have shown positive
impacts, particularly for women in terms of savings opportunities, their effects on core econom-
ic and social poverty indicators are inconsistent. Information technology, according to Asongu
and Nwachukwu (2018), plays a significant role in advancing financial inclusion, particularly in
bridging the rural-urban divide, empowering women, and enhancing human capital. However,
the specific mechanisms through which these goals are achieved remain unclear.
A business model is a sustainable method of creating value and generating profit defining how
an organization creates value for its customers through the strategic use of resources to offer
better value than competitors (Nielsen & Lund, 2014).
Currently, the banking industry is undergoing a significant transformation due to the rise of digital
technology and financial innovation (Broby, 2021). This transformation has led to the emergence of
new business models, such as digital banking and Fin-Tech challenger banks, which are disrupting
traditional banking models. These changes are driven by the increasing use of digital platforms and
1 Epoka University, Department of Business Administration, 1000 Tirana, Albania
2 Epoka University, Department of Business Administration, 1000 Tirana, Albania
Received: April 19, 2024
Accepted: July 8, 2024
Published: December 17, 2024
112
8th International Scientific Conference EMAN 2024
Selected Papers
the availability of a wide range of digital products and services (Dapp et al., 2015). Consequently,
banks are facing new challenges and opportunities, exploring strategies such as customer retention,
customer acquisition, and banking as a service to adapt to the changing landscape (Broby, 2021).
Our study researches the transformative impact of technology-enabled business models in bank-
ing on financial inclusion. By conducting a systematic literature review, we aim to lighten the crit-
ical challenges and opportunities in leveraging technology to enhance financial inclusion and un-
derscore the urgent need for further research in this rapidly evolving domain. Through this ex-
ploration, we seek to understand how innovative banking models are reshaping access to finan-
cial services and identify both the potential and the pitfalls of these technological advancements.
2. LITERATURE REVIEW
The traditional banking system faces significant challenges, including inefficiencies and limita-
tions in its business model (Mehdiabadi et al., 2020). These challenges have a particularly pro-
nounced impact on remote and financially disadvantaged groups, who often struggle to access
banking services (Wonglimpiyarat, 2014). The need for technological improvements is clear, with
security concerns being a major barrier to the adoption of mobile banking (Islam , 2014).
The transformation of accounting and financial processes through technology is a key focus in the
banking sector, with the adoption of new technologies such as Cloud, AI, Big Data, and Blockchain
being a significant driver of change (Yoon, 2020). This digital transformation has led to the devel-
opment of new business models and products, as well as the need for new competencies in the fi-
nancial sector (Arefjevs et al., 2020). One example of this is the shift towards omni-channel bank-
ing, which is being driven by the need to meet customer expectations and create a new customer
experience. The role of technology in making financial processes more efficient and accessible is
also highlighted, with a focus on the importance of sustainable development in banking business
models (Mohammadkhani et al., 2020).
A range of studies have explored the role of banks in promoting financial inclusion. Kim et al.
(2018) and Duvendack and Mader (2019) highlight the potential of mobile financial services in
this regard, with Kim emphasizing the need for further research on the impact of these servic-
es. Hanafizadeh et al. (2014) underscores the importance of understanding the factors driving the
adoption of Internet banking, which can also contribute to financial inclusion.
The role of banks in promoting financial inclusion is crucial, as evidenced by the benefits of finan-
cial services for consumers, particularly women and the poor (Demirguc-Kunt et al., 2017). How-
ever, there are challenges to achieving greater financial inclusion, such as the need for appropriate
financial products and services, and the impact of financial innovation, poverty levels, and regula-
tory frameworks (Ozili, 2020). In Africa, the majority of adults and small and medium enterpris-
es lack access to formal financial services, highlighting the need for improved financial inclusion
(Demirgüç-Kunt & Klapper, 2012). In India, various banks have implemented initiatives to pro-
mote financial inclusion, but there is still progress to be made (Garg & Agarwal, 2014).
A review of literature from 2010 to 2024 on the influence of technology-enabled business models in
banks for financial inclusion reveals several key trends, gaps, and challenges. Studies have consist-
ently shown that appropriate financial services, including those enabled by technology, can signifi-
cantly benefit consumers, particularly women and the poor (Demirguc-Kunt et al., 2017). However,
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Tech-Enabled Business Models in Banking for Financial Inclusion: A Systematic Literature Review
there is a need for further research on the actual supply and demand of mobile financial services, as
well as their impact on society (Kim et al., 2018). The relationship between financial inclusion and
development is also a key area of study, with factors such as human development, income, litera-
cy, and infrastructure playing important roles (Sarma & Pais, 2010). Despite these findings, there
is still a lack of consensus on the optimal level of financial inclusion and its potential to transmit
systemic risks (Ozili, 2020). Therefore, future research should focus on addressing these gaps and
challenges, particularly in the context of emerging economies and developed countries.
The literature on the influence of technology-enabled business models in banks for financial inclu-
sion has seen significant growth and evolution in recent years. Gomber et al. (2017) and Suryono et
al. (2020) both highlight the transformative potential of digital finance and fintech, with Gomber
emphasizing the shift towards new business opportunities and models, and Suryono identifying the
challenges and trends in this field. Demirguc-Kunt et al. (2017) and Ozili (2020) underscore the im-
portance of financial inclusion in driving inclusive growth and economic development, with Ozi-
li specifically noting the influence of financial innovation, poverty levels, and regulatory frame-
works. However, there is a need for further research to address gaps in the literature, particularly
in exploring the impact of digital finance and fintech on financial inclusion in both emerging econ-
omies and developed countries.
The impact of digitalization on banking practices is a complex and multifaceted issue. Ozili (2019)
highlights the potential of digital finance to enhance financial inclusion and stability, particularly
in developing and emerging economies. However, Vives (2019) cautions that while digital disrup-
tion can increase efficiency and customer welfare, it also poses challenges to traditional banking
models. Sardana and Singhania (2018) and Kudryavtseva et al. (2018) both emphasize the trans-
formative power of digital technology in the banking sector, with Sardana focusing on the Indian
context and Kudryavtseva on Russia. Despite the potential benefits, both authors also note the need
for effective regulation and investment to fully realize the potential of digitalization in banking.
3. MATERIALS AND METHODS
The authors utilized the PRISMA technique and employed articles classified by document type
for this review. The analysis only includes publications and reports sourced from the Web of
Science database. After the collection of papers, the research was extended and further compre-
hensive information on the grey literature was incorporated. The search was undertaken by the
writers in March - April 2024.
The procedures that were adhered to and the criteria for being included at each stage were doc-
umented in Figure 1. Articles about financial inclusion, banking services, and business models,
which might be located in the journal’s title, abstract, or keywords were incorporated initially.
Employing identical search terms, the authors implemented a thorough screening process of all
the publications, studies, and reports obtained in the initial stage during a subsequent phase. As
a result, the final screening did not contain the entirety of books, book chapters, editorial mate-
rial, comments, and quick surveys.
During the initial stage, the search terms “financial inclusion” and “banking service” yielded a
total of 1,619 items. During the verification step, the authors excluded 636 entries from the da-
taset because their publication dates did not fall within the range of 2020–2024. In addition, 367
entries that represented document types other than articles and reports were removed. The first
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Selected Papers
meta-analysis, done using the PRISMA approach, integrated the topics of Financial Inclusion
and Banking Service. This analysis focused on the important terms used in the review. An ad-
ditional examination of the Web of Science was undertaken using the years 2020 through 2024
which yielded a list of 616 publications.
Figure 1. PRISMA flowchart of literature review process based on the combined search of two
keywords: Financial Inclusion and Banking Service. As shown, from a total of 1619 records initial-
ly retrieved, only 616 records were included. All these articles were published during 2020-2024
Source: Own research
The following stage of investigation analyzed two more concepts: “financial inclusion” and
“business models”. A further meta-analysis was undertaken using the same PRISMA approach.
Figure 2 shows a schematic illustration of the method used to progress the literature review for
this combination of keywords.
Figure 2. PRISMA flowchart of literature review process based on the combined search of two
keywords: Financial Inclusion and Business Model. As shown, from a total of 1784 records initial-
ly retrieved, only 1055 records were included. All these articles were published during 2020-2024
Source: Own research
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Tech-Enabled Business Models in Banking for Financial Inclusion: A Systematic Literature Review
During the second phase, a total of 1,784 entries were generated while searching for the terms
“financial inclusion” and “business models”. During the verification step, the authors exclud-
ed 436 entries from the dataset since their publication dates were not within the range of 2020-
2024. In addition, 293 entries that represented document types other than articles and reports
were removed.
Two methodologies were employed to extract data from the selected articles and conduct re-
search for the “Banking Service-Financial Inclusion” and “Business Model-Financial Inclu-
sion” inquiries:
1. A structured template displayed 10 publications sorted by Web of Science (WoS) catego-
ries to summarize the study results.
2. Using the combined data from the research, a TreeMap Chart (shown in the summary be-
low) was produced to represent the main subjects discussed in these publications. Each
category’s importance was calculated as a percentage of articles.
3. Co-citation analysis and reference inspection were also performed. This approach pro-
duced a visual representation of the most frequently cited sources, sorted into clusters and
items, identifying the authors, journals, and linked entities.
4. METASYNTHESIS RESULTS
4.1. Results for the Couple: Financial Inclusion and Banking Service
The discussion that follows will focus on the results of the initial inquiry into financial inclusion
and banking services. It is essential to identify the relevant topics and primary issues addressed
in the performed research. To demonstrate and understand the current relevance of the research
undertaken for Financial Inclusion and Banking Service for the years 2020–2024, these topics
were analysed in addition to the top ten record count publications. Consequently, each selected
research study was thoroughly reviewed and assessed based on the theoretical interpretations
that the authors attributed to the issues and results they presented in their publications.
Table 1. Top 10 record count publications based on WoS Categories, for the couple:
financial inclusion and banking service
SELECT ALL FIELD: WEB OF SCIENCE CATEGOR IES RECORD COUNT % OF 573
Economics 186 32.4 61%
Business Finance 102 17.801%
Business 101 17.627%
Management 44 7.679%
Development Studies 32 5.585%
Green Sustainable Science Technology 28 4.887%
Environmental Studies 27 4.712%
Social Sciences Interdisciplinary 26 4.538%
Environmental Sciences 23 4.014%
Source: Own research
Moreover, an examination of the associations linked to the primary entities comprising this
complex research subject demonstrates that India, the United Kingdom, and the United States
are the most prolific countries.
Figure 3 (Panel a) presents co-citation of authors, which shows the connections between authors
in the field. In this context, it highlights the most collaborative authors and influential scholars
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working on this topic. By establishing a threshold of a minimum of five citations for an author, the
authors derived a total of 951 instances distributed across four main clusters as shown below. The
investigation identifies three exemplary figures, each representative of a designated cluster. Spe-
cifically, Thorsten Beck from the red cluster, Simplice A. Asongu is highlighted from the green
cluster, Viswanath Venkatesh from the purple cluster, Annamaria Lusardi from the yellow cluster.
Figure 3. VOSviewer diagram containing the most cited authors (Panel a) and papers (Panel b)
with at least 5 citations (top 500), for the couple: financial inclusion and banking service
Source: Own research
Simultaneously, Figure 3 (Panel b) represents the co-citation of references. It shows which ref-
erences are commonly cited together. This visualization helps in identifying seminal works and
the development of research themes. By setting a threshold of five minimum number of cited
references, 583 papers were identified which were then classified into six clusters, as illustrated
in Figure 3 (Panel b), utilizing VOSviewer.
4.2. Results for the Couple: Financial Inclusion and Business Model
A comprehensive analysis of the findings from the initial inquiry concerning the convergence
of business model and financial inclusion will be provided. These focal areas, along with the ten
most prolific publications chosen for their record count, help explain the current significance of
conducted studies and the future of financial inclusion and business models. From 2020 to 2024,
it is important to identify the study subjects and their main problems. Thus, each specified study
was carefully examined and explained, comparing the authors’ theoretical frameworks to their
publications’ content and findings.
Table 2. Top 10 record count publications based on WoS Categories, for the couple: financial
inclusion and business model
SELECT ALL FIELD: WEB OF SCIENCE CATEGORI ES RECORD COUNT % OF 816
Economics 197 24.142%
Business 141 17.279 %
Business Finance 125 15.319%
Management 102 12.500%
Environmental Sciences 74 9.069%
Green Sustainable Science Technology 65 7.96 6%
Environmental Studies 64 7.8 43%
Energy Fuels 24 2.941%
Multidisciplinary Sciences 24 2.941%
Source: Own research
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Tech-Enabled Business Models in Banking for Financial Inclusion: A Systematic Literature Review
Figure 4 (Panel a) presents co- citation of the authors. By establishing a threshold of a minimum of
five citations for an author, the authors derived a total of 831 instances distributed across four main
clusters as shown below. The investigation identifies three exemplary figures, each representative of
a designated cluster. Specifically, Hashem Pesaran from the red cluster, Thorsten Beck and World
Bank are highlighted from the blue cluster and Viswanath Venkatesh from the purple cluster.
Figure 4. VOSviewer diagram containing the most cited authors (Panel a) and papers (Panel b)
with at least 5 citations (top 500), for the couple: financial inclusion and business model.
Source: Own research
Simultaneously, Figure 4 (Panel b) represents the co-citation of references. By setting a thresh-
old of five minimum number of cited references, 390 papers were identified which were then
classified into six clusters, as illustrated in Figure 3 (Panel b), utilizing VOSviewer.
5. DISCUSSION
This study systematically examines the impact of technology-enabled business models in banks
on financial inclusion, highlighting both the transformative effects and the challenges encoun-
tered. Our research reveals that these business models significantly contribute to financial in-
clusion in developing countries by providing access to essential financial services, such as sav-
ings, credit, and insurance, to underserved populations. This transformation is facilitated by the
digitalization of banking processes, which reduces costs and improves service delivery, making
financial services more accessible and efficient.
However, the adoption of these models also presents significant challenges. The main hurdles
include technological barriers, regulatory constraints, and the risk of over-indebtedness among
new consumer segments. Additionally, there is a critical need for more inclusive strategies that
address the diverse needs of different demographic groups, such as women and rural popula-
tions, to fully leverage the potential of technology in promoting financial inclusion.
To further enhance the positive impact of technology-enabled business models on financial in-
clusion, the following solutions are recommended:
1. Regulatory Innovation: Implement regulatory changes that encourage innovation while
ensuring consumer protection, such as sandbox approaches that allow for testing new fi-
nancial services under regulatory supervision.
2. Technology Adaptation and Training: Invest in technology infrastructure and training
programs to improve digital literacy among the population, thereby increasing the adop-
tion rates of digital financial services.
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3. Inclusive Financial Products: Develop financial products that specifically target the
needs of underserved groups, such as microinsurance and microsavings products that are
accessible and affordable.
By addressing these areas, banks can better leverage technology-enabled business models to signif-
icantly boost financial inclusion and contribute to economic development in developing countries.
6. CONCLUSION
In conclusion, technology-enabled business models in banks have a profound impact on financial
inclusion in developing countries, offering significant opportunities to extend financial services
to marginalized groups. However, to maximize these benefits, it is crucial to address the associat-
ed challenges through enhanced regulatory frameworks, targeted technological interventions, and
inclusive financial products that cater to the needs of diverse populations. Future research should
continue to explore innovative solutions and strategic approaches to overcome these barriers and
sustain the gains in financial inclusion achieved through technological advancements.
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8th International Scientific Conference EMAN 2024 – Selected Papers
ht tps://doi.org/10. 31410/E MAN.S.P.2024.121
https://orcid.org/0009-0004-5039-2193
https://orcid.org/0009-0009-7077-2499
Navigating the Evolution of Large Language Models
in Business Analysis: A Comparative Study of RAG,
Prompt Engineering, and Fine-Tuning Techniques
Andrea Alberici1
Nevila Baci2
Keywords:
Large Language Models;
Business analysis;
Domain-specific languages;
Retrieval-augmented
generation;
Prompt engineering;
Fine-tuning;
Intentional frameworks
Abstract: The rapid advancements in large language models (LLMs) could
prove to have significantly impacted the field of business analysis, particu-
larly in the development of domain-specific languages (DSLs) tailored to de-
scribe business requirements with precision and flexibility. The study high-
lights the substantial progress in LLM capabilities, including extended con-
text understanding, enhanced reasoning, and mathematical function-
alities, which collectively facilitate deeper integration of domain-specific
knowledge into business analysis processes.
The authors critically assess the relevance of Retrieval Augmented Gener-
ative techniques that offer advanced knowledge injection methods, along
with prompt engineering reasoning techniques, as opposed to fine-tun-
ing LLMs. Furthermore, the research evaluates the strategic decision-mak-
ing process for business analysts in adopting these technological advance-
ments. The paper discusses whether business analysts should take a proac-
tive or cautious approach when incorporating these AI-driven methodolo-
gies into their analytical frameworks, or just wait for the next turn of LLM’s
improvements.
By examining various case studies and conducting interviews with experts,
this study provides insights into how the deliberate application of advanced
LLM techniques can offset the services brought by RAG/Prompt engineer-
ing techniques. The text also provides guidance for navigating the techno-
logical landscape, indicating that it is important to stay updated with rap-
id advancements. A strategic combination of RAG, prompt engineering, and
fine-tuning can provide a balanced and effective approach to creating in-
tentional frameworks that meet the evolving needs of businesses today.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
In recent years, the field of artificial intelligence (AI) has witnessed significant advancements,
particularly in the development of large language models (LLMs). LLMs are powerful AI sys-
tems trained on vast amounts of text data, enabling them to understand, generate, and manip-
ulate human language with remarkable accuracy. These models have demonstrated impressive
capabilities in various natural language processing (NLP) tasks, such as text generation, ques-
tion answering, and sentiment analysis.
LLMs are typically based on deep learning techniques, such as transformers, and have the ca-
pability to generate useful language output. As a result, they have been found capable of per-
forming a wide range of language-related tasks, including text generation, answering questions,
translation, summarization, and sentiment analysis.
1 University of Tirana, Faculty of Economy, Rruga Arben Broci, 1, 1001, Tirana, Albania
2 University of Tirana, Faculty of Economy, Rruga Arben Broci, 1, 1001, Tirana, Albania
Received: February 28, 2024
Accepted: September 16, 2024
Published: December 17, 2024
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8th International Scientific Conference EMAN 2024
Selected Papers
While LLMs have been widely applied to tasks involving natural languages, their application
to software development tasks, involving programming languages, has also gained significant
recent attention.
The emergence of LLMs has the potential to revolutionize the field of business analysis, which
heavily relies on the effective communication and interpretation of complex business require-
ments. Business analysts play a crucial role in bridging the gap between stakeholders and tech-
nical teams, ensuring that business needs are accurately translated into actionable solutions. The
integration of LLMs into business analysis processes could significantly enhance the precision
and flexibility of domain-specific languages (DSLs) used to describe business requirements.
DSLs are specialized languages designed to express concepts and relationships within a spe-
cific domain, such as finance, healthcare, or e-commerce. By leveraging the advanced capabil-
ities of LLMs, business analysts can develop more sophisticated and adaptable DSLs that cap-
ture the nuances and complexities of their respective domains. This integration has the poten-
tial to streamline communication, reduce ambiguity, and improve the overall efficiency of the
business analysis process.
1.1. Significance of LLMs in Business Analysis
This study aims to explore the frontier of LLMs in order to create a taxonomy of the landscape
of possibilities, with a specific focus on the development of business-oriented strategies for
companies.
The first research question of the study is to create a framework to understand the different di-
rections of evolution of the tools, with a focus on transferring the internal knowledge of the
companies (be it a corpus of internal rules or business requirement gatherings) that are actual-
ly an external source to LLMs themselves.
The landscape is very fragmented, the authors want to explore different lines, where single
tools, applications, models, and solutions represent them as dots in these lines. The main are-
as to focus on in injecting knowledge in LLMs are prompt engineering, Retrieval Augmented
GenerativeAI and fine-tuning techniques to meet the evolving needs of businesses.
1.2. Objectives and Scope of the Study
Dell’Acqua et al. (2023a) introduced the analysis of the “jagged” LLM frontier in regard to the
utilization of generative AI in the workplace. The work introduces some important research on
evaluating the impact, bringing in general important positive results. What we want to stress in
our present paper is the concept of the frontier itself, like a defensive wall with ramparts, defen-
sive towers and also outposts outside the frontier. To achieve these objectives, the present study
examined various case studies and conducted interviews with experts in the field. By synthesiz-
ing the findings, this research aims to contribute to the growing body of knowledge on the ap-
plication of LLMs in business analysis and provide practical insights for business analysts seek-
ing to harness the potential of these advanced AI techniques.
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Navigating the Evolution of Large Language Models in Business Analysis:
A Comparative Study of RAG, Prompt Engineering, and Fine-Tuning Techniques
2. LITERARY REVIEW
Large Language Models (LLMs) have emerged as a transformative force in the field of artifi-
cial intelligence, revolutionizing the way we approach natural language processing and genera-
tion tasks. The authors introduce some cutting-edge research and developments that define the
frontier of LLMs, focusing on four key areas: architectures and training, evaluation and bench-
marking, applications and use cases, and limitations and challenges.
In LLM architectures and training, researchers are pushing the boundaries to find optimal ways
to navigate the complex landscape of pretraining and downstream capabilities. C. J. Yang (2024)
tackles this challenge head-on, providing valuable insights into striking the right balance for
maximum performance. Meanwhile, Lieber et al. (2024) introduce Jamba, a hybrid architec-
ture that combines the strengths of Transformer and Mamba models, paving the way for more
efficient and effective LLMs. Jang et al. (2024) challenge the status quo by demonstrating that
fine-tuning a small number of models can achieve impressive results, questioning the need for
extensive fine-tuning and offering a more streamlined approach.
As LLMs continue to evolve, so do the methods for evaluating and benchmarking their perfor-
mance. Fan et al. (2023) uncover the hidden potential of LLMs as powerful text encoders, ex-
panding their applicability beyond traditional language tasks. Wahle et al. (2023) shed light on
the intricate web of influence between Natural Language Processing and other academic dis-
ciplines, emphasizing the importance of interdisciplinary collaboration in the development and
assessment of LLMs. Liu et al. (2023) introduce G-Eval, a cutting-edge evaluation framework
that leverages the capabilities of GPT-4 to achieve better human alignment in Natural Language
Generation, setting a new standard for LLM evaluation.
