Book Chapter 2022september

Fostering Recovery through Metaverse Business Modelling
Frontmatter
Edited by: Alina Mihaela Dima

Vanesa Madalina Vargas
Sciendo │ 2022
DOI: 10.2478/9788367405072-fm
Sciendo Proceedings
Fostering Recovery through Metaverse Business Modelling
Fostering Recovery
through Metaverse
Business Modelling
June 16-17, 2022
Bucharest University of Economic Studies, Romania
Proceedings of the 5th International Conference

on Economics and Social Sciences
Computerized processing:
Claudia-Marinela Dumitru
eISBN 978-83-67405-07-2
ISSN 2704-6524
Copyright © 2022 Sciendo
www.sciendo.com
© 2022 Author(s), published by Sciendo. This work is licensed

under the Creative Commons Attribution 4.0 License.
Proceedings of the 5th International Conference on Economics and Social Sciences (2022), ISSN 2704-6524, pp. 1-8
The 5th International Conference on Economics and Social Sciences

Fostering recovery through metaverse business modelling
June 16-17, 2022
Contents
DOI: 10.2478/9788367405072-toc
Foreword
Alina Mihaela DIMA ......................................................................................................... 9
Economic Ideas and Political Action in Shaping Economic

and Monetary Union: Pierre Werner and Luxembourg
Elena DANESCU ............................................................................................................. 11
Resilient Agri-Food and Environmental Systems for Sustainable

Development and Agile Entrepreneurship
Investigating Public-Private Partnership’s Potential for Innovation
in the Romanian Agriculture
Laura Mariana CISMAȘ, Cornelia DUMITRU ................................................................ 19
Comparative Analysis of Wheat and Sunflower Seeds Branches

in Romania and Serbia
Drago CVIJANOVIC, Maria Cristina STERIE,
Vlado KOVACEVIC, Raluca Andreea ION .................................................................... 30
Trends of Vegetables Market in Romania

Andreea Daniela GIUCĂ, Laurențiu Ionuț PETRE ........................................................... 42
Understanding the Factors Underlying Czech Consumers’ Choice

of Healthy Food: a Conceptual Framework
Ismat HAIDER, Mark RATILLA, Denisa KAROLYOVÁ, Zuzana DOHNALOVÁ ....... 54
Transition toward Sustainable Hydrogen Based Economy.

Scenario Analysis on Alternative Paths
Cătălin HRISTESCU, Elena NICULESCU....................................................................... 65
The New Frontier of EU Energy: "Green Pass" for Nuclear Energy

and Natural Gas. Political Approaches and State Dynamics
Cristian-Gabriel IANC, Gabriela DRĂGAN,
Bogdan-Florin MATEI, Giani Ionel GRĂDINARU ......................................................... 77
© 2022 Author(s), published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
Romanian Smart Villages Conceptualization and Bibliometric Analysis

Nicoleta ILIE (MARIN), Vlad-Constantin TURCEA,
Ilinca STERIU (MARIN), Iulia-Alexandra OPREA ........................................................ 87
Analysis of Foreign Trade with the Main Categories

of Agro-Food Products, Parallel Romania - Italy
Georgiana Raluca LĂDARU, Mariarosaria LOMBARDI,
Marco PLATANIA, Ionuț Laurențiu PETRE ................................................................... 99
Key Barriers that Prevent the Development and Implementation

of Power Purchase Agreement in the Transition Process
to a Zero Carbon Economy
Elena NICULESCU, Cătălin HRISTESCU, Adrian TANȚĂU ...................................... 114
Concerns about Food Safety among Polish Consumers

Magdalena NIEWCZAS-DOBROWOLSKA ................................................................. 128
Local Development Initiatives on the Black Sea Coast in Romania

Alecsandra PARNUS (RUSU), Eliza GHEORGHE,
Raluca MITULESCU (AVRAM), Nicoleta ILIE (MARIN) ............................................ 137
The Evolution of the Total Waste Generated and Recycled in Romania

Bianca-Eugenia SOARE, Mahmoud TARHINI ............................................................ 148
Research on the Agro-Food Trade Balance of Romania

Georgiana Raluca LĂDARU, Mariarosaria LOMBARDI,
Marco PLATANIA, Ionuț Laurențiu PETRE ................................................................. 158
Financial Perspectives in Turbulent Times

Theoretical Perspective on the Impact of Globalization
and the Development of the World Economy System
Mohamad ABOU EL HASSAN .................................................................................... 171
Does the Profitability Have an Influence on the Financing Decision?