The frontier of LLMs is not limited to theoretical advancements; it also encompasses a wide range
of applications and use cases. Dell’Acqua et al. (2023a) conduct groundbreaking experiments that
reveal the significant impact of LLMs on knowledge worker productivity and quality, highlight-
ing their transformative potential in the workplace in collaboration with BCG. Tao et al. (2024)
propose MAGIS, an innovative multi-agent framework powered by LLMs, which tackles com-
plex tasks such as GitHub issue resolution, demonstrating the versatility and practicality of these
models. Krishnamurthy et al. (2024) present the concept of in-context learning, exploring the ca-
pabilities and limitations of LLMs in this area and providing valuable insights for future research.
By leveraging the advancements in extended context understanding, enhanced reasoning capa-
bilities, mathematical functionalities, and the integration of domain-specific knowledge, LLMs
have the potential to significantly enhance the accuracy, efficiency, and value of business anal-
ysis processes.
2.1. Integration of Domain-Specific Knowledge: Fine-Tuning Techniques
One of the most promising advancements in LLMs is their ability to integrate domain-specific knowl-
edge. By training LLMs on large corpora of text data from specific domains, such as finance, health-
care, or e-commerce, these models can acquire a deep understanding of the terminology, concepts,
and relationships within those domains (Beltagy et al., 2019; Chalkidis et al., 2020). This enables
LLMs to generate more accurate and relevant outputs when applied to business analysis tasks. For ex-
ample, an LLM trained in financial data can assist business analysts in tasks such as market analysis,
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risk assessment, and investment decision-making (Chalkidis et al., 2020; Cheng et al., 2024; Zhao et
al., 2024). Similarly, an LLM trained on healthcare data can support business analysts in tasks relat-
ed to patient care, clinical workflows, and regulatory compliance.
At its core, fine-tuning involves training a pre-trained LLM on a smaller, task-specific dataset to
adapt its knowledge and capabilities to a particular application. This process allows LLMs to ac-
quire specialized knowledge and skills, enhancing their performance on downstream tasks. Fine-tun-
ing has proven to be a powerful approach, enabling LLMs to achieve state-of-the-art results in vari-
ous natural language processing tasks, such as question-answering, text classification, and language
translation. It encompasses even human task management and execution (Dell’Acqua et al., 2023a).
However, the fine-tuning landscape is not without its challenges. One of the primary difficulties lies
in the resource-intensive nature of fine-tuning large models. As LLMs continue to grow in size, with
some models reaching billions of parameters, fine-tuning becomes computationally expensive and
time-consuming. This poses a significant barrier to entry for researchers and developers with limited
computational resources. To address this challenge, researchers have proposed various techniques to
optimize the process. C. Yang et al., (2024) introduce a comprehensive study that proposes methods
to analyze and optimize the pretraining process, enabling more efficient fine-tuning and improved
performance on downstream tasks.
Another approach to mitigate the resource constraints of fine-tuning is the development of param-
eter-efficient fine-tuning methods. Jang et al. (2024) present Model Stock as an efficient fine-tun-
ing method that achieves superior accuracy using significantly fewer models. This approach, coined
as Model Stock, offers a more streamlined and cost-effective solution for fine-tuning large models.
The evaluation and benchmarking of fine-tuned models is another critical aspect of the fine-tun-
ing landscape. Accurate assessment of model performance is essential for understanding the effec-
tiveness of fine-tuning techniques and identifying areas for improvement. Liu et al. (2023) propose
G-Eval a framework that utilizes GPT-4 with chain-of-thoughts and a form-filling paradigm to assess
the quality of Natural Language Generation (NLG) outputs. By leveraging the capabilities of GPT-4,
G-Eval aims to provide a more reliable and human-aligned evaluation metric for fine-tuned models.
However, the application of fine-tuned models also introduces new challenges, particularly in terms
of model interpretability and bias.
To further advance the field of fine-tuning, researchers are exploring innovative approaches that push
the boundaries of what is possible with LLMs. One such approach is the development of instruc-
tion-tuned models, which are fine-tuned on a diverse set of instructions and tasks to acquire a broad
range of skills. Yi Tay (2024) introduces a new open-source instruction-tuned model that demon-
strates impressive performance across multiple benchmarks, by combining instruction tuning with
the UL2 (Mixture of Denoisers) objective, this model achieves state-of-the-art results while being
openly accessible to the research community.
Another frontier in fine-tuning is the development of frameworks and tools that streamline the
fine-tuning process and make it more accessible to a wider audience. The AI Collective (2024) pre-
sents “Axolotl,” a tool designed to simplify the fine-tuning of various AI models, supporting multi-
ple configurations and architectures. Axolotl enables users to easily fine-tune models using a simple
configuration file.
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2.2. Prompt Engineering
Prompt engineering has emerged as a critical skill for unlocking the full potential of large
language models (LLMs). It represents in a way the capability to transfer to the model the
specific knowledge of the user, or the capability to “program” the model itself.
At its core, prompt engineering involves creating carefully designed prompts that guide LLMs
toward generating desired outputs. As Hosni (2024) emphasizes, this is not a one-size-fits-all
approach, but rather an iterative process that requires ongoing refinement and optimization.
By engaging in a continuous cycle of prompt development, testing, and improvement, devel-
opers can create prompts that are tailored to the specific needs and goals of their applications,
resulting in more accurate and relevant outputs from the LLMs.
One of the key areas where prompt engineering has shown significant promise is in retriev-
al-augmented generation (RAG) systems. As Olickel (2024) highlights, effective prompt en-
gineering can play a crucial role in reducing the distance between questions and answers in
RAG systems. By carefully designing prompts that guide the model towards relevant infor-
mation and encourage concise and accurate responses, users can enhance the overall effec-
tiveness and usability of AI applications.
The potential for automating prompt engineering is another interesting development in this
field. NousResearch (2024) introduces Genstruct 7B, an instruction-generation model that can
automatically create valid instructions from raw text corpora. This opens up new possibili-
ties for streamlining the prompt engineering process, allowing developers to quickly gener-
ate suitable prompts for fine-tuning their LLMs.
Prompt engineering is not limited to specific applications or domains but rather has broad
implications across various fields. Hong et al. (2024) demonstrate this through their mul-
ti-agent framework for data science tasks, which incorporates prompts and LLMs to guide
problem-solving. This highlights the versatility of prompt engineering and its potential to en-
hance the performance and usability of LLMs in diverse contexts, from data analysis to sci-
entific research.
As the field of prompt engineering continues to evolve, frameworks and tools are being de-
veloped to support and automate the process. Eladlev (2024) introduces AutoPrompt, a frame-
work for automating prompt tuning using intent-based prompt calibration. By providing a
systematic approach to optimize prompts based on the intended use case, AutoPrompt aims
to make prompt engineering more accessible and efficient for developers.
In addition to these frameworks, there are also “programming” prompt engineering frame-
works that aim to streamline the process of working with LLMs. For instance, GuidanceAI
(2024) introduces Guidance, a programming paradigm that offers superior control and effi-
ciency compared to conventional prompting and chaining. It allows users to constrain gener-
ation, interleave control structures, and seamlessly integrate with various LLMs.
Huang (2024) presents an approach to prompt engineering using direct preference optimiza-
tion (DPO) for descriptiveness. This method involves training a model to generate more de-
scriptive prompts by optimizing for human preferences.
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Another notable development in prompt engineering is the DSPy framework introduced by a
research team at Stanford (Khattab et al., 2023). DSPy is designed to algorithmically optimize
LM prompts and weights, especially when LLMs are used multiple times within a pipeline. By
separating the program flow from the parameters of each step and introducing new optimiz-
ers, DSPy enables the systematic tuning of prompts and weights based on a desired metric. This
framework has the potential to make prompt engineering more efficient and effective, allow-
ing developers to focus on building complex systems rather than manually tweaking prompts.
The emergence of “programming” prompt engineering frameworks, such as guidance and
DSPy, further empowers developers to build sophisticated LLM-based applications with ease,
paving the way for a future where LLMs are seamlessly integrated into a wide range of soft-
ware systems.
2.3. Retrieval-Augmented Generation - Enhancing LLMs with External Knowledge
Retrieval-Augmented Generation (RAG) has emerged as a new approach in the first months of
2023 in the field of natural language processing, aiming to address the limitations of Large Lan-
guage Models (LLMs) by integrating external knowledge sources.
Basically, RAG is designed to augment LLMs with the ability to access and incorporate infor-
mation from vast, dynamic repositories. By enabling LLMs to retrieve relevant knowledge from
external sources, RAG enhances the accuracy and credibility of the generated content, particu-
larly in knowledge-intensive tasks (Bansal, 2024; Olickel, n.d.; Sahota, 2023). This symbiot-
ic relationship between LLMs and external knowledge bases allows RAG systems to leverage
the best of both worlds - the intrinsic knowledge of LLMs and the vast, up-to-date information
available in external databases.
One of the key challenges in developing effective RAG systems is ensuring the quality and fac-
tuality of the generated content. To address this, researchers have proposed advanced RAG
techniques that incorporate self-reflection and adaptive retrieval mechanisms. For instance,
Asai et al. (2023) introduce Self-RAG, a framework that enhances an LLM’s quality and factu-
ality through retrieval and self-reflection using special tokens called reflection tokens.
Similarly, Jeong et al. (2024) propose Adaptive-RAG, a novel approach that dynamically se-
lects the most suitable retrieval strategy based on query complexity. By employing a classifi-
er trained to predict the complexity level of incoming queries, Adaptive-RAG offers a balanced
strategy that seamlessly adapts between iterative and single-step retrieval-augmented LLMs, as
well as no-retrieval methods.
Despite the advancements in RAG techniques, some argue that the increasing capabilities of
long-context LLMs may diminish the need for RAG in the future. However, researchers and ap-
plicants (Saravia, 2024) point out that long-context LLMs alone may not be sufficient to replace
RAG, especially when dealing with complex and dynamic data. The authors suggest that RAG
will continue to play a significant role in LLM interactions, particularly in scenarios involving
highly evolving information and knowledge.
The effectiveness of RAG systems heavily relies on the retrieval component, which is respon-
sible for selecting the most relevant information from the external knowledge base. To evaluate
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and optimize the retrieval process, various metrics and frameworks have been proposed. For in-
stance, an important part of RAG initiatives relies on the evaluation process (Nguyen, 2024) as
researchers emphasize the importance of annotated data and discuss commonly used metrics
such as precision, recall, and score.
As RAG systems continue to evolve, researchers are exploring advanced techniques to enhance
their performance and applicability. C. J. Yang (2024) introduces the concept of recursive retrieval,
Page-Based, Information-Centric, and Concept-Centric - and highlights their potential to improve
the efficiency and effectiveness of RAG systems by iteratively refining the retrieved information.
Moreover, RAG techniques are being applied to various domains beyond traditional ques-
tion-answering tasks. Sher (2024) demonstrates the use of LangChain ReAct Agents for an-
swering multi-hop questions in RAG systems, showcasing the potential of RAG in complex rea-
soning scenarios.
In conclusion, Retrieval-Augmented Generation has emerged as a transformative approach
in the field of natural language processing, enabling LLMs to access and incorporate exter-
nal knowledge for enhanced accuracy and credibility. Through advanced techniques such as
self-reflection, adaptive retrieval, and recursive retrieval, RAG systems are pushing the bound-
aries of what is possible with LLMs.
3. THE ARTIFACT PROPOSAL
In the literary review, we conveyed a sense of the emergence of the technical solutions for our
field of study which is the injection of company information (business analysis) in the genera-
tive AI tools. On one side RAG combined with fine-tuning seems to be one interesting direc-
tion to go, but to date, there is no consensus for an emergent solution when it comes to address-
ing the mise-en production of an application.
The most promising should be the RAG methodology, but it suffers from the problems of the
search: not perfectly finding in a document the correct chunk of information to pass to the
Transformer. So we keep over-engineering, reranking, vectorial distance, and ultimately se-
mantic search.
To address this specific challenge, we propose the creation and maintenance of an automat-
ed approach for discovering and monitoring those emerging frontiers in LLM research. This
approach leverages the power of natural language processing (NLP) techniques and machine
learning algorithms to analyze a large corpus of research papers and identify the most salient
topics and trends.
The process begins by collecting a comprehensive set of research papers relevant to the LLM do-
main. In our case study, we assembled a collection of more than 300 papers spanning various as-
pects of LLMs, such as architectures, training techniques, evaluation methods, and applications.
These papers were sourced from leading academic journals, conference proceedings, and preprint
repositories to ensure a diverse and representative sample of the current research landscape.
Next, we applied an automated pipeline to extract and process the key information from each
paper, focusing on two essential components: the abstract and the keywords. To automate the
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extraction and analysis of this information, we employed a prompt engineering technique in or-
der to extract keywords and then using a discovery approach, allowed us to identify and extract
relevant entities, phrases, and relationships from the abstracts, creating a structured representa-
tion of the key concepts and ideas present in each paper.
Once the information was extracted and processed, we applied a dynamic analysis in order to
identify coherent clusters of papers (Figure 1) that share similar topics and concepts, revealing
the main areas of focus and emerging trends in LLM research.
The resulting clusters and topics were then visualized providing a clear and intuitive representa-
tion of the research landscape in the form of an interactive tag cloud, allowing users to explore
the relationships between different topics, identify the most prominent themes, and discover po-
tential gaps or underexplored areas in the current research.
To ensure the relevance of the tag cloud, we propose a continuous monitoring and update pro-
cess: as new research papers are published, they can be automatically ingested into the pipeline,
analyzed, and incorporated into the existing clusters and topics. This dynamic updating mech-
anism could enable the artifact to evolve and adapt to the latest developments in the field, help-
ing users stay informed about emerging frontiers and potential areas for further investigation.
This provides a comprehensive and up-to-date overview of the research landscape, enabling
researchers and practitioners to quickly identify the most relevant and promising areas for
their work. It also facilitates the identification of potential collaborators and the formation of
interdisciplinary teams to tackle complex challenges at the intersection of different research
domains.
Moreover, the tag cloud serves as a valuable tool for decision-makers, such as agencies and
industry leaders, to assess the current state of the art and make informed decisions about re-
source allocation and strategic investments. By highlighting the most active and promising
areas of research, the tag cloud can guide the prioritization of research efforts and the devel-
opment of targeted initiatives to address critical challenges and opportunities in the field.
4. CONCLUSION
The research presented highlights the importance of exploring innovative approaches to address
the challenges and limitations faced by current Retrieval-Augmented Generation (RAG) sys-
tems in the context of business analysis and generative AI. The automated discovery and mon-
itoring of emerging frontiers in Large Language Model (LLM) research, through the use of a
dynamically updated tag cloud, have revealed several promising directions for future research
and development.
One of the key findings is the potential of agent-based approaches, such as the Mixture of Ex-
perts (MoE) technique employed in models like Mixtral 7bx8, to refine search results and en-
hance the performance of RAG systems (Cohere, 2024; Drouin et al., 2024; Honchar, 2024). By
leveraging the specialized knowledge and skills of multiple agents, these approaches can effec-
tively navigate the complex landscape of unstructured data and identify the most relevant infor-
mation for a given query even with the correct dubitative approach on real capabilities of LLMs
to cover this area (Krishnamurthy et al., 2024).
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Figure 1. Mind map of topics and subtopics of the Jagged Frontier
Source: Own research
Another critical insight derived from our analysis is the need for long-context models that can
maintain the memory of external information throughout the search process. The MemGPT
framework by Packer et al. (2024) has emerged as a promising solution to this challenge, demon-
strating the ability to overcome the limitations imposed by the restricted context lengths of tra-
ditional LLMs. By enabling long-term memory, consistency, and dynamic evolution in conver-
sational agents, MemGPT sets a new benchmark for LLM performance and applicability in do-
mains such as business analysis and generative AI.
As long as we explore the agentic landscape, we can also leverage the capabilities of LLM to fol-
low a functional calling in the various steps of retrieval. In addition to agent-based approaches
and long-context models, another emergent area worth investigating in the direction of Business
Analysis is an innovative approach called Rule-Based Conditional Retrieval. This approach
could help in exactly mimicking the Domain Specific Language logic, bringing the knowledge
inside the rules of retrieval. The Rule-based Retrieval package consists of several key compo-
nents, including a Client class for managing resources and performing RAG-related tasks, a
Rule class for defining custom filtering rules for retrieving documents, and various utility mod-
ules such as embedding, processing, and exceptions.
By incorporating Rule-Based Conditional Retrieval into RAG systems, businesses can poten-
tially achieve more accurate and relevant results when querying their knowledge bases. This
approach allows for the integration of domain-specific rules and logic directly into the retriev-
al process, ensuring that the retrieved information is not only relevant to the query but also ad-
heres to the specific requirements and constraints of the business domain.
However, the success of these advanced RAG systems, long-context models, and rule-based re-
trieval approaches relies on the development of robust evaluation tools and methodologies. Our
research highlights especially the need for improved evaluation frameworks that can assess the
quality, relevance, and coherence of the generated outputs, as well as the efficiency and effec-
tiveness of the retrieval process. By establishing standardized evaluation metrics and bench-
marks, researchers and practitioners can more accurately compare and contrast different ap-
proaches, driving further innovation and refinement in the field.
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Looking ahead, the integration of agent-based techniques, long-context models, rule-based re-
trieval, and reinforcement learning with user interaction control presents an exciting frontier for
future research. This convergence of technologies could give rise to a new generation of agentic
AI systems that exhibit unprecedented levels of understanding, responsiveness, and adaptabil-
ity. By learning from user feedback and continuously refining their knowledge and strategies,
these agentic AI systems have the potential to revolutionize the way businesses analyze data,
generate insights, and make decisions.
In conclusion, the automated discovery and monitoring of emerging frontiers in LLM research,
coupled with the insights derived from our analysis, indicate the near future development of
RAG systems and generative AI in the context of business analysis: agent-based approaches,
long-context models, rule-based retrieval, improved evaluation tools, and the principles of agen-
tic AI, researchers and practitioners can unlock the full potential of these technologies, staying
afloat on the ever-changing innovations brought in the field.
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ht tps://doi.org/10. 31410/E MAN.S.P.2024.133
https://orcid.org/0000-0002-3105-666X
Transforming the CRM Diamond Model
with Genetic Data Integration
Ivelina Ivanova-Kadiri1
Keywords:
Genetic data;
CRM;
CRM-Diamond
Abstract: This paper explores the integration of genetic data into the CRM
Diamond model, proposing a new model for CRM-Diamond with the incor-
poration of customer genetic data. It offers insights into the implications
for customer relationship management (CRM), emphasizing enhanced cus-
tomer segmentation, personalized marketing strategies, and improved en-
gagement. However, this integration presents challenges related to data pri-
vacy, ethical considerations, and regulatory compliance. The study exam-
ines these challenges and proposes strategies for responsible implementa-
tion while ensuring transparency and trust in customer relationships. The
proposed integration involves redefining the CRM Vision to prioritize hy-
per-personalization, adapting core CRM activities to accommodate genet-
ic data, and emphasizing robust data privacy measures. This research aims
to inform businesses about the transformative potential of genetic insights
in CRM processes and the importance of ethical and compliant practices.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
In the dynamic realm of business and technology, customer behavior undergoes continual evo-
lution, shaped by innovations and societal shifts. An emerging transformative force is the in-
tegration of genetic data into Customer Relationship Management (CRM) systems, signaling
a new era in customer data management and marketing strategies. This paper explores the im-
plications of incorporating genetic insights into the CRM Diamond model, developed by Mack
et al. (2005), a framework traditionally used for optimizing customer relationships. The con-
vergence of genetic science and business strategy offers unprecedented opportunities for busi-
nesses to gain deeper insights into customer preferences, behaviours, and predispositions (Car-
ey, 2013; Conway & Slavich, 2017; Daviet et al., 2022; Kuechle, 2019). Genetic marketing, driven
by advancements in behavioral genetics (Baker, 2004), enables more precise customer segmen-
tation and personalized marketing experiences. However, integrating genetic data into CRM
systems raises ethical and regulatory considerations regarding data privacy and consent. This
study investigates the integration of genetic data into the CRM Diamond model, aiming to un-
derstand its impact on customer segmentation and relationship management. By examining
challenges and opportunities, the research proposes strategies for responsible implementation
while maintaining ethical standards. Drawing on existing literature and industry insights, this
paper aims to inform businesses about the transformative potential of genetic insights in en-
hancing CRM processes and delivering more tailored customer experiences.
1 University of Economics – Varna, Faculty of Management, Marketing Department, Kniaz Boris I Blvd. No
77, 9000, Varna, Bulgaria
Received: April 17, 2024
Accepted: June 30, 2024
Published: December 17, 2024
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2. THE EVOLVING LANDSCAPE OF CUSTOMER RELATIONSHIP MANAGEMENT
Customer Relationship Management (CRM) has evolved significantly, transitioning from a tech-
nological tool to a strategic approach (Nasir, 2015; Payne, 2006; Sheth & Parvatiyar, 2000; Stein-
hoff et al., 2022) emphasized sustainable CRM, resonating with the evolving mindset toward pos-
itively influencing customer behaviour (Avdagić-Golub et al., 2022). CRM is a holistic strate-
gy integrating customer-centric philosophy, strategic marketing processes, and long-term rela-
tionship building (Stanimirov, 2013) to ensure the effective execution of a company’s marketing
strategy (Georgieva & Kehayova, 2007). Today, CRM encompasses various elements, incorporat-
ing sales management, data analysis, and personalized offerings driven by accumulated custom-
er data (Meha, 2021). Marketing reality is seen as a complex web of relationships, its description
forms an interconnected array of concepts and models (Kotler et al., 2021; Uzunova et al., 2010)
while connectivity stands as the pivotal factor reshaping the marketing landscape, altering market
dynamics and the nature of interactions between competitors and customers. Technological ad-
vancements provide new avenues for CRM development, enabling the use of innovative solutions
like machine learning and artificial intelligence for hyper-personalization or one-to-one market-
ing (Kotler et al., 2021) reshaping traditional strategic frameworks in marketing (Hoffman et al.,
2022). Many companies already engage in direct customer-to-customer (C2C) interactions, lever-
aging audience engagement with specific brands. Today’s customer relationships embody four key
features: data-driven, subscription-based, sharing-based, and experience-based (Steinhoff et al.,
2022). The growing volume of customer data underscores the need for effective management (via
CRM software) and analysis to enhance personalization. However, safeguarding consumer data
in large datasets becomes crucial, driven not only by marketing needs but also by legal and regu-
latory obligations in developed markets. Developed markets transition from an experience econ-
omy to a transformation economy (Pine & Gilmore, 2013) with emerging forms of digital reality
altering human cognition, necessitating adaptations in marketing strategies based on changed be-
havioral patterns (Ball et al., 2021). Various models exist in marketing theory and practice to man-
age customer relationships, guiding organizations in understanding the factors and processes in-
volved in acquiring, converting, and retaining customers. The CRM models serve as a compre-
hensive workflow, directing all organizational interactions with potential clients.
3. BRIEF OVERVIEW OF THE CRMDIAMOND MODEL
Mack et al. (2005) introduced the CRM-Diamond model, incorporating key elements of CRM
strategy, emphasizing increased customer loyalty, targeted customer control, and improved cus-
tomer awareness (Mack et al., 2005). The first core element, the CRM-Vision integrates CRM
strategy into corporate strategy, where principles, evaluation, and customer segmentation play
crucial roles in the organization’s overall strategy. The second core element, the CRM activities,
encompass a combination of four CRM activity cycles, illustrated by four modules: Custom-
er Information Management (CIM) Module, Customer Transaction Management (CTM) Mod-
ule, Customer Product/Service Management (CPM) Module, and Customer Lifecycle Manage-
ment (CLM) Module. The CIM module is the foundation for managing customers as a whole,
involving the analysis of existing data systematically, while the CTM module focuses on direct
interaction between the company and the customer during each sales transaction. The CPM
module encompasses product design oriented toward the customer and continuous improve-
ment of the organization’s product portfolio, while the CLM module aims to build, maintain,
and extend long-term customer relationships. The third core element, the CRM Base emphasiz-
es three distinctive requirements for successfully implementing CRM activities - an adaptable
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Transforming the CRM Diamond Model with Genetic Data Integration
organizational structure, effective information technologies and database management, and a
customer-oriented organizational culture. In the context of the diagnostic process in CRM, it is
essential to investigate and measure the level of integration and implementation of the adopted
CRM strategy. This can be addressed by tracking the effectiveness of the CRM strategy and in-
tegrating and dynamicizing the descriptive CRM diamond model (Stanimirov, 2017).
4. CUSTOMER GENETIC DATA AND THE BIG DATA PROBLEM
The “big data” poses significant challenges for customer relationship management (CRM) sys-
tems due to its vastness, velocity, and variety (Diebold, 2012; Dodge & Kitchin, 2005; May-
er-Schonberger & Cukier, 2013). Traditional CRM systems struggle to handle the real-time gener-
ation and diverse formats of big data, leading to delays and reliability issues in customer insights
(Mack et al., 2005; Patel et al., 2017). Additionally, the relationality and variability of big data fur-
ther complicate CRM operations (Boyd & Crawford, 2012). The integration of customer genetic
data into business strategies raises ethical and legal concerns, particularly regarding data privacy
and security (Briscoe et al., 2020). Legal frameworks, like the EU’s GDPR, vary globally, impact-
ing how genetic data is handled (Ivanova-Kadiri, 2023). Genomic data management is viewed as a
big data problem, necessitating robust regulatory measures (Reali et al., 2018). Human DNA data
presents unique challenges, including immediate identification, potential familial insights, and
permanence (Daviet et al., 2022). Such data may be vulnerable to cyberattacks and discriminatory
practices (Deliverska, 2013; O’Doherty et al., 2021). Consumers fear repercussions such as denied
employment and insurance exploitation (Briscoe et al., 2020). In the context of genomics-as-a-ser-
vice (Reali et al., 2018), integrating genomic data adds complexity to CRM operations. Address-
ing these challenges is pivotal for CRM systems to leverage genetic insights effectively (Kitchin
& McArdle, 2016). Striking a balance between innovation and ethical use of genetic data is imper-
ative for advancing personalized medicine and maintaining consumer trust.
5. GENETIC MARKETING EFFECT ON CUSTOMER RELATIONSHIP MANAGEMENT
Genetic information is reshaping consumer behavior analysis, integrating biological insights
into marketing strategies (Ivanova-Kadiri, 2023). Biomarketing, a nascent field merging biolo-
gy and marketing, emphasizes the reciprocal determinism between biological and social fac-
tors in shaping consumer behavior (Fatoki, 2021). Genetic data provide unparalleled depth in
understanding consumers, offering insights into individual identities, familial connections, and
predictive behaviors. Within customer relationship management, genetic marketing introduc-
es a new era of hyper-personalization. In the era of “Marketing 5.0,” characterized by demand
for personalized experiences (Kotler et al., 2021), genetic marketing offers a powerful tool for
strengthening customer relationships. However, its implementation requires ethical consider-
ations regarding data privacy and usage (Daviet et al., 2022; Deliverska, 2013; Ivanova-Kadiri,
2023). As technology evolves, genetic marketing may play an increasingly pivotal role in CRM,
revolutionizing how businesses interact with and serve their customers. Data-driven marketing
enables the construction of a CRM ecosystem for more precise customer targeting. It serves as
a springboard for hyper-personalization or targeting individual customers as market segments
(Kotler et al., 2021). At the core of DNA-based marketing lies the customer’s genetic persona,
enabling profiling despite the uniqueness of their genomic signature. Profiling and segmenta-
tion can be bidirectional, based on genetic assumptions about specific user behaviors. The ac-
cumulated genetic knowledge about the customer can be used to create personalized products
or services offered in an individualized manner. Conversely, certain genetic markers may serve
136
8th International Scientific Conference EMAN 2024
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as carriers for specific purchasing behavior (Daviet et al., 2022), which will also be integrated
into customer relationship management. This transformation fundamentally reforms customer
relationship management. Adaptations are required across the CRM-diamond model, spanning
strategic, operational, customer product/service management, and technological aspects.
6. GENETIC DATA INTEGRATION INTO THE CRMDIAMOND MODEL
Incorporating genetic data into the CRM-Diamond Model signifies a strategic evolution across its
facets to harness the transformative potential of genomic insights in customer relationship man-
agement. The CRM Vision is redefined to prioritize hyper-personalization through genomic per-
sonas, necessitating strategic adaptations to accommodate genetic data. This entails adding core
CRM activities, such as customer experience management and customer knowledge management,
and adapting them to effectively integrate genetic insights. Foundational to this evolution is ensur-
ing robust data privacy measures, especially concerning sensitive genetic information.
Figure 1. Transformed CRM-diamond model with genetic data integration
Source: Own processing
In the proposed integration of genetic data into the CRM-Diamond Model (Figure 1), the CRM
Vision undergoes a substantial shift toward customer hyper-segmentation, achieved through the
development of genomic personas. It necessitates the establishment of robust ethical and pri-
vacy policies governing genetic data usage, alongside meticulous stakeholder management and
regulatory compliance measures. Within CRM activities, alongside customer experience man-
agement, transaction management, and product/service management, a key addition is the man-
agement of customer genetic lifetime value. This involves the analysis and utilization of genet-
ic data to understand the long-term value of customers based on their genetic profiles, enabling
personalized engagement and tailored offerings. In the CRM Base, genetic database manage-
ment takes precedence, encompassing cybersecurity measures to safeguard sensitive genetic
information. Advanced technologies such as machine learning (ML), deep learning (DL), and
artificial intelligence (AI) algorithms are utilized to derive insights from genetic data, while
137
Transforming the CRM Diamond Model with Genetic Data Integration
encryption and blockchain technology ensure secure storage and transmission. Access control
mechanisms are implemented to restrict unauthorized access to genetic databases, ensuring
data integrity and confidentiality.
In terms of implementation strategies, organizations must extend their focus from strategic
planning to stakeholder engagement, technology integration, training, and continuous improve-
ment to effectively implement genetic data integration within the CRM framework. Adapting
sales channels, particularly through digital marketing tools, becomes imperative to facilitate
communication between sellers and buyers in light of the new business models (Vanhala et al.,
2013) driven by genetic insights. Compliance with legislation governing genetic data storage
and processing is paramount to building and maintaining customer trust.
7. CUSTOMER GENETIC DATA MANAGEMENT
Integration with third-party genetic labs through API communication underscores the importance
of safeguarding customer data. The European Genomic Data Infrastructure (GDI) project (n.d.)
is dedicated to revolutionizing research, policymaking, and healthcare across Europe through ad-
vanced IT solutions and robust data privacy management, including blockchain technology. The
project ensures controlled access to human genomic, phenotypic, and clinical data across Europe
through establishing a federated, sustainable, and secure IT infrastructure. It integrates block-
chain-enabled data privacy management, where approved clinicians, scientists, and healthcare
policymakers can securely access insights for improved clinical diagnostics, treatments, and pre-
dictive medicine. Integrating genetic algorithms into the incorporation of customer genetic data
within CRM holds promise for significantly enhancing CRM strategies. Genetic algorithms offer
a robust analytical framework capable of processing extensive datasets (Gen & Lin, 2023) and ex-
tracting valuable insights from genetic information. Leveraging genetic algorithms, CRM systems
can refine customer segmentation, personalize marketing strategies based on genetic profiles, and
enhance fraud detection mechanisms, thereby maximizing the utility of genetic data in CRM ap-
plications (Dahab et al., 2023; Garai, 2022a; Xu et al., 2014). Drawing inspiration from natural
evolution, genetic algorithms are esteemed for their advanced yet straightforward nature, making
them a preferred solution across various domains. Their methodology simplifies problem-solving
by identifying recurring patterns, proving instrumental in data mining endeavors such as identi-
fying association rules within business databases and detecting fraud.
8. CONCLUSION
Integrating genetic data into the CRM-Diamond model offers businesses a powerful tool to revo-
lutionize customer relationship management. By prioritizing hyper-personalization and leveraging
genetic insights, organizations can enhance customer segmentation, engagement, and satisfaction,
driving value creation in the digital age. However, addressing ethical, legal, and technical challenges
is crucial for realizing these benefits. Implementing robust data privacy measures, engaging stake-
holders effectively, and leveraging advanced technologies such as machine learning and blockchain
are essential steps in navigating these challenges. Looking ahead, the integration of genetic data into
CRM systems is poised to reshape customer relationship management. The potential applications in
personalized medicine, healthcare services, product development, and marketing are vast. However,
ethical and regulatory considerations must be carefully managed as the use of genetic data expands.
Ensuring data privacy, consent, and protection against discrimination will be paramount. Business-
es can stay ahead of the curve and deliver value in an increasingly data-driven world.
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8th International Scientific Conference EMAN 2024
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ht tps://doi.org/10. 31410/E MAN.S.P.2024.141
https://orcid.org/0000-0002-4015-4544
https://orcid.org/0000-0002-2128-3324
The Influence of Podcast Engagement
on Consumer Perception and Purchase Intention:
Evidence from Croatia
Ivana Tonković Pražić1
Kristina Devčić2
Keywords:
Podcast;
Podcast engagement;
Consumer perception;
Purchase intention;
Croatia
Abstract: Podcast adoption and audience have been growing at a high
rate for the last decade since they enable higher levels of availability, intima-
cy and interactivity than many other media. The attractiveness and advan-
tages of podcast advertising that arise from the characteristics and popular-
ity of podcasts themselves, caused an increase in podcast advertising. In or-
der to gain deeper insight into the influence of podcast advertising on con-
sumer behavior and thus improve our understanding of this area of digital
marketing, an investigation on how podcast engagement influences con-
sumer product recommendation perception and purchase intention of the
brands and products advertised by their favorite podcast was conducted. In
order to achieve the set goal, a questionnaire was administered among a
sample of Croatian consumers. The collected data was analyzed and the re-
sults were presented and interpreted.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
The need to deliver content to the public is an ever-growing one, which can be seen from an
increase in both the number and the diversity of new ways of presenting the interested and
awaiting masses with topics and subject matter of interest. Among those new ways and modes of
connecting and content delivery one can mention newsletters, videos such as YouTube or TikTok
videos, e-books, but also audio which are recently predominantly being represented by podcasts.
New communication technologies, arising from the aforementioned need, have contributed to
the development and application of new modes of connecting between consumers and compa-
nies, that send their advertising messages through personal computing devices, social media
platforms, mobile devices and applications. This allowed companies to adapt their offer and
messages for consumers more efficiently through the use of digital marketing.
Traditional advertising is decreasing – linear radio and television advertising revenues are giv-
ing way to digital marketing advertisement revenues. Nowadays, the most prominent trend in
digital marketing is podcast advertising due to the increasing popularity of podcasts in recent
decades. The aforementioned popularity of podcasts is evident in the last decade from a grow-
ing number of listeners and new episodes running all over the world. Even though podcasts ex-
panded during the 2010s, they became tremendously trendy in the 2020s after the spreading of
smartphone use that enabled easier access and subscription to podcast content.
Despite the relevance of podcast advertising for companies and its influence on consumers, rele-
vant literature lacks a clear framework to clarify how podcast engagement influences consumer
1 University of Applied Sciences “Nikola Tesla” Gospić, Bana Ivana Karlovića 16, 53000, Gospić, Croatia
2 University of Applied Sciences “Nikola Tesla” Gospić, Bana Ivana Karlovića 16, 53000, Gospić, Croatia
Received: April 12, 2024
Accepted: July 26, 2024
Published: December 17, 2024
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8th International Scientific Conference EMAN 2024
Selected Papers
behavior. This paper has aimed to fill this gap in the marketing theory, by exploring our under-
standing of the relationship between the dimensions comprising listeners’ engagement in pod-
casts and the way their engagement affects their perception of recommendations presented and
intention to buy products advertised in the podcast. In the first part of the paper, a review of rel-
evant literature on podcasts and podcast marketing as well as podcast engagement will be pre-
sented. Secondly, the conducted research on the aforementioned factors will be described. Fi-
nally, a conclusion and recommendation for further research will be provided in this paper.
2. LITERATURE REVIEW
2.1. Podcast
The term podcast, a concoction consisting of parts of the words ‘iPodand broadcasting, was
introduced in 2004 by journalist Ben Hammerseley (McGregor, 2022). Since its introduction,
there have been several definitions of what is considered to be a podcast. Thus, Olmsted and
Wang (2020) defined the term as ‘downloadable audio programs that have aired through broad-
cast radio. Rohden et al. (2023) defined a podcast as ‘a program or an episode which is available
for free in digital audio files that can be listened to either online or after download that usually
involve one or more hosts discussing a topic or telling stories that are relevant for its audience’.
Birch and Weitkamp (2010) described podcasts as audio files that are ‘aggregated and download-
ed via the Internet and listened to on portable media players’.
According to McGregor (2022), the golden age of podcasting began in 2014, with the emergence of
the podcast Serial. This period of podcast market development was characterized by the ‘formali-
zation of podcasting into a cultural industry’ (McGregor, 2022). Nowadays, thousands of podcast
creators and producers broadcast their content focusing on specific topics and concerning particu-
lar and diverse groups or communities of listeners in various artistic forms such as documenta-
ries, fiction, mystery, or comedy; in different genres and styles of presentation (McGregor, 2022).
Several characteristics of podcasts make this medium unique. Some of those characteristics are the
seriality of podcasts, the variety of podcast shows, active role listeners often play in content creation
(Ettmüller, 2021), but also their availability at any time allows listeners to choose the atmosphere
and the amount of attention they are willing to invest in podcasts (Rohden et al., 2023). Furthermore,
podcasts were considered to be more intimate for audiences since the information was presented via
human voices. In addition, there existed a certain interactivity among the podcasts’ creators and a
link between them and their listeners through common interests and topics they covered and com-
mented on (Rohden et al., 2023). This interactivity resulted in the term ‘prosumers’, which refers to
podcast listeners who are invited into a conversation with podcast creators (Chatterjee et al., 2023)
thus having a role of both potential or actual producers and consumers of this media.
All of the aforementioned advantages of podcasts allowed for the increase of both the number
and diversity of podcasts and podcast listeners. Even though the largest market for podcasts is
the USA, followed by the UK, Canada, Australia, and New Zealand (McGregor, 2022), other
markets also exhibit a growing trend and even a tendency to overshadow today’s biggest mar-
kets. In that effect, the number of listeners in the USA is estimated to be equated with Latin
America in 2025 and even surpassed by China in 2027. The number of podcast listeners is also
ever-increasing in Western Europe, although at a slower rate, and is estimated to grow to 128,5
million listeners in 2027 (Cramer-Flood, 2023).
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The Influence of Podcast Engagement on Consumer Perception and Purchase Intention:
Evidence from Croatia
The number of podcast listeners has been on the rise in Croatia as well, which can be seen in
the example of the growth of podcast listeners from 37% in 2019 to 38,5% in 2020 (Paisana &
Crespo, 2022).
2.2. Podcast Advertising
As can be concluded from the aforementioned, podcasts have become an important way of com-
municating, but they have meanwhile become a popular and effective way of advertising. Al-
though some studies report consumers being overwhelmed by advertising (Nicola, 2022), pod-
casts have certain advantages over other ways of communication with consumers that allow
them to not be as obvious about their commercial messages to consumers. One of the aforemen-
tioned advantages is the ability to insert advertisements into regular programs, unlike TV pro-
grams that require commercial breaks to display advertising messages (Ettmüller, 2021). Fur-
thermore, advertising messages in podcasts are presented by the host or embedded into a story
which makes them seem even more indistinguishable from the rest of the content and thus more
acceptable to the consumers. Moreover, podcasts are tailored for specific audiences that share a
common belief or interest that enables marketers to reach a target audience and advertise their
brands to the ones most interested and invested in the product related to the podcast topic. (Ett-
müller, 2021) Finally, podcast advertisements are more effective and received positively, unlike
traditional advertising efforts, mostly because podcast listeners trust their podcasters and there-
fore prefer ads that are delivered by them (Moe, 2023).
Aside from the aforementioned advantages of podcast advertising, an increase in the popularity
of podcast advertising and its revenues is also a consequence of a growth in the number of pod-
cast listeners. The increasing number of podcast listeners is what makes the marketing poten-
tial of podcasts large, which can be seen from the fact that advertising in the 25 biggest shows
reaches nearly half of all weekly podcast listeners in the USA above the age of 13, with a stag-
gering number of 85 millions of listeners in 2023 (Edison Research, 2023). Consequentially, ac-
cording to Moe (2023), revenues from podcast advertisements increased, which can be seen in
the example of the 48% growth during just one year, from 2018 to 2019, when they amounted
to 708 million $.
Research on podcast advertising and its influence has been conducted in many markets, such
as the USA, Europe and Latin America (Terol-Bolinches et al., 2022), or India (Bezbaruah &
Brahmbhatt, 2023), but relevant studies of podcast advertising or consumer behavior regarding
podcasts in Croatia have been almost non-existent.
Although various authors have found that podcast advertising can be quite effective, the prob-
lem arising with podcast advertising is connected to the fact that it is not known which factors
contributed to its effectiveness. One of those factors that some authors proved to be relevant to
the effectiveness of podcast advertisements is consumer podcast engagement, a construct that
deserves more attention and research, and therefore was the topic of interest of this paper.
2.3. Podcast Engagement
Due to the relevance, it poses to adopting products and brands as well as developing loyalty, con-
sumer engagement has been well-researched in the relevant literature, although academics stud-
ying consumer behavior define the construct of consumer engagement differently. According to
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8th International Scientific Conference EMAN 2024
Selected Papers
Viswanathan et al. (2017), consumer engagement stems from interactive and co-creative experi-
ences with a focal agent or object and it exists in a dynamic and iterative process within relation-
ships between consumers and companies or brands. Van Doorn et al. (2010) define customer en-
gagement behavior as consumer behaviors toward a brand or a company that results in motiva-
tion and can be exhibited as word-of-mouth activities, writing reviews, but also other forms of
interactive experiences with a product, company, or brand. Hollebeek et al. (2014) consider cus-
tomer brand engagement to be the level of their cognitive, emotional and behavioral investment
in a brand. Nadeem et al. (2021) described consumer engagement as an indicator of commitment
to customers, customer trust and the importance of their loyalty toward a company, product, or
brand. Additionally, Ben-Eliyahu et al. (2018) defined consumer engagement as the intensity of
productive involvement with an activity that includes involvement focus, participation and persis-
tence on a task. Based on relevant definitions of the term consumer or customer engagement, pod-
cast engagement or engagement with podcasts may be defined as the level of commitment and in-
vestment with podcasts, that can have a cognitive, affective and behavioral dimension. This re-
search focused on exploring the cognitive and affective dimensions of podcast engagement.
Exploring and analyzing the construct of consumer engagement, different authors found it to be
a multidimensional construct. For instance, Vivek et al. (2014) considered engagement to be com-
prised of conscious attention, enthused participation and social connection, while Hollebeek et al.
(2014) as well as Brodie et al. (2013) described it as a construct consisting of affective and cog-
nitive dimensions, as well as a behavioral dimension. The affective dimension refers to positive
emotional states or feelings toward a brand or a product, such as enjoyment, enthusiasm, or social
connection. According to Ben-Eliyahu et al. (2018), affective engagement expresses a positive ef-
fect, ie. positive reactions, and engagement emotions, suggesting that positive emotions can lead
to higher levels of behavioral and cognitive engagement. On the other hand, the cognitive dimen-
sion is mostly comprised of absorption, attention and cognitive processing (Hollebeek et al., 2014;
Vivek et al., 2014). Cognitive engagement refers to the extent of focusing on a task, thinking and
paying attention to a focal point of interest (Ben-Eliyahu et al., 2018).
Consumer engagement may result in a long-term relationship and commitment, and even loy-
alty between a listener and their listened-to podcast. Sprott et al. (2009) even claim that engage-
ment may affect consumers’ attitudes and also their loyalty, while Calder et al. (2016) prove that
engagement affects consumer attitudes toward advertisements and their purchase intention.
Aldhamiri et al. (2024) claimed that passive engagement in social media implied consumers’ in-
teraction with brands on social media without any activity, such as reading comments, watch-
ing and listening to videos on social media, etc. They considered passive engagement to be the
part of engagement focused on the consumption of the content instead of its creation.
Even though consumer engagement with products and brands has been thoroughly investigat-
ed, research on the subject of the relationship between engagement in new technological ad-
vances and consumers’ purchase behaviors is scarce (Hollebeek et al., 2014; Rohden et al., 2023;
Viswanathan et al., 2017). Rohden et al. (2023) investigated the engagement of podcast consum-
ers but focused on the antecedents of the construct, not on the consequences of engagement.
Viswanathan et al. (2017) conducted a study researching the relationship between consumers’
engagement with mobile apps to their purchase and consumption behaviors, although the inves-
tigation of this relationship in the context of podcast engagement has not been found in the rel-
evant literature.
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The Influence of Podcast Engagement on Consumer Perception and Purchase Intention:
Evidence from Croatia
There are a few studies that dealt with the influence of consumer engagement on their behavior.
While exploring consumer engagement on social media, Bilal et al. (2024) discovered consumer en-
gagement on social media positively influenced their purchase intention and as well as some other
modes of consumer behavior. However, some studies were found that dealt with elements of specif-
ic engagement dimensions and their influence on consumer behavior. For instance, Shin and Back
(2020) found that cognitive engagement, described as consisting of elements of attention and absorp-
tion, had a positive influence on brand love, ie. intimacy, passion and decision or commitment to
maintaining a loving relationship. Based on this research, one can conclude that the cognitive engage-
ment of podcast listeners can affect a committed relationship between listeners and their podcast.