Rodica BACIU, Petre BREZEANU, Adrian SIMION ................................................... 182
The Decision-Making an Approach Oriented on Financing the System

of Pre-university Education
Alina CĂLDĂRARU, Gabriella SZEKERES, Mihai PĂUNICĂ ................................... 194
Stock Prices, Attention, and Google Searches

Alexandra HOROBEȚ, Cristina NEGREANU,
Maria Alexandra IONESCU, Lucian BELAȘCU ........................................................... 206
The Paradox of Taxation: Capital or Labor Force? Empirical Evidence

for the European Union Countries
Paula LAZĂR, Mirela PĂUNESCU, Mirela Elena NICHITA,
Alexandra FRĂȚILĂ (ADAM) ..................................................................................... 216
2
Climate-aligned Tokens as Instruments of Climate Change Financing

and Investment – the Case of Energy Tokens
Kamilla MARCHEWKA-BARTKOWIAK, Marcin WIŚNIEWSKI .............................. 228
The Impact of Corporate Social Responsibility on Organizational

Performance: Evidence from Romanian SMEs
Lakiss NOUR ................................................................................................................ 244
Smooth Transition Approach for Monetary Policy Shocks

over the Business Cycle
Georgiana PLEȘA ......................................................................................................... 255
The Contagion Effect on the Romanian Capital Market in the Context

of the COVID-19 Pandemic
Ela-Andrada PUȘCAȘU ................................................................................................ 265
Tracking Firms' Adaptation to COVID-19 in Albania

Bitila SHOSHA, Romeo MANO, Armela ANAMALI ................................................... 275
Consequences of Exits from Political Unions

on Corporate Financial Policies: Brexit Case
Mohamad YOUNESS .................................................................................................... 283
Marketing and Sustainability

Economic Liberalization, Privatization and Globalization Hodge-Podges:
Ethiopian Manufacturing Firms Retort from Marketing Perspectives
Mohammed AHMED, Abebe Ejigu ALEMU, Habtamu ENDRIS .................................. 299
Growth of Developing Countries in Global Value Chains, Focusing

on Apparel Industry – A Literature Review
Armela ANAMALI ....................................................................................................... 313
Digital Strategies’ Use in Lebanese Pharmaceutical Companies

Layal HAMADE ........................................................................................................... 323
Triggering Factors for Engaging Consumers as Key Players

in the Economic System in the Zero-carbon Global Economy
Anișoara MIRCEA (NEIS), Adrian TANȚĂU ............................................................... 333
Investigating Environmental Awareness of Young Adults in Romania

Cristina-Andreea NICOLAE, Mihai Ioan ROȘCA ......................................................... 343
Effect of Vaccination Campaigns on COVID-19 Awareness

among Romanian Population: A Case Study
Luminița NICOLESCU , Alexandra-Mihaela BARBU .................................................. 353
3
Digitalization Impact on Economic Recovery in the Context

of COVID-19 Pandemic
All Aboard: Towards Digitalisation. Romania and Its ICT Sector
Alexandra-Maria DANILEȚ .......................................................................................... 367
Digitalisation: Connecting Businesses to Consumers

Edi-Cristian DUMITRA, Cristian STANA, Claudiu POPA, Ciprian MANEA ............... 378
Economic Policies Adopted in Romania after the COVID-19 Pandemic.

A Study Case: Comparing Romania with Other EU Realities
Emilia JERCAN, Teodora NACU ................................................................................. 389
The “Invisible hand” of Digital Economy

Nicolae MOROIANU, Alexandra CONSTANTIN,
Iulia Maria GÂNDEA (ROȘOIU), Alexandra Elena TĂNASE (MIHAI) ....................... 400
The Importance of Digital Education in a Pandemic

and Post-Pandemic Context
Daniela VÎRJAN, Alina Ștefania CHENIC,
Vlad-Valentin VÎRJAN, Alin Ioan CREȚU ................................................................... 415
Innovative Strategies and Models in Higher Education

Urban Green Infrastructure, Ecosystem Services and Challenges
for Universities to Respond to the Needs of Society
Simona LUNGU, Ioana ENACHE, Geta RÎȘNOVEANU .............................................. 430
Identification of Gaps and Barriers in Building Renovations

through a Targeted Survey to Professionals of the Built Environment
to Upgrade the Quality of Building Stock and Mitigate Climate Change
Vasileios NTOUROS, Chrysanthi EFTHYMIOU, Theoni KARLESSI,
Dimitris PALLANTZAS, Margarita Niki ASSIMAKOPOULOS ................................... 440
How Realistic are ECTS Credits from the Student's Perspective?

Riza SALAR, Bilal YILMAZ, Burak Erdinc ASLAN..................................................... 450
A Responsive Approach to the New Academic Mobility.

Building a Conceptual Framework for Embedding Digitally Enhanced
Mobility in a European University
Roxana ZUS, Nadia FÉRNANDEZ DE PINEDO, Lucia VENNARINI,
Anișoara DUMITRACHE, Alexandru CARȚIȘ, Romiță IUCU ...................................... 458
4
The Role of Accounting Frameworks and Digitalization

in Fostering Recovery
The Revenue for the New Market using Innovative Business Model
Sabin-Alexandru BĂBEANU ......................................................................................... 469
The Impact of ERP Systems on the Organization’s Sustainable

Development in the Era of Digitalization
Laura-Eugenia-Lavinia BARNA .................................................................................... 480
Straightforward System – ERP Risk in Companies Life

Casiana Maria DARIE .................................................................................................... 491
Digital Leadership and Resilient Entrepreneurship

in the Metaverse Era
Determinants of the Individual Decision to Travel Less
during the COVID-19 Pandemic
Isabelle BICLESANU, Sorin ANAGNOSTE, Iulia ȘULEA ........................................... 499
Preliminary Research on the Auditing of Material and Financial Resources

in the Healthcare System – The Case of Romania
Claudia BOGHICEVICI ................................................................................................ 511
Mapping Industry 4.0 in the Portuguese Industry

Rui FERREIRA, Luis FONSECA,
Teresa PEREIRA, Fernanda A. FERREIRA ................................................................... 520
Five Steps for Sustainable Business Modelling in The Metaverse

Ilinca HOTARAN, Dalia POLEAC, Nicolae VRANA.................................................... 530
Entrepreneurship Business Restart Readiness

Vyara KYUROVA, Dilyana YANEVA, Teodora KIRYAKOVA-DINEVA ................... 540
The Role of Insurance Companies in Sustainability and Disaster Risk

Reduction in Palestine
Hasan MAKKAWI ........................................................................................................ 549
Artificial Intelligence Algorithms and the Facebook Bubble

Emanuel SANDA .......................................................................................................... 559
The Performance of Governmental Digital Platforms in Romania

Vanesa Madalina VARGAS, Marian OANCEA, Bogdan-Paul SAFTIUC ...................... 571
5
Building Business in Times of Crisis through Entrepreneurship

Online Teaching – Analysis and Solutions Instrumented by Quality
Engineering Methods
Irina-Virginia DRĂGULĂNESCU, Gabriela ȚIGU,
Narcisa VALTER, Mihaela Cornelia SANDU ................................................................ 579
Entrepreneurial Traits in High School Students. Imprints of Erasmus

Experiences
Raluca Mariana GROSU, Emilia BATROS .................................................................... 589
The New Age of Metaverse and the Old School Universe:

Business on the Edge of Final Frontiers
Octavian-Dragomir JORA, Alexandru GEORGESCU, Vlad I. ROȘCA,
Paul Cristian VASILE, Carmen Maria CONSTANTINESCU, Andreea DINU ............... 599
Tourism in the COVID-19 Pandemic Era: Good Practices

within the European Union
Iuliana POP, Delia POPESCU, Olimpia STATE, Georgică GHEORGHE ...................... 609
The “Perfect Storm” in the Global Automobile Industry:

Scrapping the Old is the Road Ahead for the New?
Hezi SHAYB, Radu MUȘETESCU................................................................................ 619
The Territorial Impact of Indebtedness: Sectoral Analysis in Slovak

Environment
Katarina VALASKOVA, Dominika GAJDOSIKOVA, Pavol DURANA ....................... 626
New Access to Social Entrepreneurship following Academic Curricula

and Research
Juliana ZAHARIA ......................................................................................................... 636
Global World after Crisis: Towards a New Economic Model

Soft Power or Hard Power, Can the EU Have a Geopolitical Awakening?
Ștefan-Marian DUMITRU .............................................................................................. 646
COVID-19 Pandemic and the Fourth Industrial Revolution:

Opportunities to Shape a New Labour Market?
Ancuța LUCACI, Carmen NĂSTASE, Mirela Ionela ACELEANU ............................... 655
The Impact of a Liquidity Shock on the Economy and the Banking Sector
through a Fire-Sale Mechanism
Irina MIHAI ................................................................................................................... 665
Globalization beyond the Pandemic: Opportunities from a Great Reset

Mariia NEZHYVA, Viktoriia MYSIUK, Olga ZAREMBA ............................................ 675
6
The High-Tech Exports of Romania during the Period 2013-2020.

An Analysis of Their Evolution and Structure
Ion PĂNESCU ............................................................................................................... 685
Permanentizing Crisis: The Impact on Current Turbulent Business

Environment
Hezi SHAYB, Radu MUȘETESCU ................................................................................ 694
An Analysis of e-Commerce Development in Vietnam and Policy

Implications for Business after COVID-19
Le Thanh TUNG ............................................................................................................ 700
Management in the Metaverse Era – The Role of Digital

Transformation in Fostering Recovery of Public
and Private Organizations
The Influence of Augmented Reality on Purchase and Repurchase
Intention in the Fashion Industry
Melika AZIM ZADEGAN, Siavash FARAHBAKHSH, Francesco BELLINI ................ 714
Importance of Information in the Risk Management Process

Anca BĂNDOI, Costinel Cristian MILITARU,
Mariana Paraschiva OLARU (STAICU), Alina Mădălina BELU .................................... 722
Challenges for a Digital Sustainable Supply Chain in a Circular

Economy Context
Ovidiu-Iulian BUNEA, Răzvan-Andrei CORBOȘ, Ruxandra-Irina POPESCU............... 731
Building a Model of a "Living Organization" as a Response

to the Challenges of the Industrial Revolution 4.0
Irina DOROGAIA .......................................................................................................... 741
The Perception of Use of Social Media and Online Pharmacies

by Lebanese Pharmacists: A Quantitative Study
Layal HAMADE ............................................................................................................ 756
Quality Management in Health Services – Theoretical Perspectives

Yasmin A MOBASHER ................................................................................................. 766
Particularities of Leadership and Motivation in Healthcare Organizations

Yasmin A MOBASHER ................................................................................................. 778
Sustainable and Blended Solutions for NGOs to Face COVID’s Challenges

and Interconnected Crisis
Marta-Christina SUCIU, Ana-Maria BOCĂNEALĂ,
Gheorghe-Alexandru STATIVĂ, Mircea Ovidiu MITUCĂ ........................................... 787
7
Applied Economics and Statistics and Data Science

Cryptocurrencies in the Digital Era. Composite Index-Based Analysis
for the Top Ten Virtual Currencies Traded
Denisa Elena BĂLĂ, Stelian STANCU ......................................................................... 797
Do Governance Indicators Impact the Shadow Economy?