Furthermore, Rajput and Gandhi (2024) conducted a study in which they concluded that the likeabil-
ity of podcasters influences listeners’ perceptions of both the podcast and the product recommended
in the podcast. Consequently, it could be concluded that owing to their’ committed relationship based
on cognitive engagement, consumers would be more likely to trust podcast recommendations that, in
turn, affect their product recommendation perception. Thus, the first hypotheses may be proposed:
H1: Podcast cognitive engagement positively affects product perception.
H1a: Podcast cognitive engagement positively affects product purchase perception.
H1b: Podcast cognitive engagement positively affects product recommendations perception.
Some authors studied the relationship between elements of affective engagement of consumers and
their consequential behavior. After conducting their research, Blasco-Arcas et al. (2016) found that
positive emotions of pleasure and arousal affect consumers’ engagement, and, consequently, their
purchase behavior. Similarly, Wang et al. (2020) concluded that consumers that felt an emotional
connection to a particular online store were more likely to form a decision or intention to purchase
from the same store in the future. Bilal et al. (2024) discovered through their research that consum-
er engagement on social media positively influenced their purchase intention, moderated by con-
firming that affective attachment moderates the relationship between consumer satisfaction and
purchase intention. Previously described research may lead to the conclusion that effective con-
sumer engagement may affect consumers’ purchase intention, so the following hypothesis was set:
H2: Podcast affective engagement positively influences purchase intention/product value
perception.
3. RESEARCH DESCRIPTION AND RESULTS
In order to test the hypotheses set, research was conducted via a survey of Croatian consumers.
The research was conducted at the beginning of 2024, and overall, 91 respondents from Croatia
participated. The sample consisted of 54% male and 46% female respondents with the following
age distribution: 31% of respondents younger than 25 years, 19% between 26 and 35 years, 24%
between 26 and 45 years, 16% between 46 and 55 years, 2% between 56 and 65 years and 8%
older than 66 years. Education-wise, most of the respondents (43%) have finished high school,
followed by masters (26%), bachelors (21%), those who finished elementary education (7%) and
PhDs (3%). Respondents mostly (37%) had monthly incomes between 1500 and 2000 euros,
followed by an income of more than 2000 euros (27% of respondents), those with monthly in-
comes between 1000 and 1500 euros (24%), and finally up to 1000 euros (11% of respondents).
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The measuring instrument used was a questionnaire consisting of two parts. The first part of
the questionnaire was intended to measure podcast engagement, purchase intention and product
perception. It was based on measuring instruments used and verified by relevant authors (Khan
et al., 2021; Rather et al., 2022; Rohden et al., 2023; Roudposhti et al., 2018). The items were trans-
lated and adapted to measuring podcast engagement since they were originally mostly meant
to measure engagement in social media or customer engagement behavior. Respondents were
supposed to express their thoughts, feelings and behavior concerning their favorite podcast, and
the answers were presented by a Likert scale from 1 to 5. The second part of the questionnaire
consisted of personal questions, concerning respondents’ gender, age, education level and aver-
age monthly income.
Collected data were analyzed with SPSS.
Table 1 depicts descriptive statistics of variables observed as independent variables in the
analysis.
Table 1. Descriptive statistics of independent variables
Variable
name Variable Mean Std. D e v. Min Max
PE1 I diligently follow everything connected to the podcast. 3.142857 1.140871 1 5
PE2 I am grateful to the podcast for broadcasting its content. 3.252747 1.278831 1 5
PE3 I feel a deep connection to the podcast. 2.67033 1.256582 1 5
PE4 Listening to the podcast makes me very happy. 2.868132 1.309867 1 5
PE5 I feel proud to listen to the podcast. 3.252747 1.379158 1 5
PE6 Listening to the podcast makes me think about the relevant
topics it covers. 3.67033 1.220701 1 5
PE7 I think about the podcast even when I am not listening to it. 2.769231 1.414818 1 5
PE8 Listening to the podcast consumes me so I forget about
everything else. 2.516 484 1.285497 1 5
Source: Own calculations
Two linear models that tested the influence of cognitive podcast engagement (3 items) on prod-
uct perception were estimated. Cronbachs Alpha for the cognitive podcast engagement scale (3
items) was 0.8862.
Two linear regression models were estimated and both were statistically significant. Model for
product purchase perception was significant (F (3, 87) = 22.75, p = 0.000) and explained 44% of
the variance. The aforementioned model exhibited a positive and statistically significant influ-
ence of cognitive podcast engagement (out of the three variables the influence of two was sta-
tistically significant) on product purchase perception.
The linear regression model explaining podcast recommendations perception was statistical-
ly significant (F (3, 87) = 24.14, p = 0.000) and explained 45.43% of the variance. The mod-
el proved a positive and statistically significant influence of cognitive podcast engagement on
product recommendation perception. These results confirmed H1 (H1a and H1b). The afore-
mentioned results are displayed in Table 2.
Using a linear regression model with purchase intention as the dependent variable, the influence
of affective podcast engagement as the independent variable (3 items) was tested. Cronbach al-
pha coefficient for the affective podcast engagement scale was 0.8926. The linear regression
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The Influence of Podcast Engagement on Consumer Perception and Purchase Intention:
Evidence from Croatia
model proved to be statistically significant (F (3, 87) = 35.30, p = 0.000) and explained 54.9%
of the variance. The model proved a positive and statistically significant influence (b > 0) of af-
fective podcast engagement on purchase intention thus confirming H2. The results of the esti-
mated linear regression model are shown in Table 3.
Table 2. Results of conducted analysis for models 1 and 2.
Product purchase perceptionCoefficient t
PE6 0.24* 2.07
PE7 -0.18 0.198
PE8 0.67* 2.68
Product recommendations perception
PE6 0.25* 2.07
PE7 -0.18 -1.30
PE8 0.67* 2.68
* at 0.05 level of significance
Source: Own calculations
Table 3. Results of the conducted linear regression model 3.
Purchase intention Coeff icient t
PE2 0.36* 2.69
PE3 0.27* 2.14
PE5 0.26* 2.09
* at 0.05 level of significance
Source: Own calculations
Other relationships between podcast engagement variables and consumer behavior were also
tested, but they failed to be statistically significant and were therefore not included in the
models.
4. FUTURE RESEARCH DIRECTIONS
As with other studies, this research has limitations, such as the sample used. Namely, the re-
sults of this paper in future research should be confirmed with a larger sample. Furthermore,
the results of the research might also be verified by comparison with results from a sample of
respondents from other countries to mitigate the cultural influences on the results.
Further research directions might include the exploration of the impact of other independent
variables, such as behavior podcast engagement, identification with the podcaster, or podcast
loyalty, as antecedents of product perception and intention to buy.
5. CONCLUSION
According to the conducted analysis on collected data from Croatian consumers, affective and
cognitive podcast engagement of consumers positively influences variables of purchase inten-
tion and product recommendation perception. In other words, Croatian consumers are more
willing to buy products advertised in podcasts if they feel emotionally invested in podcasts. In
addition, Croatian consumers are more likely to perceive product purchases and product recom-
mendations positively if they are cognitively more invested in podcasts.
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8th International Scientific Conference EMAN 2024
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The results have several practical implications for marketing experts and podcast creators since
it has proven that podcasts that listeners are more engaged with have a dual function of a trust-
ed product information source and behavior instigator. Namely, building an emotional connec-
tion with listeners, especially building on feelings of gratitude, connectedness and pride, would
increase the consumers’ willingness to buy advertised brands. In addition, creating inviting, in-
teresting, and immersing/capturing content that might attract the attention and spark consum-
ers’ imagination, should contain product recommendations of brands and products. On the oth-
er hand, podcast host trustworthiness or image did not prove to be an important factor for high-
ly engaged podcast consumers, so the content should be the main focus of podcast creators.
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8th International Scientific Conference EMAN 2024 – Selected Papers
ht tps://doi.org/10. 31410/E MAN.S.P.2024.151
https://orcid.org/0000-0001-9836-9006
https://orcid.org/0009-0004-5538-9946
https://orcid.org/0000-0002-6544-2745
https://orcid.org/0000-0003-2018-1606
Examining Consumer Attitudes Towards Online Shopping
for Intimate Apparel in North Macedonia:
A Study of Customer Expectations & Preferences
Nadica Jovanovska Boshkovska1
Sara Spasovska2
Ilijana Petrovska3
Ana Tomoska Misoska4
Keywords:
Online shopping;
Consumer attitudes;
Underwear;
Intimate apparel;
Consumer behavior
Abstract: The main aim of this paper focuses on analysing consumer at-
titudes toward purchasing intimate apparel products online. The necessi-
ty for such research arises at a time when online shopping in North Mace-
donia has become a daily routine, with statistics showing a significant pro-
portion of consumers from the region engaging in online shopping. The ap-
parel was selected for analysis, with a specific emphasis on underwear. Con-
sidering the intimate nature of this segment within the apparel industry, a
questionnaire consisting of 21 questions was distributed to consumers of the
Macedonian underwear brand, Sara Fashion, via social media platforms
such as Facebook and Instagram. The research gathered feedback from 80
consumers, from which the research findings showed that online shopping
yields a positive experience.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
The development of the Internet has profoundly altered the way people live, permeating
every facet of daily life, from entertainment to work. It has also revolutionized the process
of buying and selling goods and services, making online sales an integral part of everyday life.
This shift is driven by numerous advantages, including the ability to shop anytime and from
anywhere, effortless price comparison, swift transaction processes, convenient payment meth-
ods, home delivery, and more. Undoubtedly, the advancement of the internet and technology
has significantly influenced consumer shopping habits. Consequently, numerous studies have
been conducted to evaluate and observe the behaviours of online shoppers. Online consumer
behavior is the process of how and why consumers make decisions about purchasing products
in e-commerce. Consumers and their behavior are always based on identifying a need or decid-
ing to make a purchase (Kesić, 2006). And while the needs look different for every shopper, the
new expectations currently driving consumer behavior online are rooted in commonality. Ex-
pectations ranging from product availability, product quality, price, and delivery transparency
affect how consumers make decisions to purchase items online (and whether they remain loyal
customers after purchasing) (Wenzl, 2021). Apparel makes up most of what consumers buy on-
line, but footwear and underwear still represent a significant portion of online fashion market
revenue globally (Statista.com., 2022).
1 University American College Skopje, School of Business Economics and Management, Bul. Treta Make-
donska Brigada 60, 1000 Skopje, Republic of North Macedonia
2 Sara Fashion Ltd., Ilinden, Street 34, 32, 1000 Skopje, Republic of North Macedonia
3 University American College Skopje, School of Business Economics and Management, Bul. Treta Make-
donska Brigada 60, 1000 Skopje, Republic of North Macedonia
4 University American College Skopje, School of Business Economics and Management, Bul. Treta Make-
donska Brigada 60, 1000 Skopje, Republic of North Macedonia
Received: March 28, 2024
Accepted: July 15, 2024
Published: December 17, 2024
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8th International Scientific Conference EMAN 2024
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When it comes to online sales of intimate apparel, we are encountering a distinct phenome-
non. As Halliwell and Dittmar (2004) emphasize, the underwear segment includes items that are
practically worn under outer clothing. This is intimate clothing that changes consumer behavior.
That is why the paper aims to explore and understand the attitudes of consumers who purchase
underwear online. The research focuses on analysing consumer behaviour in online underwear
purchases to emphasize e-commerce within this sector of the clothing industry. The conclusions
drawn in this study are based on data extracted from a quantitative analysis of the target group:
online consumers of the Macedonian underwear brand, Sara Fashion.
2. LITERATURE REVIEW
2.1. Development of Online Sales
The online store, as an integral part of the electronic business, enables the Internet visitor (cli-
ent) to order products via the Internet. According to Mandušić et al. (2004), online shopping can
be the fastest and often the cheapest way to buy a product. Knowing the details of that type of
purchase plays a big role in deciding whether someone will shop online. Ahuja et al. (2003) and
Goldsmith and Bridges (2000) define Internet consumption as a passive gathering of informa-
tion through exposure to advertising, shopping that involves searching and gathering informa-
tion and, in a sea of offers, choosing specific goods or services to order.
The first electronic sales took place in the city of Columbus, Ohio in 1969, and took place by
sending data over telephone lines, which is known as electronic data interchange or EDI (Elec-
tronic Data Interchange). An important figure in the development of what would later become
online buying and selling is Michael Aldrich. His idea came from the fact that he found it tiring
to go to stores for products all the time and came up with the idea that he could develop a sys-
tem to buy products without going to stores (Faiz et al., 2021). So, in 1979, he invented teleshop-
ping in a way that combined the advantages of telephone and television and allowed people to
order products and services advertised on television over the phone. In this way, he invented on-
line buying and selling long before the Internet itself (Greving, 2023). According to Faiz et al.,
(2021), nowadays online sales are developing at such a speed that websites created a year ago are
now outdated and need to be revamped. To be able to achieve a certain level of competition ra-
tio, today’s websites are intuitive and integrate various technologies, thus establishing two-way
communication between buyers and sellers.
2.2. Consumer Behavior and Online Shopping
Consumer behavior is a wide topic that covers a large segment of the marketing process, one of
which is the process of deciding to buy a product. In fact, the decision-making process means
deciding between two or more alternatives (Munshi et al., 2020). However, when customers
make a decision, they are tempted by different factors such as social, cultural, psychological and
personal factors (Gilbert & Jackaria, 2002). For marketers, it is important to understand what in-
fluences peoples decisions when purchasing a product or a service.
When making a purchase decision in an online environment, customers behave differently, and
their behavior depends on different factors. According to Mpinganjira (2015), consumers show
different types of behavior when making a purchase decision because the products they buy
are not of equal value, so people who buy more expensive and more complex products consider
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Examining Consumer Attitudes Towards Online Shopping for Intimate Apparel in North Macedonia:
A Study of Customer Expectations & Preferences
alternatives and available options longer and involve more participants. The behavior of the buy-
er during the purchase is determined by the level of involvement of the buyer in the purchase it-
self, and riskier purchases, that is, the purchase of more expensive products, imply greater in-
volvement of the buyer in the purchase itself (Munshi et al., 2020).
2.3. Consumer Behavior When Purchasing Underwear Online
The term “underwear” is derived from the French word “linge” meaning linen but was first intro-
duced into the English language as a euphemism for underwear (Singh et al., 2022). Throughout
history, underwear has constantly changed shapes and appearances, from practical to fashion ac-
cessories. As stated by Halliwell and Dittmar (2004) the underwear segment includes items that
are practically worn under outer clothing. There are significant differences between purchasing
goals at different ages. According to research conducted in Italy by Crisnaro (2013), women over
40 are basically more conservative, prefer white products to colored products, and bras without
underwires which implies comfort, and support and they are loyal to a certain brand or model. In
contrast, young consumers need to look for products that are used as clothing to “show off”. From
the above, it can be concluded that market segmentation of buyers is complex and requires ade-
quate research to explain consumer behavior in this area of the textile industry.
Buying underwear presents a challenge for consumers considering that it is an intimate gar-
ment that should be comfortable and fit the proportions. Informal factors influence consumers
to use online shopping channels (Sanchez Torres & Arroyo-Cañada, 2017). Consumer expecta-
tions in a survey conducted in China by Jiang et al., (2013), depend on three strategic factors as
presented in Table 1.
Table 1. Consumer expectations
Sanchez Torres and Arroyo-Cañada (2017) Jiang et al. (2013)
Advertising factor Product: should be innovative, modern, exclusive in
terms of fashion content
Brand sensitivity Online store: its main feature is its diversity and
originality
The new concept of underwear, especially among
young consumers
Investment: the consumer prefers to spend less on a
product with high fashion content and spend more on
a classic, sober and durable product.
Source: Ashley Nicole Heller, 2022
However, the biggest influence on the customer’s decision to buy a product in a certain online
store, especially when it comes to underwear, is his confidence that the product will be of good
quality and fulfill all his needs, and expectations and that the online store will do everything
right, from ordering to delivery within the stipulated time (Sanchez Torres & Arroyo-Cañada,
2017). The buyer will also be loyal only if the product meets his expectations and if there is trust
in the seller.
Websites have been a very important channel to encourage consumers to buy underwear online.
Almost all Italian consumers who buy underwear online (94%) check information before buy-
ing online, starting with the manufacturer’s or brand’s official website (67%), then looking for
confirmation in expert reviews (57%) and comments from other users (47%) (Crisnaro, 2013).
As a result, word of mouth retains all its value, both for those who rely on comments posted
online by those who have tried the product before and for those who seek advice directly from
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their friends (26%). Social media is also an important driver of the fashion industry nowadays
(Mohr, 2013). On the one hand, it refers to the impact on the customer’s pre-purchase experience
process, which provides consumers with relevant content according to their research (through
big data analysis) (Tsaousi & Brewis, 2013).
Thus, consumers have the chance to always be updated on the latest trends and the opportunity
to receive quick and easy feedback/reviews from around the world at any time (Wolny & Muel-
ler, 2013). But as stated by Garimella et al. (2015), recently social media has changed its shape,
and today it is not only a channel through which consumers can search for suitable products, re-
views, and opinions during their pre-purchase phase, but recently it has become another sales
channel called Social Commerce or S-Commerce. When it comes to the underwear industry
and the pandemic with coronavirus COVID-19, every online store is already directly connect-
ed to a social network and allows purchases to be made directly from this social store (Garimel-
la et al., 2015).
3. METHODOLOGY
The research was conducted on the consumers of the Sara Fashion brand through a structured
questionnaire containing two parts: demographic and purpose analysis. The demographic anal-
ysis examined gender, marital status, educational level, and frequency of online shopping. In
the second part, the questionnaire is divided into five sections in which the respondents re-
sponded to the statements offered in each section separately through the Likert scale. These sec-
tions were selected as the most suitable for this study by analyzing a large amount of available
research on this topic. The survey questionnaire was distributed to Facebook and Instagram fol-
lowers in order to maximize the number of potential respondents.
3.1. Research Approach and Sample
The concept of customer purchasing behavior and the elements that influence it is difficult to
grasp. The positivist approach is related to a quantitative research method based on a statisti-
cal examination of quantitative (numerical data) research data because social processes may be
measured. The data analysis focuses on discovering connections between variables and causa-
tion (one variable influences the other). The research was conducted in June 2023. The ques-
tionnaire was distributed among one hundred consumers, and 80 responded.
Regarding the gender of the respondents, 25 men, or 32% of the respondents against 68% or 55
women participated in the research. The next demographic characteristic refers to the age of the
respondents. The largest percentage of respondents (35%) are between the ages of 26 and 32, then
those between the ages of 33 and 42 are represented by 27% of the respondents, while the youngest
and the oldest respondents are with 15% each. When it comes to marital status the largest percent-
age of respondents are married (47%), followed by unmarried with 25%. The remaining respond-
ents are proportionally divided as follows: extramarital union 14%, divorced 8% and widowed 6%
or 5 of the respondents. Regarding the level of education 44% of the respondents have bachelor’s
degree, then 31% have a master’s degree, and 19% or 15 of the respondents have a secondary edu-
cation, against 6% who have a doctorate. The last question concerns how often respondents shop
online. It can be noted that the respondents equally agree that they shop once a week and once a
month. Thus, 37% declared that they shop online once a week, 38% that they shop once a month,
and 25% of respondents stated that they do so once a year.
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Examining Consumer Attitudes Towards Online Shopping for Intimate Apparel in North Macedonia:
A Study of Customer Expectations & Preferences
3.2. Data Collection Instrument
Quantitative, descriptive research was conducted using a survey questionnaire as a research in-
strument, which the authors shared on the social networks Facebook and Instagram and used
the Messinger application to directly send individual respondents a request to complete the sur-
vey, which means that the research sample is a deliberate convenience sample with certain re-
strictions such as the age limit of the participants who should have been at least 18 years old.
Statistical data processing was done with the SPSS software package. Based on the research of
Kim and Lee (2016) an empirical study has been designed to discover the benefits sought by the
underwear online buying consumer and the elements imparting favorable brand experience on
the following conceptual framework.
On a 5-point Likert scale, the section on the utilization of digital marketing channels has 5 fac-
tors relating to customer behaviour. A Likert scale contains units of measurement ranging from
1 to 5, with 1 indicating Strongly Disagree, 2 indicating Disagree, 3 indicating Uncertain/Neu-
tral, 4 indicating Agree, and 5 indicating Strongly Agree.
4. RESEARCH RESULTS
A questionnaire was used in the research because it is possible to obtain specific answers rela-
tively quickly from a large number of people. The LimeSurvey tool was used to create the ques-
tionnaire, which is used to create different types of questionnaires with different types of ques-
tions depending on the needs of the research. In the questionnaire, respondents were guaran-
teed complete anonymity. In this dedicated part of the research, five aspects related to buying
underwear online were analyzed: Reasons for purchasing lingerie online, consumer’s expec-
tations from brand, lingerie purchasing occasions, consumer’s outlook on lingerie fashion and
factors of importance.
Fisher’s exact test was used, which is a statistical test used to determine whether there are
non-random associations between two categorical variables (Fisher, 1954). The first analysis of
the determinants that are examined is presented in the following table. From the information in
Table 2, it can be seen that the largest number of respondents, 25%, pay attention to what the un-
derwear brand can offer them. But the determined consumer’s outlook on lingerie fashion is not
lagging behind those who buy underwear because of the price, comfort and the need for quali-
ty underwear (20%). Determinants such as Reasons for purchasing lingerie online and Lingerie
purchasing occasions are represented by 17.5% and Factors of importance by 17.5%.
Table 2. Analysis of determinants of consumer behavior patterns for buying underwear online
Determinant Respondents %
Reasons for purchasing lingerie online 15 18.75
Consumer’s expectations from Brands 20 25
Lingerie purchasing occasions 15 18.75
Consumer’s outlook on lingerie fashion 16 20
Factors of importance 14 17. 5
Total 100
Source: Own processing
The following Table 3 contains the information about correlation made between the determi-
nants that are related to buying underwear online and the attitudes of consumers in relation to
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8th International Scientific Conference EMAN 2024
Selected Papers
the gender of the respondents. From what can be observed, both men and women are most af-
fected by what an underwear brand can offer them. Thus, 8 (32%), of the male respondents and
12 (21.82%) of the female believe that it most affects their decision to buy online, while the big-
gest difference in terms of gender is the determinant Lingerie purchasing occasions, where only
4 (16%) of the male respondents are affected by the opportunity to order underwear, against 12
(21.82%), female respondents who have different attitudes towards the opportunity to buy un-
derwear. As stated by Santhi and Sunil (2022) in their research on this topic, women buy under-
wear for self-indulgence, special occasions, or for a size change. Regarding Fisher’s exact test,
the following results were obtained: the chi-square statistic is 2.0807. The p-value is .72092. The
result is not significant at p < .05. This means that gender and the listed determinants are not de-
cisive in terms of gender for consumers’ choice in online underwear shopping. In a survey con-
ducted by Statista.com (2022), 62 percent of female respondents in the U.S. purchased individu-
al items of underwear products.