Evidence from CEE Countries
Adriana Ana Maria DAVIDESCU, Eduard Mihai MANTA ........................................... 807
Exploring the Relationship between Exchange Rates, Gold Price

and Inflation. An Multivariate Empirical Approach
Răzvan Gabriel HĂPĂU................................................................................................. 818
Human Capital or Human Beings? Analysis of Added Value

and Employee Efficiency between SME’s and Large Companies
Dragoș Gabriel ION ....................................................................................................... 835
On the Potential of Google’s “Popular times” Data in Epidemiology

Eduard C. MILEA, Marian NECULA, Maria-Magdalena ROȘU .................................... 845
Empirical Study of Information Technology in Supply Chain Management:

Barriers and Risks
Elena PUICĂ ................................................................................................................. 857
How Convincing is Reliable Data? Lay Perception of Statistical Evidence

Maria-Magdalena ROȘU, Marian NECULA, Eduard C. MILEA ................................... 872
Cyber Security of National IT Applications and Critical Infrastructure

for European Funds
Marius ȘTEFAN ............................................................................................................ 881
Experimental Economics
Irrationality in Decision Making – an Experimental Economics Based
Approach
Dragoș HURU, Ana-Maria Iulia ŞANTA ....................................................................... 896
Hydrocarbons Price Subsidy and Poverty in Cameroon

Adele Micheline NGO BILONG, Tasha FOPI TAGHA, Philemon NTANG .................. 905
IoT Security in the Context of Digital Organizations

Nicolae-Gabriel VASILESCU ........................................................................................ 917
A Study on Cognitive and Behavioural Dissonance in a Group Setting

Daniela VÎRJAN, Alina Ștefania CHENIC,
Vlad-Valentin VÎRJAN, Alin Ioan CREȚU .................................................................... 924
8

June 16-17, 2022
Foreword
Alina Mihaela DIMA1*
DOI: 10.2478/9788367405072-001
Abstract
The 5th edition of the International Conference on Economics and Social Sciences
(ICESS), was organized by the Bucharest University of Economic Studies (BUES),
on the 16-17 of June 2022, at BUES, and online.
This year’s conference theme, "Fostering recovery through metaverse business
modelling", invited researchers, Ph.D. students, and practitioners to contribute to the
development of innovatory instruments for businesses, nations, and education to
rebound and adjust in light of recent international trends.
The unpredictability and challenges of the pandemic, together with innovations
in virtual and augmented realities, 5G, social technologies, and cloud computing,
created the optimum setting for the metaverse to take off. Many businesses realized
that it is quite significant to reconfigure the workplace and started to consider the
concept of the metaverse far beyond the entertainment industry. Over the coming
years, an utterly fascinating interaction between the actual and virtual worlds must
be attained; therefore, new technologies for engagement and data analysis in a digital
shared setting are now being developed. Even though it is still in its early stages of
development, the metaverse can be considered as an expansion of social media
platforms and a way to make significantly more use of working remotely.
A scientific committee encompassing more than 65% foreigners, who provide
feedback to the writers and choose the most pertinent research, demonstrates the
ICESS's strong dedication to international cooperation. This year's ICESS served as
an international platform for discussion, a training opportunity for PhD candidates,
and a means of disseminating research. It hosted 200 paper presentations and
welcomed 117 foreign participants from Europe, Asia, Africa, and North America.
The papers included in the conference proceedings represent a significant corpus
of findings and solutions to current challenges. They include strategies for easing
monetary policy shocks over the business cycle, the potential of a COVID-19
pandemic; contagion effect on the Romanian capital market; findings demonstrating
1Bucharest University of Economic Studies, Bucharest, Romania, [email protected].

* Editor.
© 2022 A.M. Dima, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
a positive relationship between the volume of Google searches and stock prices;
results of the composite index-based research for the top ten virtual currencies
traded; analysis of foreign trade with the main categories of agro-food products
providing evidence that the metaverse could also contribute to achieve the SDGs of
UNESCO by lowering the expenses of (many) physical activities.
ICESS 2022 hosted two keynote speeches; a doctor honoris causa ceremony;
the round table “Digital Disruption in Financial Markets”; and the plenary session
“Economic Ideas and Political Action in Shaping Economic and Monetary Union:
Pierre WERNER and Luxembourg” – including a presentation and the documentary
exhibition “Pierre Werner (1913-2002) – A life dedicated to Luxembourg and
Europe” – organized by the University of Luxembourg under the high patronage
of Mrs. Yuriko BACKES, Minister of Finance of the Grand Duchy of Luxembourg,
who addressed a video message to the conference. This plenary session had
reviewed the history of the Economic and Monetary Union, Pierre Werner's
political and theoretical views as Minister and Prime Minister from the end of
World War II until 1984, and Luxembourg's contribution to the creation of the
common European currency.
The presentation of the papers was organized in the following sections:
1. Resilient agri-food and environmental systems for sustainable development and
Agile entrepreneurship;
2. Digital leadership and resilient entrepreneurship in the metaverse era;
3. Financial perspectives in turbulent times;
4. Building business in times of crisis through entrepreneurship;
5. Global world after crisis: towards a new economic model;
6. Experimental economics;
7. Applied economics and statistics and data science;
8. Innovative strategies and models in higher education;
9. Digitalization impact on economic recovery in the context of the COVID-19
pandemic;
10.Marketing and sustainability;
11.Management in the metaverse era – the role of digital transformation in fostering
recovery of public and private organizations;
12.The role of accounting frameworks and digitalization in fostering recovery;
13.Current challenges within demographic data: measurement, collection, retrieval,
analysis and reporting.
ICESS 2022 partnered with Sapienza University of Rome, EM Strasbourg
Business School, the Higher Education and Research in Management of European
Universities (HERMES) network, the Romanian Academy, Groupama, the Ministry
of Finance of the Grand Duchy of Luxembourg, Europe Direct at the University of
Luxembourg, the University of Luxembourg and the Luxembourg Centre for
Contemporary and Digital History (C²DH).
10

June 16-17, 2022
Economic Ideas and Political Action

in Shaping Economic and Monetary Union:
Pierre Werner and Luxembourg
Elena DANESCU1
DOI: 10.2478/9788367405072-002
Politicians think about the next elections.

Statesmen think about the next generations.
Alcide De Gasperi
Introduction
The international financial centre in Luxembourg grew considerably in the 1960s,
driven by proactive government policy, flexible regulation, a willingness to harness
external opportunities (such as the 1963 US interest equalisation tax and the
Bundesbank provisions introduced in 1968 and 1974) and the establishment of
Community institutions and European funding institutions in the country. As
Luxembourg was in a currency union with Belgium within the Belgium-
Luxembourg Economic Union and did not have its own Central Bank, these
developments were all the more meaningful.
The Grand Duchy of Luxembourg was one of the six founding countries of
the European Coal and Steel Community (ECSC)2 that launched the European
integration, and when this historical process experienced a series of major crises –
including the failure of the European Defence Community (EDC) and the European
Political Community in 1954, the empty chair crisis in 1966 and General de Gaulle’s
veto on British accession in 1962 and 1967 –, Luxembourg set out on the path of
European monetary integration, under the impetus of Pierre Werner (29 December
1913 - 24 June 2022), Finance Minister and Prime Minister for several decades. In
October 1970, the Werner Report3 provided a detailed blueprint for Economic and
1 University of Luxembourg, Luxembourg City, Luxembourg, [email protected].

2 The ECSC was established by the Treaty of Paris (which was signed on 18 April 1951 and expired on
23 July 2002).
3 Report to the Council and the Commission on the realisation by stages of economic and monetary
union in the Community, supplement to Bulletin 11 of the European Communities, Document

L 6.956/II/70-D, 8 October 1970 (accessed 30 July 2022).
© 2022 E. Danescu, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
Monetary Union and laid the foundations for the euro, for which the Luxembourg
international financial centre have served as a “laboratory”.
Pierre Werner’s Personal Background