Table 3. Analysis of determinants of consumer behavior patterns
for buying underwear online based on gender5
Male %Female %
Reasons for purchasing lingerie online 3 (4.69) [0.61] 12 12 (10.31) [0.28] 21.82
Consumer’s expectations from Brands 8 (6.25) [0.49] 32 12 (13.75) [0.22] 21.82
Lingerie purchasing occasions 4 (4.69) [0.10] 16 11 (10.31) [0.05] 20
Consumer’s outlook on lingerie fashion 6 (5.00) [0.20] 24 10(11.00) [0.09] 10.182
Factors of importance 4 (4.38) [0.03] 16 10 (9.62) [0.01] 18.182
Source: Own calculations
The next correlation that is examined is the relationship between the investigated determinants
and the age of the respondents. According to the information presented in Table 4, it refers to the
relationship between the age of the respondents and the five determinants of consumer behav-
ior when buying underwear online. The results obtained are: the chi-square statistic is 2.7349.
The p-value is .997144. Since the result is greater than .05, the result is not significant at p < .05,
which indicates that there is no significant relationship between the two groups that were exam-
ined. In research done by Singh et al., (2022) age and online shopping habits, especially when it
comes to underwear, are mostly related to online shopping habits rather than age.
Table 4. Relation between age and determinates of underwear online shopping6
19-25 26-32 33-42 43+
Reasons for purchasing lingerie online 3 (2.81) [0.01] 6 (5.25) [0.11] 5 (4.12) [0.19] 1 (2.81) [1.17]
Consumer's expectations from Brands 4 (4.12) [0.00] 7 (7.70) [0.06] 6 (6.05) [0.00] 5 (4.12) [0.19]
Lingerie purchasing occasions 4 (3.75) [0.02] 7 (7.00) [0.00] 5 (5.50) [0.05] 4 (3.75) [0.02]
Consumer's outlook on lingerie fashion 3 (2.44) [0.13] 4 (4.55) [0.07] 3 (3.58) [0.09] 3 (2.44) [0.13]
Factors of importance 1 (1.88) [0.41] 4 (3.50) [0.07] 3 (2.75) [0.02] 2 (1.88) [0.01]
Source: Own calculations
The following analysis is related to the marital status of the respondents. From the analysis of
the received information, table 5 shows the relationship between the marital status and the ex-
perience of the respondents in online shopping. Accordingly, the following results were ob-
tained: the chi-square statistic is 3.4094. The p-value is .999605. The result is not significant at
p < .05. In other words, it means that marital status does not depend on the determinants that de-
scribe the experience of online shopping for underwear among direct consumers. However, in
5 The results in the first bracket are the expected count, the results in the second bracket are residuals.
6 The results in the first bracket are the expected count, the results in the second bracket are residuals.
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Examining Consumer Attitudes Towards Online Shopping for Intimate Apparel in North Macedonia:
A Study of Customer Expectations & Preferences
the research of Santhi and Sunil (2022, p. 18), one of his respondents made the following state-
ment: “My lingerie closet is no longer the same as it was before I married. Now I mostly use ba-
sic items. I used to wear thongs and anything nice before becoming a mother.”.
Table 5. Relation between marital status and determinates of underwear online shopping7
Unmarried Married Divorced Widowers Extramarital
union
Reasons for purchasing
lingerie online 4(3.25)[0.17] 5(6.18) [0.22] 1(0.98)[0.00] 1(0.81)[0.04] 2(1.79)[0.03]
Consumer's expectations
from Brands 5(5.50)[0.05] 10(10.45)[0.02] 2(1.65)[0.07] 1(1.38)[0.10] 4(3.02)[0.31]
Lingerie purchasing
occasions 5(4.50)[0.06] 8 (8.55) [0.04] 1(1.35)[0.09] 1(1.12)[0.01] 3(2.48)[0.11]
Consumer's outlook on
lingerie fashion 34.00) [0.25] 10 (7.60) [0.76] 1(1.20)[0.03] 1(1.00)[0.00] 1(2.20)[0.65]
Factors of importance 3(2.75)[0.02] 5 (5.22) [0.01] 1(0.82)[0.04] 1(0.69)[0.14] 1(1.51)[0.17]
Source: Own calculations
The next step in the research is the relationship between the educational level and the behavior of
consumers in the online purchase of underwear. Table 6 presents the information obtained from
the respondents on how much the educational status is related to the behavior during the online
purchase of underwear. The results obtained are that the chi-square statistic is 2.9724. The p-val-
ue is .995736. The result is not significant at p < .05. It shows that there is no significant relation-
ship between educational level and how they perceive the online underwear shopping experience.
According to Rose et al. (2016), education as a factor in the online shopping experience does not
have a mediating role, however, observing the obtained results, it can be concluded that more
educated consumers are more inclined to online shopping and to create positive attitudes about
it, since online purchasing among such consumers increases with positive attitudes.
Table 6. Relation between level of education and determinates of underwear online shopping8
Secondary
education
Bachelor’s
degree
Master’s
degree Doctorate
Reasons for purchasing lingerie online 2 (2.62) [0.15] 6 (6.12) [0.00] 5 (4.38) [0.09] 1 (0.88) [0.02]
Consumer's expectations from Brands 4 (4.69) [0.10] 12 (10.94)
[0.10] 8 (7.81) [0.00] 1 (1.56) [0.20]
Lingerie purchasing occasions 4 (3.00) [0.33] 8 (7.00) [0.14] 3 (5.00) [0.80] 1 (1.00) [0.00]
Consumer's outlook on lingerie fashion 3 (2.81) [0.01] 5 (6.56) [0.37] 6 (4.69) [0.37] 1 (0.94) [0.00]
Factors of importance 3(2.75) [0.02] 1 (1.00) [0.00] 5 (4.38) [0.09] 1 (1.00) [0.00]
Source: Own calculations
The last part of the analysis is the connection between the frequency of online shopping and
the determinants related to the experience of the respondents. The following can be concluded
from Table 7: The chi-square statistic is 2.4685. The p-value is .963184. The result is not signif-
icant at p < .05. From this it can be concluded that the relationship between how often the re-
spondents buy underwear online and the determinants that describe the online shopping expe-
rience is insignificant among the respondents involved in this research. As expected, trendy un-
derwear is more significant for persons who go shopping frequently and spend more money (Ti-
ron & Elsharabasy, 2022).
7 The results in the first bracket are the expected count, the results in the second bracket are residuals.
8 The results in the first bracket are the expected count, the results in the second bracket are residuals.
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8th International Scientific Conference EMAN 2024
Selected Papers
Table 7. Relation between how often respondents shop online and determinates
of underwear online shopping9
Once a week Once a month Once a year
Reasons for purchasing lingerie online 5 (4.12) [0.19] 4 (4.12) [0.00] 2 (2.75) [0.20]
Consumer's expectations from Brands 10 (10.50) [0.02] 12 (10.50) [0.21] 6 (7.00) [0.14]
Lingerie purchasing occasions 8 (6.75) [0.23] 6 (6.75) [0.08] 4 (4.50) [0.06]
Consumer's outlook on lingerie fashion 4 (4.50) [0.06] 4 (4.50) [0.06] 4 (3.00) [0.33]
Factors of importance 3 (4.12) [0.31] 4 (4.12) [0.00] 4 (2.75) [0.57]
Source: Own calculations
By examining this correlation, the research concerning the topic of this study was completed
and the next step is a discussion related to the obtained results.
5. DISCUSSION OF RESEARCH FINDINGS
According to the analysis, the respondents were in the majority of the female gender, 65 against
25 male respondents. The majority of the respondents are highly educated, of which the largest
number are married and shop online, usually once a week or once a month. These obtained re-
sults show that this target group is a good example in terms of the attitudes that consumers have
towards online shopping. According to the results, it can be concluded that the influence of all
the examined factors (gender, education, marital status and the frequency of online shopping)
is not significant towards the attitude in the online shopping of underwear. Based on the results
obtained and a thorough literature review, consumers frequently take advantage of online shop-
ping, benefiting from the opportunity to acquire quality items at lower prices, the convenience of
shopping from their own homes, and the ability to stay up-to-date on trends and styles. Although
Fisher’s test does not indicate significance, factors such as price, contact with sellers through so-
cial networks, chatbots, etc. are still very important, if not decisive, in how consumers feel about
shopping online.
6. CONCLUSION
In this research paper, the target group comprised consumers of Macedonian underwear brand
Sara Fashion to assess their behavior and experiences when purchasing underwear online.
Based on their feedback, it was determined that consumers exhibit a high level of proficiency in
online shopping, particularly in the context of purchasing underwear. Respondents demonstrat-
ed positive attitudes regarding their expectations and experiences with online shopping, par-
ticularly when interacting with a brand like Sara Fashion. Ultimately, it can be inferred that on-
line shopping fosters positive consumer attitudes. Therefore, it is crucial for companies to prior-
itize understanding and accommodating consumer opinions and needs to ensure business suc-
cess. The paper may serve as an initial step towards comprehending the behaviors of online in-
timate apparel consumers.
9 The results in the first bracket are the expected count, the results in the second bracket are residuals.
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A Study of Customer Expectations & Preferences
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8th International Scientific Conference EMAN 2024 – Selected Papers
ht tps://doi.org/10. 31410/E MAN.S.P.2024.161
https://orcid.org/0000-0002-7577-0961
https://orcid.org/0009-0001-1453-747X
Customer Satisfaction and the Use of Beacon Technology
in the Hotel Industry
Tomislav Car1
Anton Kliman2
Keywords:
Customer satisfaction;
Personalized service;
Beacon technology;
Hotel industry
Abstract: The hotel industry is undergoing profound change, driven by dig-
italisation and technology. Mobile apps and beacon app technologies have
proven to be powerful tools to enhance the guest experience, streamline op-
erations and drive guest loyalty. These technologies allow guests to man-
age reservations, access information and easily search for services via their
smartphones. Beacon technology, which uses Bluetooth Low Energy (BLE),
allows hotels to provide targeted notifications and personalised content
based on guests’ location and proximity. The topic of this article is the inves-
tigation of personalised content through beacons and BLE mobile technolo-
gy on user satisfaction and the impact on the hotel company’s revenue. The
article aims to investigate the impact of personalised content on user satis-
faction, their attitude towards the introduction of new technologies and the
sensitivity of data sharing. To this end, an empirical study was conducted us-
ing the survey method. The study found that a personalised service that uses
as little private data as possible has a positive impact on user satisfaction. It
was also found that a personalised service helps with product selection and
encourages the customer to make a purchase.
Creative Commons Non
Commercial CC BY-NC: This
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the Creative Commons Attribution-Non-
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1. INTRODUCTION
Innovative technologies, especially mobile technologies, have revolutionised the hotel industry
by offering convenience, personalisation and a better guest experience. Convenience means that
guests have the ability to control their journey by making their reservations, accessing information,
and using services according to their preferences. With the advent of smartphones and mobile tech-
nology, hotels have harnessed the power of mobile applications to improve communication with their
guests and simplify their operations (Elziny & Mohamed, 2021). Smart hotels are therefore integrat-
ing modern information technologies such as the Internet of Things (IoT), cloud computing, mobile
internet, smart devices and big data to provide customers with a better service experience and a much
higher level of personalisation (Gala et al., 2023; İştin et al., 2022; Kansakar et al., 2019; Mercan et
al., 2021; Pelet et al., 2021; Yang et al., 2021). They also endeavour to use innovative technologies as
much as possible in order to remain competitive and better meet the needs of their guests.
An exceptional customer experience is critical to attracting and retaining guests and gaining a
competitive advantage. Through the use of cutting-edge technologies, the guest experience in
hotels is changing, offering customised and wearable technological applications to reduce wait-
ing times for guests, monitor their location and activities in real-time, provide personalised ser-
vices and increase overall guest satisfaction (İştin et al., 2022). Among these innovations, bea-
con technology has emerged as a powerful tool that provides location-based personalised ser-
vices (Thakur, 2022) and has the potential to increase customer satisfaction and loyalty. Beacon
1 University of Rijeka, Faculty of Tourism and Hospitality Management, Primorska 46, P.O. Box 97, 51410,
Opatija, Croatia
2 Student of the graduate programme Hospitality Management, University of Rijeka, Faculty of Tourism and
Hospitality Management, Primorska 46, P.O. Box 97, 51410, Opatija, Croatia
Received: April 20, 2024
Accepted: July 9, 2024
Published: December 17, 2024
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technology, a subset of Bluetooth Low Energy (BLE) technology, enables hotels to send contex-
tual and location-based information to guests’ mobile devices, providing them with a person-
alised and seamless experience during their stay at the hotel or destination. In addition, beacon
technology has the potential to improve the guest experience by providing real-time data, guid-
ing guests to specific locations, people, or products, sending personalised advertising, target-
ing users through proximity marketing, helping them save time and much more (Alringer, 2024;
Alzoubi et al., 2022; Gala et al., 2023; Pangriya & Pandey, 2021).
In recent years, interest in the use of beacon technology has increased in the hotel industry as
it has the potential to increase user satisfaction by enabling seamless and personalised interac-
tions throughout the guest’s stay. The purpose of this study is to investigate the impact of per-
sonalised content through beacons and BLE mobile technology on user satisfaction and its im-
pact on hotel companies’ revenues. The objective of the study is therefore to investigate the im-
pact of personalised content on user satisfaction, their attitude towards the introduction of new
technologies and their sensitivity towards data sharing. Based on the research purpose and the
underlying research objective, the following research questions were posed:
RQ1. Are today’s users ready to utilise the new information technologies (such as beacon)?
RQ2. To what extent are today’s users willing to share private data in order to receive a per-
sonalised service?
RQ3. Does the use of a hotel’s mobile application affect guest satisfaction and access to infor-
mation and services during their stay?
RQ4. Does the personalised advertising of hotel offer through mobile technologies have an
impact on increasing hotel revenue?
To answer the research questions, an empirical study was conducted to find out how open hotel
guests and tourists, in general, are to newer technologies, to what extent they are willing to share
private information and to what extent personalised content would help them during their stay in
a hotel or destination. Following the introduction, the “Related work” section presents current re-
search activities related to beacon technology and other similar technologies that have an impact
on providing personalised services and increasing guest satisfaction. The “Methodology” section
describes the research process and provides insight into the constructs used in the questionnaire.
In the “Results and discussion” section, all results are presented and discussed. Finally, the most
important results and answers to the research questions are presented in the “Conclusion”, togeth-
er with an overview of the research limitations and possible avenues for further investigation.
2. LITERATURE REVIEW
Customer satisfaction is crucial in the hotel sector and influences brand image, competitive-
ness and long-term development (J. Wang et al., 2021). The service quality of hotels has a great
impact on user satisfaction (Qasem Saeed et al., 2021; Y. Wang, 2022) and remains an important
source of competitive advantage for tourism and hospitality companies (P.J et al., 2023).
Smart technology and robotics have the ability to increase customer satisfaction and loyalty in
hotels (Elziny & Mohamed, 2021; Yang et al., 2021; Zhong et al., 2020). In addition, the use of
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Customer Satisfaction and the Use of Beacon Technology in the Hotel Industry
technologies such as beacon technology and artificial intelligence can increase service quality
in hotels and customer satisfaction (Nam et al., 2021; Nicholas & Shapiro, 2021). Beacon tech-
nology, along with other technologies such as mobile applications (Dou et al., 2020; Huang et al.,
2019), virtual reality (Bilgihan & Ricci, 2024), IOT (Car et al., 2022; Mercan et al., 2021), NFC
(Vitezić et al., 2015), big data, automated check-ins and robots are changing the guest experience
in hotels. They can help hotels to better serve their guests by providing them with personalised,
location-based information about special offers, services and other points of interest in the ho-
tel (Alringer, 2024; Pangriya & Pandey, 2021).
Yang et al. (2021) highlight the growing importance of smart hotel technologies such as AI, IoT,
cloud computing and mobile internet in enhancing the guest experience and suggest that hos-
pitality practitioners need to consider these insights for effective technology-related market-
ing strategies. In addition, Gala et al. (2023) explored how the Internet of Things technologies,
specifically Bluetooth Low Energy beacons, can improve the tourism experience by providing
personalised, contextual information to travellers. These beacons interact with tourists’ smart-
phones and provide location-based services (Alzoubi et al., 2022; Kansakar et al., 2019; Qamaz et
al., 2022; Spachos & Plataniotis, 2020; Stringam & Gerdes, 2021) and messages tailored to their
needs and location, e.g. historical information when they are near an attraction.
A beacon is a small device with a Bluetooth radio transmitter that repeatedly sends a single
signal that other devices can see. Inside the beacon is a CPU, a Bluetooth radio, a module for
Bluetooth Smart connectivity and batteries(Salame, 2019). They can be powered by small lith-
ium-ion chip batteries or connected to the mains. Beacon devices use a new technology called
Bluetooth Low Energy (Alzoubi et al., 2022). A beacon is therefore a small proximity detection
device that sends certain information via a display at predefined intervals. Beacons are used in
a variety of applications, including tracking, navigation, security, interaction and analysis (Qa-
maz et al., 2022). Similarly, Technology 4 Hotels (n.d.) explains how beacon technology can be
used to understand and anticipate guests’ needs to provide more personalised service. Figure 1
shows how the beacon technology works using the example of retail.
Figure 1. How Beacon Technology Works
Source: Salame, 2019
However, beacon technology has the potential to take the user experience to a new level by pro-
viding real-time data, guiding guests to specific locations, people or products, sending person-
alised advertising, targeting users through proximity marketing and helping them save time.
Beacon technology is a significant innovation in the hospitality industry that improves person-
alised customer experiences and digital services as well as customer satisfaction and loyalty
(Alzoubi et al., 2022; Thakur, 2022).
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8th International Scientific Conference EMAN 2024
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3. METHODOLOGY
The research methodology was based on a quantitative research design to analyse the impact of
the use of modern technology on customer satisfaction in the hotel industry. A structured ques-
tionnaire was developed based on an extensive literature review and validated constructs from
previous studies. The data collection was carried out in two periods: in June 2023 and from Jan-
uary to February 2024. The survey instrument comprised five-level scale to measure the follow-
ing four key constructs (Table 1): C1) Perception towards the technology (Agarwal & Karahanna,
2000), C2) Usage of private data (Kozyreva et al., 2021), C3) The influence of personalised content
on customer satisfaction (Fang, 2019) and C4) The influence of personalised content on purchase
behaviour (Dou et al., 2020). The questionnaire also collected relevant demographic information
about the respondents. Respondents were informed in the introduction of the questionnaire about
what modern technologies (such as Beacon, IoT, NFC, VR, AR, and others) include.
Table 1. Research constructs and questions
Construct Questions
C1. Perception towards
technolog y
Q1. If I heard about a new information technology, I would look for opportunities to
experiment with it.
Q2. Among my colleagues, I am usually the first to try out new information technologies.
Q3. I like to experiment with new information technologies when I have the opportunity.
Q4. Generally, I hesitate to try out new information technologies.
C2. Usage of private data Q5. I am concerned about my private data when using the internet.
Q6. I have no problem with social media and other websites collecting and using data
about my previous online activities to personalise various internet services, e.g.,
search results or offers.
Q7. I consent to internet platforms and applications using any of the following
information to create personalised advertising, e.g. gender, age, political views,
sexual orientation.
Q8. I consent to web services and applications recording and using the following types of
information they collect on their platform, e.g. browsing and search history, location
history, email content and online messages.
C3. The inf luence of
personalised content on
customer satisfaction
Q9. If a mobile application could deliver personalised content during my stay at the hotel,
I would be satisfied.
Q10. Being informed about current offers and information at the hotel would improve my
overall stay at the hotel.
Q11. Providing personalised content during the stay would increase loyalty and interest in
the hotel company.
C4. The inf luence of
personalised content on the
purchasing behaviour of
customers
Q12. Receiving timely personalised notifications about hotel offers in the mobile
application would encourage me to make a purchase.
Q13. Receiving location-based notifications about hotel offers in the mobile application
would tempt me to make a purchase.
Q14. Receiving personalised notifications about hotel offers in the mobile application
would reduce my effort when searching for specific products.
Q15. Receiving personalised notifications about hotel offers in the mobile application
would help me save time when selecting products.
Source: Kliman (2023) adapted from (Agarwal & Karahanna, 2000; Dou et al., 2020; Fang, 2019;
Kozyreva et al., 2021)
4. RESULTS AND DISCUSSION
The main constructs of the survey were described in the methodology section, and the results
are presented here in tabular, graphic, and text form. The questionnaire was completed by 217
respondents, of whom 106 (49%) were male and 111 (51%) were female. The other relevant de-
mographic results are shown in Figures 2 and 3.
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Customer Satisfaction and the Use of Beacon Technology in the Hotel Industry
Figure 2.
Respondents' age distribution
Source: Own research
Figure 3.
Distribution of respondents' level of education
Source: Own research
Respondents’ most common reasons for using mobile technology when travelling (multiple an-
swers possible, Table 2)
Table 2. Frequency of reasons why mobile technology is used during travel
Reasons for using mobile technology N
Destination information 173
Social media 153
Flight booking and purchase 127
Accommodation booking 88
Accommodation reservation 83
Finding activities at the destination 30
Source: Own research
All answers were given on a 5-point scale, where 1 - strongly disagree, 2 – disagree, 3 – neu-
tral, 4 – agree, and 5 - strongly agree. The average result of the questions and constructs high-
er than 3.0 represents acceptance and a positive attitude towards the question/construct and less
than or equal to 3.0 is considered a negative attitude towards the question/construct. The results
are given in Tables 3, 4, 5, 6 and 7.
The first construct, C1 - Perception towards technology, comprised 4 questions, where Q1, Q2
and Q3 were designed to capture openness to new technologies, and Q4 examined the opposite:
whether they were reluctant to use new technologies.
Table 3. The results for C1 construct (Q1-Q4) -Perception towards technology
Question Answers' distribution
(5 level scale) Mean SD
Q1. If I heard about a new information technology, I would look for
opportunities to experiment with it. 3.53 1.03
Q2. Among my colleagues, I am usually the first to try out new
information technologies. 2.86 1.16
Q3. I like to experiment with new information technologies when I have
the opportunity. 3.63 1.14
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Question Answers' distribution
(5 level scale) Mean SD
Q4. Generally, I hesitate to try out new information technologies. 2.49 1.22
Source: Own research
The answers to questions Q1 and Q3 show a general openness towards the use of new technolo-
gies (mean values above 3), with most answers in the 3-5 range. As for Q2, it is almost perfect-
ly bell-shaped (Gaussian distribution), suggesting that respondents are divided when it comes
to being the first to try out new technologies. Q4 is formulated in such a way that the seman-
tics of the answers should be reversed, which turns out to be correct (distribution curve and av-
erage score of only 2.49).
Table 4. The results for C2 construct (Q5-Q8) - Usage of private data
Question Answers' distribution
(5 level scale) Mean SD
Q5. I am concerned about my private data when using the internet. 3.3 1.24
Q6. I have no problem with social media and other websites collecting
and using data about my previous online activities to personalise
various internet services, e.g., search results or offers.
2.46 1.13
Q7. I consent to internet platforms and applications using any of the fol-
lowing information to create personalised advertising, e.g., gender,
age, political views, sexual orientation.
2.65 1.21
Q8. I consent to web services and applications recording and using the
following types of information they collect on their platform, e.g.,
browsing and search history, location history, email content and on-
line messages.
2.25 1.13
Source: Own research
Construct C2 analyses the extent to which respondents are willing to share their private data
and browsing data. The results of Q6-Q8 indicate that respondents are not willing (all means
are lower than 3.0, Q6 and Q8 are lower than 2.5, Q7 is equal to 2.65) to share their private and
browsing data, even for the personalising benefits of various mobile services. Question 5 was
designed to find out opinions about the security of private data on the Internet. The majority
of respondents agree or strongly agree that they are concerned about the security of their data
when using various mobile services.
Table 5. The results for C3 construct (Q9-Q11) - The influence of personalised content on
customer satisfaction
Question Answers' distribution
(5 level scale) Mean SD
Q9. If a mobile application could deliver personalised content during my
stay at the hotel, I would be satisfied. 3.47 1.01
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Customer Satisfaction and the Use of Beacon Technology in the Hotel Industry
Question Answers' distribution
(5 level scale) Mean SD
Q10. Being informed about current offers and information at the hotel
would improve my overall stay at the hotel. 3.80 0.99
Q11. Providing personalised content during the stay would increase loy-
alty and interest in the hotel company. 3.53 1.06
Source: Own research
The C3 construct shows that respondents highly value the opportunity to receive personalised
content and timely information, which has a positive impact on their loyalty, interest, and over-
all stay with the hotel company. Q10 received the highest score of 3.8 among all the questions
in the questionnaire.
Table 6. The results for C4 construct (Q12-Q15) - The influence of personalised content on
the purchasing behaviour of customers
Question Answers' distribution
(5 level scale) Mean SD
Q12. Receiving timely personalised notifications about hotel offers in the
mobile application would encourage me to make a purchase. 3.14 1.1
Q13. Receiving location-based notifications about hotel offers in the mo-
bile application would tempt me to make a purchase. 3.10 1.11
Q14. Receiving personalised notifications about hotel offers in the mo-
bile application would reduce my effort when searching for specif-
ic products.
3.48 1.06
Q15. Receiving personalised notifications about hotel offers in the mo-
bile application would help me save time when selecting products. 3.63 1.04
Source: Own research
The C4 construct was used to investigate how respondents perceive the benefits of personal-
ised content and its influence on purchase intent. While the answers were all above 3.0 on av-
erage and showed a positive influence on the search and selection of purchase items (Q14 and
Q15, 3.48 and 3.63), the values for purchase intention were slightly lower (Q12 and Q13, 3.14 and
3.10, respectively).
Table 7. Overall means by constructs
Construct Overall
Mean
Overall SD
Mean
Perception towards technology (Q1-Q3), excluded Q4 3.34 1.11
Usage of private data (Q6-Q8), excluded Q5 2.45 1.16
The inf luence of personalised content on customer satisfaction (Q9-Q11) 3.60 1.04
The inf luence of personalised content on the purchasing behaviour of customers (Q12-Q15) 3.34 1.06
Source: Own research
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The overall mean values of the C1-C4 constructs are all above 3.0, which shows the positive in-
fluence of personalised content on customer satisfaction (highest mean value of 3.6) and pur-
chase intention, as well as openness to embrace new technologies. However, respondents still
do not feel comfortable and are very cautious when it comes to sharing their private data and
browsing behaviour, and they are rather concerned about their privacy online. Q4 and Q5 were
excluded as the semantics of their assessment is the reverse of the other questions.
5. CONCLUSION
The main objective of this study was to investigate the perception of technology, the use of pri-
vate data and the influence of personalised content on customer satisfaction and purchase in-
tent in the hotel industry. The results obtained were used to answer four research questions (A1-
A4) as follows:
RQ1: Are today’s users ready to utilise the new information technologies (such as beacon)?
A1. Construct C1 answers (mean of 3.34) show a general openness and willingness to use and try
out new information technologies (Q1-Q3 are above 3.0 and Q4 on hesitation is below 2.5)
RQ2: To what extent are today’s users willing to share private data in order to receive a personal-
ised service?
A2. The answers to the questions of construct C2 suggest that users are still very cautious and
sceptical when it comes to sharing their private data (overall score of 2.45) and that they feel
insecure when it comes to sharing data (mean score of 3.3 for question 5).
RQ3: Does the use of a hotel’s mobile application affect guest satisfaction and access to informa-
tion and services during their stay?
A3. With an overall mean value of 3.6 for construct C3 and high mean values for the individual
Q9–Q11, it can be concluded that personalised information during the hotel stay has a posi-
tive influence on guest satisfaction.
RQ4: Does the personalised advertising of hotel offers through mobile technologies have an impact
on increasing hotel revenue?
A4. With an overall mean score of 3.34 for construct C4 and high mean scores for Q14 and Q15
(3.48 and 3.63, respectively) and slightly lower mean scores for Q12 and Q13 (3.14 and 3.1, re-
spectively), it can be concluded that personalised advertising during the hotel stay has a posi-
tive influence on the purchase process (searching and selecting items) and purchase intention
of guests.
The limitation of the research is mainly reflected in the size and structure of the respondents. In
the future, it is planned to further explore the introduction of modern technologies in the hos-
pitality industry and investigate their influence on customer satisfaction and purchase intention
for hotel products.
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8th International Scientific Conference EMAN 2024 – Selected Papers
ht tps://doi.org/10. 31410/E MAN.S.P.2024.171
https://orcid.org/0009-0007-2048-1971
https://orcid.org/0000-0003-3342-7257
https://orcid.org/0000-0002-5046-6170
https://orcid.org/0000-0003-3735-602X
https://orcid.org/0000-0002-2435-0895
Digital Nomadism in a Contemporary Business Environment
Žikica Milošević1
Andrea Ivanišević2
Alpar Lošonc3
Minja Bolesnikov4
Aleksandra Pavlović5
Keywords:
Digital nomadism;
Remote work;
Nomads;
Digitisation;
Pandemic;
COVI D -19
Abstract: During the COVID-19 pandemic, it was essential to ensure the envi-
ronment and the techniques for remote work, which was strongly advised for
health reasons. After the pandemic was officially over, the companies under-
stood that many workers were better off in that working mode, while some of
them enjoyed coming back to the offices - it was connected to many person-
al factors, among which motivation was one of the crucial ones for employ-
ees, and the trust and control was crucial for employers. Some employees felt
cut off from the corporate culture, thus feeling like “gig-workers” and craved
to come back to their offices, while some of them felt uncomfortable coming
back from the serenity of their homes and “digital nomadism”. In fact, digitisa-
tion of the world hand in hand with globalisation has led to new opportuni-
ties in reshaping the workplaces, such as remote work and so-called digital no-
madism. Digital nomadism refers to the work practices far from the office, usu-
ally from another town, country or continent, and it has brought many ben-
efits like increased productivity and cash influx in less developed areas of the
world, together with a sense of freedom, but they have also brought the sense
of loneliness, uncertainty, financial difficulties, increased risk, and transnation-
al gentrification. Many countries around the world, especially during and af-
ter the COVID-19 pandemic, stepped out with measures aimed at enabling the
digital nomads with adequate visas. Serbia is one of the countries with a high
influx of digital nomads, that have changed its economy and culture.
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further permission.
1. INTRODUCTION
The advancement of technology has not only transformed the way tasks are performed techni-
cally but has also significantly impacted the economic outcomes associated with these techni-
cal tasks. A notable change is the ability to work without being physically present at the workplace.
With the realisation that presence at the workplace (company premises) is not mandatory, the ques-
tion then becomes, “How far can one be from the company premises and still effectively work?
The natural conclusion is that the distance from the traditional workplace has become arbitrary.
This realisation leads us to the concept of “digital nomadism” and “digital nomads,” who are de-
fined as individuals who travel and work freely around the world, leveraging internet technology
(Schlagwein, 2018). Most digital nomads are professionals in fields such as IT, development, pro-
gramming, or design, including content creators ranging from social media influencers to journal-
ists, writers, photographers, music producers, and web designers (Nash et al., 2018). Essentially,
they predominantly or exclusively work within the creative industries.
1 Faculty of Technical Sciences Novi Sad, Trg Dositeja Obradovića 6, Novi Sad, Serbia
2 Faculty of Technical Sciences Novi Sad, Trg Dositeja Obradovića 6, Novi Sad, Serbia
3 Faculty of Technical Sciences Novi Sad, Trg Dositeja Obradovića 6, Novi Sad, Serbia
4 Faculty of Technical Sciences Novi Sad, Trg Dositeja Obradovića 6, Novi Sad, Serbia
5 The Academy of Applied Technical Studies in Belgrade, Serbia
Received: April 12, 2024
Accepted: July 25, 2024
Published: December 17, 2024
172
8th International Scientific Conference EMAN 2024
Selected Papers
Steven K. Roberts is widely regarded as the first digital nomad, who from 1983 to 1991, trav-
elled on a “recumbent bicycle” equipped with a laptop and early versions of a mobile phone,
managing work tasks throughout his journey (Roberts, 1984). Although not always under such
extreme conditions, digital nomadism began to gain traction during the 2010s, propelled by
technological advancements (Cook, 2023). The past four years have seen significant changes, in-
cluding the COVID-19 pandemic, conflicts in the Middle East and Ukraine, political instability
in various regions, the “culture wars” in the US, and rising living costs in Western countries, all
of which have contributed to the acceptance of a “new normal” (Hermann & Paris, 2020). Be-
fore these developments, the typical image of a “digital nomad” was of a millennial working on
a laptop from a remote, exotic beach (Hart, 2015).
Although the roots of digital nomadism lay in the youthful culture of travel (“I travel, but I don’t
want it to be a vacation; I want it to be work that enables further trips”) (Richards, 2015), it later
evolved, by the end of the 2010s, into a rejection of the routine of daily work, traditional working
hours, the office environment, and commuting. This transformation took the form of a counter-
cultural “hipster” rebellion, often manifesting as working from a nearby coffee shop within the
same city (Reichenberger, 2018). The digital economy is seen as the future of economic growth
worldwide (Bolesnikov et al., 2019), and young people have embraced and reshaped the digital
economy through digital nomadism. The so-called “nomad objectsthat they own and use are
compact and practical; they are always within the nomad’s personal belongings and are used
at any time, rendering everyday life devoid of permanence. This allows the digital nomad to
avoid direct participation in its creation(Dobrinskaja, 2020).
During the COVID-19 pandemic, it became clear that employees do not necessarily need to be
tied to their offices, prompting the question of whether it was possible not only to work from
home but also from exotic locations (such as Bali, Colombia, Morocco, etc.), where the cost of
living is significantly lower, thereby potentially increasing the profits of digital nomads (Her-
mann & Paris, 2020). This realisation led to the emergence of numerous digital nomad initi-
atives, including special visa programmes. The period from 2020 to 2022 saw a large influx
of immigrants from Russia, Belarus, and Ukraine, along with individuals seeking more liber-
al COVID-19 regulations, bringing many from these and other countries to places like Serbia,
which has undergone significant changes compared to the period before the Russian-Ukrainian
war. Digital nomadism is not solely a response to emergency events like wars and sanctions; it
also thrives in the USA, where an estimated 17.3 million Americans worked as digital nomads
in 2023, marking a 131% increase from pre-pandemic levels in 2019 (MBO Partners, 2024).
This paper aims to explore the psychological, social, and economic consequences of digital no-
madism, and how it transforms the societies and economies of both the countries digital nomads
leave (digital emigrant” countries) and those they move to (“digital immigrant” count ries).
2. LITERATURE OVERVIEW
Digital nomadism is a relatively new concept and phenomenon that has yet to be extensively
researched. More than 40 years ago, it was predicted that the future would belong to “knowl-
edge workers” and that they would be the driving force behind a new Industrial Revolution
(Tof fler, 1981). With the advent of increasingly powerful IT tools and global connectivity—ini-
tially through telephones and faxes, and later via mobile phones and the Internet—”knowledge
workers” have emerged as a dominant and mobile force. The availability of virtual meetings and
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Digital Nomadism in a Contemporary Business Environment
conversations from anywhere with communication tools has led to a flexible work environment
(Aroles et al., 2019), and logically, to the emergence of digital nomadism.
In his vision of the future, “The World of Tomorrow the French journalist Jacques Attali dis-
tinguished between three future classes in 1997: he identified the elite “hypernomads” “virtu-
al nomads and the disadvantaged infranomads” (Attali, 2008). The digital nomad communi-
ty encompasses a wide variety of profiles, some of which overlap with other types of remote or
location-independent workers (Bonneau et al., 2023). However, digital nomads uniquely com-
bine work and leisure with travel (Urry, 2007).
Before the pandemic, the image of the digital nomad was somewhat idealised. They were often
depicted—and they often depicted themselves—as individuals keen on highlighting their dis-
tance from the companies for which they worked and the aesthetics of their living environments
(Müller, 2016), with little emphasis on the financial aspect. However, more rigorous analyses lat-
er identified that the primary factors influencing a digital nomad’s choice of location are finan-
cial considerations (moving to a place with lower living costs), climate, and available leisure ac-
tivities (Ehn et al., 2022), among others.
Digital nomads encounter several challenges, including the regulation of tax payments and fi-
nancial contributions (such as retirement/pension fund contributions) in either their home coun-
try or the country where they are currently located, managing their pension status, as well as
the legality of their work arrangements in countries where they often stay as tourists—a situa-
tion that can be legally ambiguous or even prohibited (Hall et al., 2019).
Countries have varied responses to these challenges, most commonly implementing visa pro-
grams with very specific criteria. Additionally, digital nomadism has sparked controversy over
a form of “transnational gentrification at a global level. This occurs because digital nomads,
who often originate from the Global North, move to more exotic or affordable destinations in
the Global South, inadvertently driving up the cost of living and rent in their destination lo-
cales and in countries of digital immigration (Holleran, 2022). This phenomenon was particu-
larly pronounced in Serbia at the start of and during 2022, with the influx of digital nomads
from Russia and, to a lesser extent, Belarus and Ukraine, leading to a sharp increase in rental
prices, initially in Serbia’s largest cities (Belgrade and Novi Sad) and subsequently in other cit-
ies (N1 Beograd, 2022).
Not everyone is cut out to be a successful digital nomad. Key to working remotely, especial-
ly across different time zones, are self-organisation, self-discipline, and concentration (Cook,
2023), as well as the ability to find free time and secure an adequate internet connection that
aligns with the business hours of the destination company (Nash et al., 2018). When remote
workers are left to their own devices, dictating their own work and behaviour patterns, they of-
ten encounter a psychological challenge: they either struggle to motivate themselves to work as
effectively as they would under workplace supervision, or they find it difficult to disconnect and
rest without a clear separation from work (Milošević, 2023).
Geographical independence introduces several new challenges for digital nomads, such as blur-
ring the lines between work and leisure time, difficulties in maintaining relationships with fam-
ily and friends, and securing a steady income—often, their earnings are unstable and sporadic,
typifying the “gig economy, posing a risk of financial instability, and even leaving them without
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8th International Scientific Conference EMAN 2024
Selected Papers
means to return home (Thompson, 2018). Hermann and Paris (2020) highlight issues like insecuri-
ty, high risks, loneliness, and uncertainty among digital nomads. More recently Cook, in his four-
year study of 16 digital nomads worldwide, concluded that the idealised image of stress-free work
is largely a fantasy. Although some traditional office work challenges are mitigated, new ones
emerge (Cook, 2023). The romanticisation of digital nomadism is also scrutinised by Bonneau et
al. (2023) who compare it to the glorification of other professions in earlier periods through mass
media, just as the legal profession was glorified in the 1980s (Friedman, 1989).
Digital nomads often form informal “clusters” or communities based on word-of-mouth, liv-
ing and interacting together, or simply residing close to each other in a “familiar environ-
ment” rather than integrating with the local population. This phenomenon is particularly nota-
ble among Russians in Novi Sad, Belgrade, Sremska Mitrovica, Pančevo, and globally in plac-
es like Chiang Mai, Phuket, Medellín, Ubud (Hermann & Paris, 2020), as well as destinations
like Santa Marta (Colombia) and Bali. Another trend among expats, including digital nomads, is
clustering into communities abroad that mimic their homeland’s culture, often resulting in cul-
tural isolation from the local lifestyle (Thompson, 2019), reminiscent of Western “concessions”
in China until World War II.
A distinctive aspect of digital nomadism related to travel and economy is the redefinition of
“home” (Bonneau et al., 2023), as digital nomads often adopt a “minimalist lifestyle” (Aroles
et al., 2019), with many not maintaining a “home base” at all (Nash et al., 2021). These factors,
combined with limited access to healthcare and social security, detract from the initially ide-
alised appeal of digital nomadism. On a positive note, digital nomads contribute to both their
employers and local economies, spending 35% of their income in local communities (Angiel-
lo, 2022) and recording a 4.4% increase in productivity when other job factors are controlled
(Choudhury et al., 2021).
3. DIGITAL NOMADISM BY COUNTRY AND IN SERBIA
Different countries have launched various initiatives to attract digital nomads, a trend that
gained momentum following the onset of the COVID-19 pandemic and the implementation of
lockdowns (Westenberg, 2020). Among the first programmes to draw in digital nomads were in-
troduced by Estonia, Georgia, Bermuda, and Barbados in early 2020 (Hermann & Paris, 2020).
Currently, many countries have set conditions for digital nomads and offer specific visas. Ac-
cording to recent data, 41 countries globally provide some form of visa for digital nomads, in-
cluding Germany, Anguilla, Antigua and Barbuda, Aruba, Barbados, Bermuda, Brazil, Cape
Verde, Costa Rica, Croatia, Curaçao, Cyprus, Dominica, Ecuador, Spain, UAE, Estonia, Geor-
gia, Grenada, Greece, Hungary, Indonesia, Iceland, Cayman Islands, Seychelles, Italy, Lat-
via, Malaysia, Malta, Mauritius, Mexico, Montenegro, Montserrat, Norway, Panama, Portugal,
Czechia, Romania, Saint Lucia, Thailand, and Sri Lanka (Planet Nomad, 2024).
Planet Nomad notes that these programs typically require standard documents such as a crim-
inal record certificate (either lifelong or, as in Brazil, for the last five years), health insurance,
and a medical record confirming that the digital nomad does not pose a health risk. Additionally,
there is considerable variation in the average required income. Spain, for example, requires an av-
erage income of €2,151 per month, or, for irregular income, an annual income of €25,816, along
with standard health insurance, a clean criminal record, and a medical certificate. Brazil asks for
$1,500 per month or $18,000 per year, while Portugal only requires €600 per month. Mexico sets
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Digital Nomadism in a Contemporary Business Environment
the bar at $1,620 per month, Estonia at €3,504, Costa Rica at an average of $2,500 per month over
two years or $60,000 in bank deposits if income stability is uncertain. Iceland demands as much
as €6,993 per month, Malta €2,700, Romania €3,330, Czechia €5,000, Georgia $2,000, Croatia
€2,232, Antigua and Barbuda, and Barbados $50,000 per year, while the Cayman Islands, asking
for up to $150,000 of annual earnings, are less popular (Planet Nomad, 2024). Bermuda does not
specify an income requirement but requires consistency, making it a popular choice (Gover nment
of Bermuda, n.d.), as is Germany. Norway requires €35,719 per year, and Serbia, still in discus-
sions about its program despite hosting many digital nomads, is considering a mandatory salary
of €3,500 per month (Lawyers Serbia, n.d.), a relatively high sum.
In Serbia, citizens of Russia, Belarus, Ukraine, or Moldova do not need visas, allowing for an
“undefined” form of digital nomadism. People can work through permanent residence, refugee
status, or by renewing their visa through monthly exits from the country, often to Bosnia and
Herzegovina (the so-called visa-run) (srb.guide., n.d.). Oxford Analytica notes that the Serbian
economy benefits from the influx of immigrants from these countries, who are mostly high-
ly-skilled, often IT experts or digital nomads from creative industries. The arrival of these in-
dividuals and their families has significantly boosted Serbia’s demography and real estate mar-
ket (Oxford Analytica, 2023). As of November 2023, 2,129 companies founded by citizens of
Russia and Ukraine, mostly in non-specialised wholesale trade, computer programming, con-
sulting, business management, and other management activities, were registered in Serbia, with
many of their workers relocated there. This indicates that many immigrants from the former
USSR are not digital nomads, but there is a significant number who work for Russian compa-
nies and receive payment from home. Additionally, the cultural life and local tourism in Serbia
have been invigorated by immigrants from Russia, Belarus, and Ukraine, including increased
visits to cultural institutions.
4. CONCLUSION
Digital nomadism is a logical evolution stemming from generational shifts, the intensification
of globalization, the emergence of new connectivity options through information technologies,
and the changes brought about during and after the COVID-19 pandemic from 2020 to 2022
(Graić et al., 2023). It reflects the response of knowledge workers, particularly in creative in-
dustries, to movement restrictions (lockdowns) and the reduced necessity—or outright redun-
dancy—of reporting to a traditional workplace. The primary benefits of digital nomadism in-
clude an average productivity increase of 4.4%, which benefits employers, and investment in lo-
cal economies, with digital nomads spending an average of 35% of their earnings in their host
communities.
However, despite research and analyses conducted from 2000 to 2019, perceptions of digital
nomadism haven’t significantly moved beyond the romanticised vision of individuals work-
ing from exotic beach locations, defying conventional employment norms. Although digital no-
mads can reduce living expenses by moving from expensive to more affordable locations (even
within the same country), avoiding commuting costs, and potentially working fewer hours due
to increased productivity, they face challenges. These include blurring the lines between work
and leisure, difficulties in maintaining relationships, unstable income, insecurity, uncertain-
ty, logistical issues like internet connectivity across different time zones, loneliness, and high
risks, such as disruptions in payment transactions (e.g., the recent suspension of Western card
services in Russia).