Born on 29 December 1913 of Luxembourgish parents in Saint-André, near Lille
(France), Pierre Werner attended his school education in Luxembourg, in a
multicultural environment that was typical for Luxembourg, and in addition to the
country’s three languages (Luxembourgish, French, and German), he also learnt
English and Italian, which broadened his cultural horizons. After his baccalaureate
was obtained at the prestigious Athenée (Lycée classique) in Luxembourg City, he
enrolled in 1934 the higher preparatory course in law in Luxembourg, before
joining the Faculty of Law in Paris. At the same time, he attended courses at the
École libre des sciences politiques (1935-1937). Particularly interested in his studies
in company management and private finance, Werner builds strong ties with his
teachers Jacques Rueff (1896-1978) and Wilfrid Baumgartner (1902-1978) (both
future French Finance Ministers), Charles Rist (1874-1955) and André Siegfried
(1875-1959), all of whom influenced his intellectual development and sparked his
interest in the study of economic and monetary phenomena. In Paris he met another
Luxembourg native, Robert Schuman (1886-1963), who at that time was a member
of the French National Assembly and who was to become an iconic figure in the
launch of post-war European integration. Back in Luxembourg as a young barrister,
Werner secured in 1938 a six-month internship at the Banque Générale de
Luxembourg (BGL). With the outbreak of the Second World War, he ended up
staying there until 1944, receiving on-the-job training in the banking profession4.
After the Liberation, Werner was hired as an attaché to the Ministry of Finance,
and in 1945 the Prime Minister and Finance Minister Pierre Dupong (1885-1953)
tasked him with carrying out a study of the reorganisation of the banking system in
Luxembourg. Subsequently he was appointed banking Commissioner, in charge of
the creation of an authority to organise and regulate the credit market and contributed
to the establishment of international financial relations. Werner represented
Luxembourg in international negotiations, particularly in Switzerland and within the
BLEU and the Benelux, and he also took part in multilateral dealings relating to
defence including NATO, the European Defence Community (EDC), and the
Western European Union (WEU). At a very early stage, he became familiar with the
International Monetary Fund (IMF), and in 1947 he succeeded in negotiating –
alongside the Luxembourg Ambassador in Washington, Hugues Le Gallais
(1896-1964) – a $12.7 million loan from the International Bank for Reconstruction
4 Approached by the Martin network of the French Resistance, Werner managed to pass to the
Luxembourg government in exile in London a report on the monetary, financial and banking situation
in the country in 1942. “Rapport sur la situation monétaire, financière et bancaire luxembourgeoise
de 1942” drawn up by Pierre Werner in 1943 and sent to the government in exile in London through
the Martin network. Centre for Documentation and Research into the Resistance, Luxembourg.
Subsequently published in Rappel – Organe de la Ligue luxembourgeoise des prisonniers et déportés
politiques, Luxembourg, 1 (1994). See Danescu, Elena. Through a century of change: portrait of a
pragmatic visionary. In Journal of European Integration History, 20 (2018), pp.9-30.
12
and Development (IBRD) to rebuild the country ravaged by the war. Two years later,
as government adviser and acting Secretary of the Council of Ministers, he was
brought into direct contact with the country’s general affairs and the European
integration strategy. Werner had been aware of the importance of European issues
since his university days, and his commitment to European unification took firm
shape in 1949, when he became convinced of the urgent need for the countries of
Western Europe to undertake the economic and political construction of a united
Europe. His experience of working in the international arena, particularly his
awareness of the weakness and the divided state of Europe, made it almost an
intellectual obligation’5.
On the day of his 40th birthday (29 December 1953), Werner was appointed
Minister for Finance following the unexpected death of Pierre Dupong. This moment
marked the rise of a decades-long career as a statesman, in which public finance and
European integration played a prominent role. Werner headed the list of candidates
for the Christian Social People’s Party (CSV) in the parliamentary election on
1 February 1959 and was duly elected Minister of State (Prime Minister). For twenty
years – from 1959 to 1974 and from 1979 to 1984 – he led the coalition cabinets that
his party formed with either the Liberals or the Socialists. His role as Prime Minister
was also combined with other ministerial portfolios in what were seen as priority
areas for a country that was constantly innovating and developing. He served as
Minister of Finance (1959-1964 and 1969-1974), for the Treasury (1964-1969 and
1979-1984) and for Foreign Affairs and Justice (1964-1967), as well as for the Civil
Service (1967-1969) and for Cultural affairs (1969-1974 and 1979-1984).
In these capacities, he worked closely with successive governments over the years
to diversify the economy, especially focusing on consolidating Luxembourg’s
transformation from a banking centre to an international financial centre from the
1960s onward, developing the audiovisual sector and, in particular, setting up the
satellite project and nurturing the idea for a Luxembourg shipping flag. As Foreign
Minister, Werner also helped to set up Luxembourg’s own independent system of
diplomacy, thereby continuing the process launched by Joseph Bech (1887-1975) at
the start of the Second World War, and to form Luxembourg’s diplomatic and
intellectual elite.
By becoming more and more closely involved in the great issues of European
integration, Werner was to leave his imprint on the key events in that process.
Examples include the battle over the political seats of the institutions (1965), the
enshrinement of Luxembourg as one of the permanent capitals of the European
institutions, the “Luxembourg Compromise” (1966), the “Werner Report” (1970),
and the consolidation of the Belgium – Luxembourg Economic Union (BLEU)
(1982) and of the Benelux. In the period from 1960 to 1974 the Luxembourg
Presidencies of the EC Council were held exclusively by various Werner
governments in succession, and the Prime Minister, acting as President each time,
successfully intervened as a mediator at European level on several occasions.
5 Werner, Pierre. Itinéraires luxembourgeois et européens. Évolutions et souvenirs 1945-1985.

Luxembourg: Saint-Paul, 1992, Vol. I, p. 35.
13
In 1974, when the Christian Social Party (CSV), which had been in power since
1926, went into opposition for four years, Werner had a seat in the Chamber of
Deputies and was chairman of his party’s parliamentary group. During this period
(1974-1979), he encouraged the CSV to play a constructive role in the consensus-
based management of the steel crisis, which resulted in the establishment of the
“steel tripartite” (an institutionalised platform for dialogue between the government,
employers, and employees), which subsequently became well known as “the
Luxembourg model for social consultation”.
The CSV won the elections in 1979 and the new Werner government worked to
ensure a smooth post-industrial transition for Luxembourg. It successfully overcame
the unrest in the BLEU and for the first time laid down Luxembourg’s monetary
status in a comprehensive and coherent way. Werner took measures to transform his
party and brought Jean-Claude Juncker, aged just 28, into the government as State
Secretary for Labour. In July 1984, when his party again won the general election,
Werner passed the baton to Jacques Santer (born in 1937) and withdrew from
political life. He remained active in public affairs, particularly focusing his energies
on the promotion of EMU and the euro – he was joint chairman, alongside Raymond
Barre (1924-2007) of the ECU Institute in Lyon – and the development of the media
and the audiovisual sphere, especially through the project for the Société Européenne
des Satellites (SES), which he chaired the board from 1989 to 1996, and then
becoming honorary chairman.
In recognition of Werner’s lifelong commitment to a united Europe, he received
the Robert Schuman Gold Medal in 1971 and the Prince of Asturias Award in 1998,
sharing the latter award with his successor Jacques Santer 6 for their “contribution
to the process of European monetary integration that has culminated in the creation
of the euro”.
Pierre Werner passed away on 24 June 2002, in Luxembourg City.
The Emergence of the Werner Report

The Hague Summit (1 and 2 December 1969) took place under the auspices
of the “completion, enlargement, deepening” triptych. Regarding the “deepening” of
the Community, two aspects stand out: political cooperation and monetary
cooperation. The Heads of State agreed that a plan by stages should be drawn up by
the Council in 1970 for the establishment of an economic and monetary union over
a decade. An ad hoc committee formed of the leaders of the various specialised
committees of the Commission was set up for this purpose7, and Pierre Werner was
6 Jacques Santer was the Prime Minister of Luxembourg from 1984 to 1995, and the President of the
European Commission from 1995 to 1999.
7 These were the chairmen of the Monetary Committee (Bernard Clappier from France, who was also
Deputy Governor of the Banque de France), the Committee of Governors of the Central Banks
(Hubert Ansiaux from Belgium, Governor of the National Bank of Belgium), the Medium-Term
Economic Policy Committee (Johann Baptist Schöllhorn from Germany, also State Secretary in the
Federal Ministry of the Economy), the Conjunctural Policy Committee (Gerard Brouwers from the
Netherlands, State Secretary in the Dutch Ministry of the Economy) and the Budgetary Committee
(Gaetano Stammati from Italy, Treasurer-General in the Italian Ministry of the Treasury). The
14
appointed as chairman of the group, that was not just a highly political choice but a
considered act in favour of a man with a strong reputation for forging a consensus.8
On 8 October 1970 in Luxembourg, Pierre Werner officially presented the plan
by stages for an economic and monetary union (EMU) in the European Community
(the Werner Report or the Werner Plan). This document was the result of seven
months of discussions by a group of experts from the six Member States, chaired by
the Luxembourg Prime Minister and Finance Minister. Alongside the consensus
building, Werner provided a vital input to the substance of the plan by stages
(a comparative overview, a parallel approach, a balanced final outcome, the external
dimension of EMU).
The Werner Report set out the broad lines, principles, and stages of an EMU
based on the principle of irreversibility and an approach rooted in perfect symmetry
between the economic and monetary aspects, with political union as the ultimate
objective. It provided for the creation of a “centre of decision for economic policy”
that would be “politically responsible to a European Parliament” elected by universal
suffrage, and a “Community system for the central banks”. It introduced the notion
of strong macroeconomic governance, requiring the coordination of budgetary and
monetary policies, and full financial integration. It also envisaged the involvement
of the “social partners” (employers and unions) in defining economic and monetary
policy, since the social dimension was seen as an intrinsic part of the EMU. After
officially acquainting itself with the Werner Report, the Commission of the
European Communities drew up and submitted to the Council, on 29 October 1970,
its own proposals and two motions for resolutions on the establishment by stages of
economic and monetary union.9
Although it was ultimately not implemented, the Werner Report led to the
creation of the European Monetary Cooperation Fund (EMCF) in 1973 in
Luxembourg – the embryo of the future European Central Bank. This institutional
architecture was inspired by the reflections on a European reserve fund initiated in
1948 by Robert Triffin (1911-1993) and subsequently developed through his
discussions with Jean Monnet (1888-1979) and Pierre Werner. The three were
committed to the European cause and shared the same vision of EMU, rooted in
Commission was represented by the Director-General for Economic Affairs (DGII), Ugo Mosca.
When the committee members chose their deputies, Schöllhorn turned to Hans Tietmeyer, an official
in the Federal Ministry of the Economy with responsibility for the Common Market, and Ansiaux to
Jacques Mertens de Wilmars, economic adviser to the National Bank of Belgium. Source: Pierre
Werner family archive.
8 See Danescu, Elena. ‘Pierre Werner and Europe: The Family Archives Behind the Werner Report.
Foreword by Jean-Claude Juncker, President of the European Commission, and Foreword

by Professor Harold James (Princeton University)’, Oxford: Palgrave Macmillan, 2019 (XXXIV +
520 pages).
9 Communication et propositions de la Commission au Conseil relatives à l’institution par étapes d’une
union économique et monétaire de la Communauté [Communication and proposals from the

Commission to the Council on the establishment by stages of economic and monetary union],
document COM (70)1250, 29 October 1970, in Official Journal of the European Communities, annex
C 140 of 26 November 1970, supplement to bulletin 11/1970, Luxembourg, 11 November 1970
(accessed 30 July 2022).
15
“perfect parallelism”, democratic strength and a social dimension. Robert Triffin

and Jean Monnet, together with other members of Monnet’s Action Committee for
a United States of Europe, intended to work on the strategy devised by Pierre Werner
to build a political consensus around the report.
Despite the fact that the Werner Report was effectively shelved in 1974 as a result
of the collapse of the Bretton Woods system and the energy crisis, it largely inspired
the Delors Report10 (1989) and the 1992 Maastricht Treaty. The creation of the
European Central Bank on 1 June 1998 and the introduction of the euro on 1 January
1999 marked the establishment of the EMU, although the asymmetry between the
monetary and economic dimensions was a source of intrinsic weaknesses. But
despite these structural defects, compounded by subsequent political and democratic
upheavals and the global financial crisis, the EMU has proven resilient and the euro
has maintained its credibility, attractiveness, and international role.
Monetary Innovation through the Luxembourg Financial Centre