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8th International Scientific Conference EMAN 2024
Selected Papers
Like other forms of remote work, but more acutely, self-organisation and self-discipline are cru-
cial. Host countries may experience “transnational gentrification” where price increases driven
by digital nomads can lower living standards for local residents. Digital nomads often embrace
a minimalist lifestyle and face cultural barriers, leading them to cluster with like-minded indi-
viduals, sometimes isolating themselves from the local culture.
The post-pandemic world and relaxation of travel bans prompted numerous countries to initi-
ate visa programmes for digital nomads, reflecting a broader movement towards digitalisation
as strategies for staying competitive. Currently, Planet Nomad identifies 41 countries offering
such programmes, highlighting the progressive stance of nations like Croatia, Montenegro, and
Hungary. Serbia, too, has emerged as an informal beacon for digital nomadism, illustrating how
countries are adapting to changing market dynamics (Ribeiro et al., 2023). Serbia has become an
informal hub for digital nomadism, despite the lack of formal legality, as digital nomads from
Russia, Belarus, and Ukraine do not require visas for Serbia and mostly work there on tourist
visas. Nonetheless, the economic and cultural impact of digital nomads in Serbia has been sig-
nificantly positive, offering a boost to a country grappling with demographic and brain drain
challenges. The arrival of highly skilled workers and their families revitalises both the econo-
my and culture.
While many countries set minimum income requirements for digital nomads, the suggested in-
come of €3,500 per month for Serbia, like that of many Eastern European countries, seems over-
ly ambitious and may push digital nomads into a “grey economy” of clandestinely working tour-
ists. We recommend that the Government of the Republic of Serbia consider adopting more real-
istic policies, akin to those of Portugal (€600), Germany (no requirement), or Georgia ($2,000),
instead of demanding higher incomes from digital nomads than countries like Spain.
Acknowledgments
This article is supported by the Department of Industrial Engineering and Management, Facul-
ty of Technical Sciences, University of Novi Sad, as part of the project entitled: “Improving the
teaching process in the English language in fundamental disciplines.
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8th International Scientific Conference EMAN 2024 – Selected Papers
ht tps://doi.org/10. 31410/E MAN.S.P.2024.179
Can Hypnosis Develop Emotional Intelligence
and Employees’ Skills?
Ahlem Khefacha1
Beatrix Séllei2
Keywords:
Emotional intelligence
development;
Hypnosis;
Transformational leadership;
Workplace success
Abstract: Emotional intelligence (EI) refers to qualities and skills beyond tradi-
tional intellectual and technical competencies. EI proved to be an essential skill
that goes alongside leadership skills, positively impacting organizational be-
haviors and business outcomes and influencing overall work performance. EI is
important in organizational settings in three ways: the leader’s EI, the employ-
ee’s EI, and the emotional climate of groups and teams. Few studies showed that
happier people produce more GDP, so the positive effects are countable in busi-
ness. People have different levels of EI, but nowadays, workplaces do not focus
on developing such soft skills yet. However, we can see that the development of
EI could be beneficial. One possible way to develop EI is using coaching hypnosis,
which has been used in the workplace to improve organizational skills.
This paper examines hypnosis professionals’ feedback on hypnosis use for the
development of emotional intelligence and employees’ skills. The study follows
a qualitative methodology with a questionnaire built to investigate the opinions
of professionals. The primary results show that hypnosis can be used to develop
emotional intelligence and employee skills in general.
The study aims to underline the effectiveness of hypnosis at workplaces and,
based on this, to offer a potential development strategy for emotional intelli-
gence to enhance company success based on employee success. In this paper,
we’ll present concrete techniques based on professionals’ answers to improve
leaders’ skills to be transformative and resonant leaders.
Creative Commons Non
Commercial CC BY-NC: This
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further permission.
1. INTRODUCTION AND LITERATURE REVIEW
There exists an ongoing evolution that reflects the dynamic nature of organizations and their
management.
Management theories field, for example, goes back thousands of years, followed by leadership theo-
ries and, more recently, emotional intelligence (EI). and in some way, they are all interconnected. De-
veloping emotional intelligence contributes to developing leadership skills, which help in fostering a
positive, successful management environment in organizations. Studies on different ways to devel-
op EI are still understudied and ongoing. Neuro-linguistic programming (NLP) used in training is
one of the possible ways to develop EI that is still under study. NLP is a psychological intervention
mostly used in coaching and training to develop different soft skills. Hypnosis is another psychologi-
cal intervention used in the past to develop different skills. For example, research showed it could be
used for problem-solving skills (Sanders, 1976). Despite the lack of research on both psychological in-
terventions for developing EI and leadership, there is still more research using NLP for this purpose
compared to studies using hypnosis, while NLP has its roots in hypnosis (Bandler & Grinder, 1979).
This might be due to the stigmatization that the hypnosis concept has. Hypnosis might be a great tool
to use to develop employees’ skills and EI. This research investigates the opinion of hypnosis profes-
sionals on this possibility.
1 Budapest University of Technology and Economics, 1117 Budapest, Hungary
2 Budapest University of Technology and Economics, 1117 Budapest, Hungary
Received: April 20, 2024
Accepted: August 25, 2024
Published: December 17, 2024
180
8th International Scientific Conference EMAN 2024
Selected Papers
The field of management theories has a rich and extensive history that dates back thousands of
years. From the ancient civilizations of Iraq and Egypt to the classical management theories and
behavioral theories developed in the 20th century to leadership theories and contemporary man-
agement approaches, the study of management has evolved and grown over time. Leadership
theories, in particular, have been explored and analyzed throughout history, with different per-
spectives and ideas developed to understand leadership dynamics in various contexts and in-
dustries (Dinh et al., 2014).
While the leadership concept was already mentioned in the past with Attila the Hun (Roberts,
1987), scientific theories and studies started gaining in popularity in the 19
th
century. It followed
the same path as management theories in that both have been going through changes over time,
and both are linked to organizational management. Over the years, leadership theories have been
studied, and several theories have emerged. In 1985, Bass worked on developing the initial work of
Burns (1978) and introduced transformational leadership theory.
Transformational leadership is one of the most prominent and widely studied theories in leader-
ship (Yusuf & Kurniady, 2020). It focuses on the ability of leaders to inspire and motivate their fol-
lowers, creating a sense of shared vision and purpose. This approach emphasizes the importance
of leaders creating meaningful connections with their followers, promoting individual growth and
development, and fostering a positive organizational culture.
It is about leaders who encourage, inspire, and motivate their followers while developing them-
selves to be ready to adapt to changes when they occur. It is mainly used when an organization
is going through a change or needs revitalization. But in today’s world, we witness discoveries
and inventions daily. According to this theory, leaders would stimulate logical thinking, ques-
tioning the basic assumptions of employees to encourage creativity and innovation (Bass & Rig-
gio, 2006). The emergence of transformational leadership theory further contributed to our under-
standing of effective leadership by emphasizing the importance of inspiring and motivating fol-
lowers to achieve shared goals. Transformational leadership aims to enhance team performance
through idealistic influence, motivational inspiration, intellectual stimulation, and personalized at-
tention. Leaders can be considered hypnotists, and the crowd/followers are the ones being hypno-
tized. It is interesting to note that hypnosis is linked to leadership skills. Hypnosis is, after all, a
power of persuasion that several political leaders used unconsciously or might have also used con-
sciously to lead their followers/the crowd in a certain direction. Donald Trump is an example of a
powerful leader who was a big influencer, leading the crowd in the direction he looked for (Kori-
tar, 2022). Studies also showed that throughout history, several leaders might have used hypnosis
to manipulate in a way the crowd toward their common goal, such as is seen in most revolutions
where we witness few people leading the whole movement (Graumann, 1986). Aside from being
used by leaders, hypnosis is also used to develop EI.
Emotional intelligence can facilitate reaching transformational leadership goals, which brings in
the capacity to recognize, process, comprehend, and control emotions (Ireland, 2008).
Studies showed that EI can predict the effectiveness of transformational leadership (Pandey &
Rathore, 2015) and that those with a higher level of emotional intelligence tend to exhibit more
transformational leadership qualities (Allameh et al., 2015; Mathew & Gupta, 2015). The defini-
tion for this leadership style, according to Bass (1985), is that leadership is “the principal dynam-
ic force that motivates and coordinates the organization in the accomplishment of its objectives”.
181
Can Hypnosis Develop Emotional Intelligence and Employees’ Skills?
On the other hand, emotional intelligence is the ability to recognize, understand, and manage one’s
emotions and those of others effectively. Research shows that by doing so, we influence other’s mo-
tivation and behavior, ultimately leading to better interpersonal relationships and overall success in
various areas of life.
Leadership based on emotional intelligence brings in a positive and motivating environment in
the workplace. Employees’ performance is positively affected by their well-being, enhancing deci-
sion-making and problem-solving skills (Palmer et al., 2001). Together, there is a higher effect on
organizational success.
Wellbeing incorporates different factors, including happiness (Seligman, 2011). In a variety of set-
tings, there is a strong correlation between happiness and emotional intelligence (EI). Research in-
dicates that people with elevated emotional intelligence (EI) typically report greater enjoyment and
overall happiness (Elayan et al., 2023). A low level of EI in engineering students, for example, is
linked to a low level of happiness (Khefacha & Sellei, 2023), which emphasizes furthermore the
importance of developing EI levels for success and well-being.
Since its emergence, different methods have been pointed out and experimented with to develop
emotional intelligence. This includes different training and techniques such as teamwork, self-re-
flection, and empathy-building exercises within emotional intelligence training (Groves et al.,
2008; Nelis et al., 2009; Pat McEnrue et al., 2009; Tucker et al., 2000). Different ways of coaching
can be used for this purpose. For example, over time, Daniel Goleman and Cary Cherniss noticed
that a promising approach to use to do EI training is using the Intentional Change Theory (ICT) of
Richard Boyatzis’s work (Goleman & Cherniss, 2024). On the other hand, some studies showed the
effectiveness of using psychological coaching to develop EI. Neurolinguistic programming is still
a new approach under study but has proven its effectiveness (Ahmad, 2017; Zhang et al., 2023). In
addition, it can also enhance knowledge, self-management, and mental health while minimizing
work stress (Nompo et al., 2021). It is interesting to point out that NLP is derived from hypnosis.
Hypnosis, which is used in the workplace to develop employees’ skills, is also understudied. A re-
cent study focusing on developing self-motivation from the emotional intelligence framework on
10 employees in an international corporation showed its effectiveness (Khefacha & Sellei, 2023).
Another study on self-hypnosis used to develop EI also proved its effectiveness with young officers
at a bank in India (Umashankar & Varma, 2017).
Hypnosis is also an effective tool for increasing happiness. It is a facilitative approach to increase
happiness by working on variables such as executive attention, positive imagery, and emotions
about the past, present, and future (Ruysschaert, 2014). While hypnosis is mainly known for being
used for therapeutical practices, it can also be used for coaching. “The term ‘coaching hypnosis’ is
proposed when referring to using hypnosis in coaching” (Armatas, 2009).
This brings us to the central question of this research. There is a lack of studies on the possibility
of hypnosis usage to develop EI and employee skills despite its use in reality, and few studies show
its effectiveness in developing EI, leadership, and happiness.
- Does the years of experience of hypnosis professionals impact their belief in the possibility
of using hypnosis to develop employees’ skills?
- Does the years of experience impact hypnosis professionals’ usage and the possibility of us-
age of hypnosis to develop EI?
- Do hypnosis professionals trained in NLP believe that NLP is a form of hypnosis?
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8th International Scientific Conference EMAN 2024
Selected Papers
2. METHODOLOGY
The focus of this research is to determine the possibility of using hypnosis to develop employ-
ees’ skills and EI in an attempt to alleviate the stigma and fear that exists in the hypnosis field.
We aimed to have the opinions and feedback of experienced hypnosis professionals on the pos-
sibility of using it for employees’ benefits.
We received the collaboration of the National Syndicate of Hypnotherapists in France (SNH).
They agreed to share on their online platforms our questionnaire built for this research. The
questionnaire was made in French language and English in an attempt to share the English ver-
sion with the broader international community in the future. Answers were confirmed to be
anonymous, and they targeted hypnosis professionals from all levels.
It required approximately 5 to 10 minutes maximum to complete and contained 4 sections: gen-
eral questions, hypnosis and employee relationship, hypnosis and NLP, and EI and hypnosis. A
few questions were made using 5-point Likert scale to determine their degree of belief in the
possibility of using hypnosis for employees’ skills and increasing EI levels, for example.
The questionnaire was shared between March 1, and March 12, 2024 by the SNH on their offi-
cial Facebook page and website.
3. R E SULTS
The demographic part of the questionnaire was focused on gathering general data such as the
gender of participants, their level of hypnosis certificate if they were members of the SNH, the
number of years using hypnosis, and if they used coaching hypnosis and frequency of use.
We received 200 answers, of which we excluded 10 with several empty answers. Only 7 partici-
pants were technicians in Hypnosis, and the remaining had a practitioner or higher level of cer-
tification in hypnosis. The technician level is an introductory training towards becoming a hyp-
notherapist. With further training and certification, one can become a practitioner and attain
higher levels. Due to the low number of differences, we decided not to use this variable in our
deeper analysis. All participants in the survey were members of the SNH. This question was im-
portant as the social media channels, such as the Facebook page, of the syndicate are accessible
to everyone, not only their members.
The participants were composed of 126 females and 64 males. 54%, thus, 103 of the respond-
ents had between 6 and 30 years of experience using hypnosis. 40%, thus, 76 of the participants
have between 1 to 5 years of experience.
49% thus 94 hypnosis professionals confirmed using hypnosis to develop employees’ skills.
Only 17 of them reported being recruited by companies to use hypnosis to develop employees’
skills. There are only 19 of 94 professionals who have started using it for employees’ benefit in
the last year, and Figure 1 shows that there is an increase of experienced hypnosis profession-
als using it to develop employees’ skills despite the existing stigmatization. This might be ex-
plained by the efforts several professionals, associations, and syndicates are putting into sup-
porting research and providing further proof of the benefits of using hypnosis.
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Can Hypnosis Develop Emotional Intelligence and Employees’ Skills?
Figure 1. Increase of hypnosis professionals using hypnosis
to develop employees’ skills over time
Source: Own research
To answer our paper’s questions, we used quantitative analysis with Excel with ANOVA anal-
ysis. Table 1 shows the mean and standard deviation of the relationship between years of expe-
rience with hypnosis professionals and their belief in using hypnosis to develop EI and employ-
ees’ skills.
Table 1. Relationship between years of experience of hypnosis professionals and their belief in
using it for employees’ skills development and EI
Question 1 Count Mean SD
>1 ye ar 11 4.54 0.65
1-5 years 76 4.46 0.86
6-10 years 64 4.42 0.99
10-30 years 39 4.38 1.03
Question 2 Count Mean SD
>1 ye ar 11 3.86 0.56
1-5 years 76 3.95 0.64
6-10 years 64 3.79 0.93
10-30 years 39 3.92 0.68
Source: Own calculations
For Question 1, we found a p-value of 0.977>0.05. We accept the null hypothesis, which encom-
passes that the years of experience do not affect their belief in the possibility of using hypno-
sis to develop employee skills. This confirms further the descriptive analysis where we see that
the number of professionals using hypnosis for employees (19) is higher than the total number
of professionals who have less than a year from the time they started using hypnosis in general.
Question 2 was analyzed by using 6 sub-questions using 5 points Likert-scale to investigate to
which extent they use or would they use hypnosis to develop EI, with the different sub-scales of
EI; Self-awareness, self-regulation, empathy, self-motivation, stress management, and social skills.
All 6 variables were proven to be correlated. We thus combined them in one variable “Possibility
of using hypnosis to develop EI”. The ANOVA analysis showed a p-value of 0.650>0.05. This result
means that the difference in their years of experience is that experienced hypnosis professionals do
and would use hypnosis to develop emotional intelligence. A deeper analysis of the variables that
184
8th International Scientific Conference EMAN 2024
Selected Papers
might have an impact on their possibility of using hypnosis for EI showed that using coaching hyp-
nosis does have an effect with p=0.001. This might be explained by the fact that 62% confirmed us-
ing coaching hypnosis in their practice. 47% of those using coaching hypnosis do use it daily while
the rest use it sometimes. Emotional intelligence is an umbrella of a set of soft skills, and the defini-
tion of coaching hypnosis is the use of hypnosis to develop different skills, including soft skills. The
significance of this result might be because over 50% of participants already use coaching hypnosis.
On the other hand, using hypnosis to develop employees’ skills (p=0.653>0.05) and being
trained in NLP or not (p=0.07>0.05) do not have an impact on the possibility of using hypnosis
to develop emotional intelligence skills.
An ANOVA test of the third question also showed significance with p=0.01<0.05. This con-
firms that hypnosis professionals trained in NLP do believe that NLP is a form of hypnosis.
4. DISCUSSION AND CONCLUSION
One of the most known leadership theories is transformational leadership, which emphasizes
the ability of leaders to inspire, motivate, keep self-developing, and develop others while enact-
ing meaningful change within an organization. This theory posits that transformational leaders
can positively influence their followers to exceed expectations and achieve remarkable results
while driving positive changes (Yusuf & Kurniady, 2020). Emotional Intelligence is a crucial
component that supports the transformational leadership theory, allowing leaders to understand
and empathize with their followers, effectively build trust, and communicate their vision. De-
veloping emotional intelligence skills is thus crucial for leaders to effectively implement trans-
formational leadership practices, create a positive work environment, and bring happiness and
well-being feelings to employees. One of the possible methods to do this is through psycholog-
ical ways such as neurolinguistic programming and hypnosis. Despite the lack of research on
such techniques, coaches use them and implement them in their training and coaching. Hyp-
nosis is known mostly for its use in the medical field. However, coaching hypnosis is a concept
that confirms the possibility of using it to develop different skills instead of resolving therapeu-
tic mental issues.
This paper looked into decreasing the stigmatization of hypnosis used for developing soft skills
and emotional intelligence with an analysis focused on French hypnosis professionals. NLP is
accepted as a method for use for such a goal, but hypnosis is still feared. Our study confirmed
further that NLP is derived from hypnosis and is, in a way, a form of use of hypnosis. This result
is consistent with the authors’ original description and explanations of the NLP method when
they presented it as derived and inspired by hypnosis (Bandler & Grinder, 1979).
The findings indicate that the number of years of experience had no bearing on the respondents’
conviction that hypnosis can be utilized to improve workers’ skills. The rise in hypnosis practi-
tioners utilizing it more and more for the benefit of workers and the workplace is an encourag-
ing sign for the future of hypnosis outside the medical field.
Results also confirmed the possibility of using it for EI development. With its development
comes transformative leadership practice and the success of employees and organizations.
Based on these results, we propose using hypnosis for coaching as a tool to develop emotional
intelligence and empower leaders.
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Can Hypnosis Develop Emotional Intelligence and Employees’ Skills?
The limitations of this study include the timeframe of the questionnaire, which is 12 days, and
the questionnaire is shared only with French hypnosis professionals. We look into keeping the
survey open to gather further data from worldwide.
Acknowledgment
We thank the National Syndicate of Hypnotherapists of France (SNH)for their collaboration.
Their support in the data gathering was crucial for this paper.
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Generation Z Students` Preferences
Toward Future Professional Engagement
Koviljka Banjević1
Dragana Gardašević2
Marta Trninić3
Keywords:
Generation Z;
Characteristics;
Preferences;
Professional engagement;
Students
Abstract: Over the last few years, many authors have examined Genera-
tion Z – its characteristics, habits, values, attitudes and behaviors, interests,
learning style, as well as job preferences. It is not surprising, because this
generation is significantly different from its predecessors in many aspects.
Moreover, this generation has entered to labor market for the first time. A
new generation of workforce means new challenges for employers. In this
sense, the purpose of this study is to explore the characteristics of Gener-
ation Z students and their preferences toward future professional engage-
ment. The survey is based on a questionnaire addressed to students of pro-
fessional studies at The Academy of Applied Technical Studies Belgrade. The
data is processed in the SPSS software package and the research strategy
includes descriptive statistics. Despite some limitations, the results of the
study may be useful for employers, higher education institutions and teach-
ing staff, as well as for present and future research.
Creative Commons Non
Commercial CC BY-NC: This
article is distributed under the terms of
the Creative Commons Attribution-Non-
Commercial 4.0 License (https://creative-
commons.org/licenses/by-nc/4.0/) which
permits non-commercial use, reproduc-
tion and distribution of the work without
further permission.
1. INTRODUCTION
The ‘generational differences’ are not a new phenomenon, it has always existed. Historically, peo-
ple were affected by different living conditions and specific events that shaped their lifestyle,
and the way they think and behave. These differences made the basis for sociologists to classify
people into age groups – named ‘generation. Many theorists suggest explanations for this term, but
for this paper, the authors use the definition by McCrindle (2014) – a generation is a cohort of peo-
ple born in a certain period, ‘united by age and life stage, conditions and technology, events and ex-
periences’ (p. 1). The contemporary literature identifies six different generations: Silent or Greatest
Generation (born between 1928 and 1944); The Baby Boomers (1945 – 1965); Generation X (1965 –
1979); Generation Y (1980 – 1995); Generation Z (1995 – 2010) and Generation Alfa (2010 – 2024)
(Bencsik et al., 2016; Dolot, 2018; McCrindle & Fell, 2019). Each generation has unique characteris-
tics that differentiate it from its predecessors. In the case of Generation Z, the differences are more
pronounced, as this generation has grown ‘in completely different circumstances’ (Dolot, 2018, p.
44). Digitalization and virtualization, ‘recession and economic uncertainty’ (Dwidienawati & Gan-
dasa ri, 2018), the development of social media, pandemic lockdown and climate changes (McKinsey
& Company, 2023) are the main forces that shape values, attitudes and behaviors, expectations and
preferences of Generation Z. Since 2017, graduates of this generation have joined the labor market
and new issues have arisen. Understanding their characteristics, job-related preferences and career
aspirations is crucial for employers to attract and retain them. In Serbia, there is an insufficient num-
ber of studies in this field. This paper aims to verify the results of previous research with a sample
group of Generation Z students from The Academy of Applied Technical Studies Belgrade.
1 The Academy of Applied Technical Studies Belgrade (Department of Belgrade Polytechnic), Katarine Am-
brozić 3, 11000 Belgrade, Serbia
2 The Academy of Applied Technical Studies Belgrade (Department of Belgrade Polytechnic), Katarine Am-
brozić 3, 11000 Belgrade, Serbia
3 The Academy of Applied Technical Studies Belgrade (Department of Belgrade Polytechnic), Katarine Am-
brozić 3, 11000 Belgrade, Serbia
Received: April 19, 2024
Accepted: September 11, 2024
Published: December 17, 2024
188
8th International Scientific Conference EMAN 2024
Selected Papers
The paper addresses the following research questions:
Research Question One: What are the characteristics of Generation Z students from their point
of view?
Research Question Two: What are the preferences of Generation Z students toward profession-
al engagement?
Research Question Three: How do Generation Z students evaluate the needed skills and abil-
ities for successful professional development?
The results of this study confirm some conclusions from previous research and refer to some
new information about Generation Z.
2. GENERATION Z: CHARACTERISTICS AND WORK PREFERENCES
The different terms that are used for Generation Z - ‘net generation’, ‘iGeneration’, ‘digital natives’
(Tari, 2011, as cited in Bencsik et al., 2016, p. 93; Dolot, 2018; Hernandez-de-Menendez et al., 2020)
anddigital integrators’ refer that technology is highly integrated into their lives (McCrindle & Fell,
2019). It is not surprising, since they were born when the Internet and World Wide Web already ex-
isted (Cilliers, 2017; Gomez et al., 2022), i.e. they were growing at the time of the digital revolution.
Digital surroundings have caused Generation Z has ‘never used phone with a cord, floppy disk, pa-
per map or cassette player for listening a music(Gomez et al., 2022, p. 4). Instead, they have al-
ways had ‘smart’ phones; stored data on a ‘cloud’; found locations by e-map; and listened to music
through digital platforms. Mobile internet enables them to be online 24/7 (Cowan, 2014, as cited in
Jaleniauskiene & Juceviciene, 2015, p. 41) and to reach information by ‘one click’. They learn from
e-sources rather than printed materials (Madden, 2019; McCrindle, 2014). Members of this gener-
ation ‘do not spend so considerable time outside’ with their peers (Çora, 2019, p. 911); they use so-
cial media to share ideas, and interests and to express themselves (Hernandez-de-Menendez et al.,
2020), to chat with people around the world; they are members of virtual communities (Madden,
2019). According to McKinsey and Company (2023), Generation Z spends six or more hours a day
on their phones; they cannot imagine life without the internet and smart technology ora, 2019;
Gabrielova & Buchko, 2021). It is ‘the first generation of globalization [] characterized by a high
degree of mobility, universal values, and virtualization’ (Arar & Yuksel, 2015, p. 4). This genera-
tion simultaneously lives in physical and virtual realities (Dolot, 2018; Lazanyi & Bilan, 2017, and
Żarczyńska-Dobiesz & Chomątowska, 2014, as cited in Bieleń & Kubiczek, 2020, p. 89).
It is not just digital technology that influences young people during the processes of socializa-
tion and identification. Also, political, economic and social circumstances at global and national
levels shape their personalities (Çora & Aydin, 2016, as cited in Çora, 2019, p. 913). Besides digi-
talization and other global forces (e.g., the growth of China`s economy, the Great Recession, and
COVID-19), people in Serbia have been exposed to turbulent living conditions over the last 30
years. Today higher education students – members of Generation Z, were growing in the time
of recovery from Yugoslav wars and bombing, transition from socialism to capitalism, political
unrest, economic uncertainty, and radical changes in social norms and values.
Respecting individuality, many authors agree about some common characteristics of Genera-
tion Z. Deep familiarity with digital technology makes Generation Z tech-savvy (bin Othman
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Generation Z Students` Preferences Toward Future Professional Engagement
et al., 2019; Devan, 2024; Hernandez-de-Menendez et al., 2020; Jaleniauskiene & Juceviciene,
2015). They are capable of finding, exchanging, and processing information fast and they are
skillful in multitasking (Arar & Yuksel, 2015; Çora, 2019; Jaleniauskiene & Juceviciene, 2015).
As most of the time, they spend online and in virtual communication, they are fluent in the dig-
ital language (Lev, 2021) and they use foreign words, slang (Bencsik et al., 2016), emoticons,
gifs and images in mutual communication (Half, 2015b, as cited in Racolţa-Paina & Irini, 2021,
p. 79). On the other hand, their written, oral, and listening (Half, 2015, as cited in Racolţa-Paina
& Irini, 2021, p. 79), as well as interpersonal skills (Bieleń & Kubiczek, 2020; Richmond, 2024),
are insufficiently developed. Through social media, they are connected with people from dif-
ferent cultures (McCrindle, 2014), which enhances their flexibility, and openness to diversity
(Choughari, 2024; Kapil & Roy, 2014, as cited in Racolţa-Paina & Irini, 2021, p. 79) and ‘ability
to adapt to the global world’ (Wood, 2013, as cited in Iorgulescu, 2016, p. 48). Excessive use of
internet and social media cause their span of attention is limited ora, 2019; Bejtkovsky, 2016,
as cited in Demir & Sönmez, 2021, p. 685), difficulties in long-term memorizing contents (Tari,
2011 & Csobanka, 2016, as cited in Dolot, 2018, p. 45) and tendency to individualism (Igel & Ur-
quart, 2012 and Törocsik, et al., 2014, as cited in Demir & Sönmez, 2021, p. 685). However, Gen-
eration Z is always up to date with changes, especially with technological innovations (Rich-
mond, 2024). Consequently, they are innovative and adaptable to (rapid) changes, and they know
that better opportunities always exist (Devan, 2024).
Although many authors agree about the common characteristics of Generation Z, the find-
ings related to its work preferences are slightly opposite. Some recent studies point out that
Generation Z is not opposed to working in a midsize or large company (Bloomgarden, 2022;
Desjardins, 2019; Iorg ulescu, 2016; Mărginean, 2021) especially in ‘technologically innova-
tive environment’ (Lev, 2021); but they prefer autonomy, individual work and own workspace
(Bloomgarden, 2022; Çora, 2019; Desjardins, 2019;rginean, 2021). On the contrary, some
authors indicate that Generation Z favors working in a group (Hysa, 2016, as cited in Bieleń
& Kubiczek, 2020, p. 90) or in a large team (Iorgulescu, 2016). Considering that Generation
Z gives priority to flexible working hours and locations (Choughari, 2024; Half, 2023; Ra-
colţa-Paina & Irini, 2021; Richmond, 2024) it is not surprising that some authors find Genera-
tion Z is more entrepreneurial and/or self-employment oriented than to work in a company (Pe-
terson, 2014, as cited in Arar & Yuksel, 2015, p. 4; Bloomgarden, 2022; Çora, 2019; Beal, 2019,
as cited in bin Othman et al., 2019, p. 48). Additionally, they prioritize a friendly working envi-
ronment (Half, 2023; Mărginean, 2021); competitive salary, job security, mentorship and good
relationship with the manager (Half, 2023; Iorgu lescu, 2016;); face-to-face (Desjardins, 2019),
‘open, transparent and frequent’ communication (Richmond, 2024). On opposite, Dolot (2018),
by literature review, notices that Generation Z does not pay too much attention to job security
even more, they are willing to change a job if it does not meet their expectations. Generation Z
expects and appreciates developmental opportunities (Choughari, 2024), promotion and career
growth (Desjardins, 2019; Half, 2023; Iorgulescu, 2016); equality at work (Choughari, 2024;
Desjardins, 2019); possibility to express opinions and ideas; collaboration with people from dif-
ferent cultures (Mărginean, 2021); work-life balance (Bloomgarden, 2022; Choughari, 2024;
Richmond, 2024). They are aware that success in a career means hard work and lifelong learn-
ing (Desjardins, 2019; Iorgulescu, 2016; Mărginean, 2021).
Each new generation of workforce has initiated new issues and challenges for employers and
policymakers, but it seems that Generation Z has caused ‘the greatest generational shift the
workplace that has ever seen before’ (Tulgan, 2013, as cited in Iorgulescu, 2016, p. 48).
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3. RESEARCH METHOD
According to the aim of this study – the exploration of Generation Z students` preferences to-
ward future professional engagement, the quantitative research method was applied. The results
of previous research in this field were the basis for empirical analysis. The study used a survey
that was carried out by online questionnaire. The questionnaire consisted of three demograph-
ic questions, one related to students` characteristics and seven questions regarding students`
job-related preferences. The types of questions were single-selection and rating the statements
by a five-point scale (1=the lowest grade and 5=the highest grade). A convenience sampling
technique was applied, due to this technique enabled the data from respondents who were avail-
able to the authors. In total, 250 questionnaires were distributed to the second- and third-years
students of The Academy of Applied Technical Studies Belgrade (Department of Belgrade Pol-
ytechnic). Only 96 students filled out the questionnaire, of whom 86 belonged to Generation Z,
and their responses were considered in the results analysis. The research was conducted in De-
cember 2023 and January 2024. Descriptive statistics was used to summarize and describe the
data. Data was processed using SPSS.
Some limitations occupied this study. Firstly, as the sample was determined by availability, the
authors are aware the results are not representative, but it is interesting to gain insight into Gen-
eration Z students` characteristics and preferences. A significant number of students did not
want to participate in the survey. Additionally, very often students are not willing to respond
honestly.
4. RESULTS AND DISCUSSION
The first part of the questionnaire included demographic questions and in this sense over two-
thirds of respondents were females (76.9%), 77.9% were third-year students and the span of the
birth years was from 1995 to 2004.
By the first research question, the authors want to examine students` perceptions about their
work-related characteristics. The obtained results are presented in Table 1.
Table 1. Students’ perceptions about their work-related characteristics
Mean 5%4%3%2%1%
I easily accept changes 3.74 24 27.9 25 29.1 29 33.7 78.1 11.2
I am good at multitasking 3.72 19 22.1 36 41.9 19 22.1 12 14.0 - -
I need a lot of time to build trust with
other people 3.65 24 27.9 21 24.4 31 36.0 78.1 33.5
I enjoy being a leader 3.33 14 16.3 26 30.2 26 30.2 14 16.3 67.0
I am patient 3.93 31 36.0 30 34.4 15 17.4 89.3 22.3
I enjoy daydreaming more than making
realistic plans 2.51 67.0 11 12.8 22 25.6 29 33.7 18 20.9
I tend to take risks 3.34 11 12.8 32 37. 2 25 29.1 11 12.8 78.1
I am a team worker more than an
individualist 3.15 14 16.3 17 19.8 32 37.2 14 16.3 910.5
Source: Own calculations
The results show that more than two-thirds of respondents consider that they are patient (70.4%
- very agree and completely agree), which is opposite to many previous research. The majori-
ty of students (64%) see themselves as good at multitasking. Similar findings are obtained by
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Generation Z Students` Preferences Toward Future Professional Engagement
Arar and Yuksel (2015), Çora (2019), and Jaleniauskiene and Juceviciene (2015). 57% of students
think that they easily accept changes, which is in line with the assertion by Devan (2024). They
need a lot of time to build trust with other people and they are not afraid to take risks (50%).
Just 36.1% believe they are team workers, 10.5% are true individualists, and they are not dream-
ers, but rather make realistic plans. These results confirm some findings of the previous studies
mentioned in the theoretical background.
The second research question considers the preferences of Generation Z toward professional en-
gagement. It is analyzed through a set of items related to the type of work engagement, work-re-
lated priorities, expected salary and workload. The findings indicate that almost one-third of re-
spondents want their first job to be in a medium-sized organization (30.2%); one-fifth (19.8%)
see themselves in a start-up or entrepreneurial organization; 18.6% prefer freelance jobs; 14%
are oriented to a large international company and same proportion to the public sector; while
few of them are interested to work in NGO and in ‘other options’. These results point out that
the majority of students prefer their first job to be in an organization, which confirms the state-
ments by (Desjardins, 2019; Iorgu lescu, 2016; rginean, 2021). Interestingly, 39.6% want to
work in a team (large or small-sized) which is consistent with the percentage of them who per-
ceived themselves as team workers. Likewise, the true individualists (10.5%) confirm that they
prefer individual work (8.1%). One-half of the respondents (51.2%) would like to try each of the
previous options. An insignificant percentage of students (1.1%) chose ‘other options’.
The next item analyses the students` priorities toward future work engagement. The results are
presented in Table 2.
Table 2. Students’ priorities toward future work engagement
Mean 5%4%3%2%1%
Interesting/challenging job 4.17 34 39.5 35 40.7 15 17.4 22.3 - -
A job that implies innovation 3.91 25 29.1 38 44.2 16 18.6 44.7 33.5
A job that implies creativity 4.36 49 57.0 25 29.1 78.1 44.7 11.2
Continual improvement of knowledge,
skills and abilities 4.55 56 65.1 23 26.7 55.8 22.3 - -
Possibility to express ideas and opinions 4.70 64 74.6 20 23.3 11.2 - - 1 1.2
Career advancement 4.83 72 83.7 13 15.1 11.2 - - - -
Job security 4.53 60 69.8 14 16.3 11 12.8 - - 1 1.2
Work-life balance 4.80 72 83.7 11 12.8 33.5 - - - -
Friendly work environment 4.69 68 79.1 11 12.8 67.0 - - 1 1.2
Good employer reputation 4.42 45 52.3 32 37.2 910.5 - - - -
Diversity and inclusion 4.35 50 58.1 22 25.6 10 11.6 22.3 22.3
An autocratic manager (clear
instructions and direct control) 2.78 11.2 20 23.3 33 38.4 23 26.7 910.5
A job that enables a high level of
responsibility 3.34 89.3 32 37. 2 32 37.2 910.5 55.8
Possibility of business traveling 3.70 26 30.2 25 29.1 24 27.9 55.8 6 7
Flexible working hours and/or remote
work 4.26 47 54.7 22 25.6 11 12.8 44.7 22.3
Possibility of achieving status and
prestige 3.74 26 30.2 27 31.4 22 25.6 78.1 44.7
Small distance between work and home 3.83 26 30.2 30 34.9 26 30.2 22.3 22.3
Independence in performing tasks 4.03 26 30.2 41 47.7 15 17.4 44.7 - -
Recognit ion for the achieved results 4.28 39 45.3 36 41.9 78.1 44.7 - -
High starting salary 4.06 29 33.7 34 39.5 22 25.6 11.2 - -
Numerous paid vacation days 3.94 32 37.2 21 24.4 29 33.7 44.7 - -
Source: Own calculations
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Table 2 shows that students believe that most of the above statements are (very) significant,
except ‘manager`s autocratic approach’ (M=2.78) and ‘high level of personal responsibility’
(M=3.34). Considering mean values and distribution of the highest grades (4 and 5), almost all
students recognize career advancement, work-life balance and the possibility to express ide-
as and opinions as the most important priorities (M = 4.83, 98.8%; M=4.80, 96.5%; M=4.70,
97.9%, respectively). Additionally, students value a friendly work environment (M=4.69; 89.4%),
the possibility of improving knowledge, skills and abilities (M=4.55; 91.8%), and job security
(M=4.55; 86.1%). The findings are similar to those obtained by Iorgulescu (2016), Desjardins
(2019), Mărginean (2021), Bloomgarden (2022), Choughari (2024) and Richmond (2024). The
mean values of other statements are in the range of 3.70 to 4.42. It is surprising that, although
they are young and have no personal and professional experiences, only 59.3% of them appreci-
ate the possibility of business traveling.
Concerning the starting salary at the first job, students` expectations are varied. Nearly one-half
of them (47.7%) expect a starting salary of 600-800 euros per month. This group of students is
realistic and well-informed, considering that the average monthly salary was 818.3 euros at the
national level in January 2024 (Statistical Office of the Republic of Serbia, 2024). One-fifth of
respondents (20.9%) expect the first salary in the range of 800-1000 euros; 5.8% are more mod-
est expecting a salary below the national average; while 7% are very confident and expect over
1500 euros per month. The results confirm that a high amount of starting salary is not a stu-
dents` priority.
When asked about expected daily working hours in relation to mentioned starting salary, 74.4%
of respondents think that they should work 8 hours; 7% of students believe that they should
work between 10 and 12 hours; 15.1% expect to work less than 8 hours; and three students chose
‘other options’. The findings confirm that most students indeed appreciate work-life balance.
By the third research question, the study aims to identify students` opinions on the needed skills
and abilities for successful professional growth. Table 3 presents the ratings.
Table 3. The importance of needed skills/abilities for successful professional growth
Mean 5%4%3%2%1%
Abilit y to work in a diverse cultural
environment 3.81 21 24.4 39 45.3 19 22.1 33.5 44.7
Abilit y to work individually 4.33 40 46.5 36 41.9 910.5 - - 1 1.2
Proficiency in foreign languages 3.94 28 32.8 33 39.4 17 19.8 89.3 - -
Listening skills and ability to forward
effective feedback 5.00 86 100 --------
Creativity 4.45 52 60.5 25 29.1 67.0 22.3 11.2
Abilit y for team work 4.67 79 91.9 ------78.1
The ability for problem-solving 4.62 57 66.3 25 29.1 44.7 ----
Written and oral communication ski lls in
a diverse professional environment 4.34 41 47.7 35 40.2 89.3 22.3 - -
The ability for lifelong learning 4.57 56 65.1 23 26.7 78.1 ----
Taking the init iative 4.02 28 32.6 35 4 0.7 20 23.3 33.5 - -
Attention to detail 4.34 44 51.2 30 34.9 910.5 33.5 - -
Organizational skills 4.35 42 48.8 34 39.5 89.3 22.3 -
Leadership skills 3.83 27 31.4 27 31.4 26 30.2 22.3 44.7
Data/information skills 4.08 30 34.9 40 46.5 10 11.6 55.8 11.2
Innovativeness 4.37 40 46.5 35 4 0.7 78.1 22/3 22.3
Entrepreneurial skills 3.83 20 23.3 40 46.5 18 20.9 78.1 11.2
Source: Own calculations
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Generation Z Students` Preferences Toward Future Professional Engagement
The results show that all respondents believe that ‘listening skill and ability to forward effective
feedback’ is the most important soft skill (M=5.00; 100%). In the literature, many authors suggest
that effective and prompt feedback is very important for Generation Z. The abilities of team work,
problem-solving and lifelong learning are also highly rated (M=4.67, 91.9%; M=4.62, 95.4% and
M=4.57, 91.8%, respectively). Interestingly, the percentages of students who prefer individual work
(8.1%) and students who assess their ‘ability for team work’ by the lowest grade (8.1%) are the same.
Compared to their priorities, once more students confirm the importance of continual improvement
of knowledge, skills and abilities. The ‘ability to work in a diverse cultural environment’, ‘leader-
ship skills’ and ‘entrepreneurial skills’ are rated poorly (M=3.81; M=3.83 and M=3.83, respectively).
Finally, the study considers Generation Z`s expectations about their professional development
in 5 years after graduating. The largest percentage (36%) strive for academic progress by com-
pleting a master’s degree. Approximately one-third (34.9%) expect advancement in a chosen
organization; 17.4% expect to gain professional experience by working for different employers
and 8.1% want to start their own business. For the third time, 8.1% confirm they are real indi-
vidualists. Only 3.5% of the respondents expect a managerial position in a chosen organization.
5. FUTURE RESEARCH DIRECTIONS
Based on the main limitation of this study, it would be interesting to extend this study to a larger
sample of Generation Z students in Serbia. The obtained results refer to some divergences among
respondents and the issue of intra-generational differences has arisen. Moreover, the research
could be applied to members of Generation Z who already work and compare with this study. Fi-
nally, it would be interesting to examine Serbian employers` opinions about Generation Z.
6. CONCLUSION
Global and national occasions affect people and shape their characteristics, lifestyles and be-
haviors. Generation Z was born when the internet already existed and grew in the time of digi-
tal technology expansion, political unrest, economic uncertainty, dramatic climate changes and
struggles for equal rights and social justice. Consequently, they developed unique characteris-
tics and preferences that distinguish them from their predecessors. This paper aimed to verify
the results of previous studies related to Generation Z`s characteristics and preferences toward
professional engagement. The sample consisted of the second- and third-years students – mem-
bers of Generation Z. Due to the convenience sampling technique used, the findings cannot be
applied to the generational cohort, but some useful conclusions emerged.
In line with the findings of previous research, these representatives of Generation Z think that
they are good at multitasking; easily accept changes; and see themselves as team workers rather
than individualists. They prefer their first job to be in an organization. In this study, two groups
of students are clearly distinguished. The first includes students who perceive themselves as
team workers and want to work in a large or small-sized team. The second (smaller) group rep-
resents true individualists. These students prefer individual work, consider that their ability for
team work is not significant and want to have their own businesses.
As the top work-related priorities, students identify career advancement, work-life balance, the
possibility to express ideas and opinions, a friendly work environment, the possibility of im-
provement in knowledge, skills and abilities, and job security, respectively. The same priorities
194
8th International Scientific Conference EMAN 2024
Selected Papers
are determined by other studies but in different order. They do not have high expectations about
starting salaries, and a large percentage of students do not expect they should work over 8 hours
per day. Students recognize the importance of soft skills in the contemporary environment, and
all respondents agree that ‘listening skill and ability to forward effective feedback’ is the most
important skill. Additionally, the majority of them consider that team work, problem-solving
and lifelong learning are very significant abilities. Finally, most of them would like to finish
their master’s studies or advance in a chosen organization 5 years after graduating.
On opposite to some previous research, these members of Generation Z believe that they are pa-
tient; do not consider a high starting salary among their top priorities; and the majority of them
do not see themselves working for different employers.
Despite some limitations, the findings of this research may be useful for employers, higher ed-
ucation institutions and teaching staff, as well as for present and future research.
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This study investigates whether Bitcoin may act as a safe haven in the capital markets, Japan (NIKKEI 225), as well as in commodities such as gold (GOLD HANDY HARMAN) and petroleum (WTI), and U.S. 10-year sovereign yields, during the 2020-2022 events. The authors analyze the financial integration and movements of markets to understand how BTC behaves during periods of global economic uncertainty. During the stress period, BTC did not integrate with the analyzed markets, suggesting that BTC exhibits properties of a hedge and a safe haven. BTC has properties of a hedge and a safe haven, and investors in these markets can benefit from investing in it as a secure asset and hedge. It is affected by CAC 40, FTSE 100, HANG SENG, and NIKKEI 225 stock indexes, and investors must carefully evaluate their investment strategies and risk tolerance when including BTC in their portfolio.
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This chapter aims to analyze the price efficiency of Bitcoin (BTC), DASH, EOS, Ethereum (ETH), LISK, Litecoin (LTC), Monero, NEO, QUANTUM, RIPPLE, STELLAR, and ZCASH in their weak form between March 1, 2018 and March 1, 2023 and determine whether they experience overreactions. The results show that cryptocurrencies exhibit positive and negative autocorrelations, which can reduce volatility and moderate price fluctuations. The results also show persistence in cryptocurrency returns, suggesting long-term trends or market patterns that individual and institutional investors can exploit. It is essential to recognize that cryptocurrencies are characterized by a high degree of complexity and instability. Investors need to monitor market trends and make the necessary adjustments to their investment strategies to anticipate market changes.
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