As Finance Minister and later Prime Minister, Pierre Werner was well aware of
the potential of the banking sector for the diversification of an economy that was
entirely dominated by the steel industry. From the early 1950s onward, Werner
called for the establishment of a European monetary system based on a unit of
account (both for official and private usage) and a clearing house for central banks.
He made monetary policy a pivotal part of his government’s action, and the
burgeoning Luxembourg financial centre (which experienced major growth in the
early 1960s) served as a vanguard for a European currency unit. In 1968, this
balanced monetarist began to advocate the idea of “parallelism”.11 The careful
balance he imagined reappeared in the Werner Report of 1970, which was presented
as a blueprint for EMU in the EU. For Werner, the economic union and the monetary
union had to work in tandem, with the political union as the ultimate aim. He also
believed that the social dimension was an intrinsic part of the EMU.12
The presence of the ECSC (1952) was followed by the relocation to
Luxembourg of the Community’s financial institutions, including the European
Investment Bank (EIB), which established its headquarters therein 1968. Their
presence gave the Luxembourg financial centre a European dimension, placing it in
a strong position to become an “incubator” for monetary integration. 13 Banks such
10 Report on economic and monetary union in the European Community (the Delors Report).
Committee for the Study of Economic and Monetary Union. Jacques Delors, chairman. Presented
April 17, 1989 (accessed 30 July 2022).
11 Werner, Pierre. Perspectives de la Politique Financière et Monétaire Européenne. Address given at
the CDU Economic Congress in Saarbrücken on 26 January 1968. Source: Pierre Werner family
archives. Also in Documentation bulletin, 24 th year, No 2, Luxembourg: SIP, pp 3-9 (accessed
30 July 2022).
12 See Danescu, Elena. Pierre Werner, A visionary European and Consensus Builder. In Dyson, K. &
Maes, I. (eds/dirs), Architects of the Euro. Intellectuals in the making of European Monetary Union,
Oxford: Oxford University Press, 2016, pp. 93-116.
13 Maquil, Michel. Genèse et le développement de la Place financière de Luxembourg. Speech at
Capital@work. Luxembourg, 12th. May 2015.
16
as Kredietbank Luxembourgeoise SA (KBL), Banque Internationale à Luxembourg

(BIL), Banque et Caisse d’Epargne de l’Etat (BCCE) were able to capitalise on the
emergence of the Euromarket. They engaged in transactions in the European Unit of
Account (EUA) in the 1960s, the European Composite Unit (Eurco) in the 1970s and
the European Currency Unit (ECU) in the 1980s – in particular via bonds issued by
the EIB, for which the Luxembourg Stock Exchange (LuxSE) served as a hub, and
granted credits and funding related to these units.
This resulted in the establishment of a specific financial market in Luxembourg,
which also served as a laboratory for the euro prefigured by the Werner Report. “In
1996, a loan launched by the EIB made it the first financial operator to directly
support the 1:1 parity between the ECU and the euro, thereby setting a key precedent
for other borrowers and boosting financial market confidence in the future single
currency. It also pioneered a strategy of euro-tributary issues, enabling issues in
various national currencies to be converted into euros and all redenominated issues
to be subsequently consolidated into a single euro issue.” 14
Conclusion
Pierre Werner was one of the rare statesmen to be associated with the major issues
in European integration, from the Schuman Plan (1950) to the Fontainebleau
European Summit (1984). As a result of his decades-long career at the highest
political level and his capacity for influence, this prominent Christian Democratic
intellectual and committed federalist played a major role in regional integration
(BLEU, Benelux) and in EEC policy-making and gained a strong reputation for
forging a political consensus between larger powers (Germany and France) and
between diametrically opposed positions (“economists” versus “monetarists” in
designing the EMU architecture through Werner Report). In this way, he succeeded
in defending Luxembourg’s vital interests, from the steel industry to the financial
centre and to the seats of the European institutions. Werner was involved in the
major ideological debates of the time and in the efforts to establish transnational
guidelines and consensus on monetary matters. He was one of the first to develop
develop arguments for a symmetrical economic and monetary union and for the
“effective parallelism” principle.15 After it had been shelved because of the
worsening international situation, the Werner Plan continued to be a source of
inspiration for further thinking on the question of monetary integration in Europe
and a stimulus to many political and scholarly initiatives which later came into
14 See Cheng, Anqi. Research project (2018-2019) and Master thesis titled Eurobonds in European
units of account and their role in European monetary integration: From a Luxembourg perspective
(1961-1981). Supervisor Dr Elena Danescu. University of Luxembourg (MAHEC, public defence on
4 September 2019). Non-published.
15 Tietmeyer, Hans. Der Werner-Bericht als Wegweiser für die Wirtschafts-und Währungsunion. In
Danescu, E. & Muñoz, S. (eds/dirs). Pierre Werner and Europe: His Approach, Action and Legacy.
Proceedings of the international conference, Luxembourg, 27-28 November 2013, Bruxelles: P.I.E.
Peter Lang, 2015, pp. 69-78.
17
being16. However, as Jacques Delors stated “[In the report by the Delors Committee]
… we agreed on the three stages taken over from the Werner Report: stage one,
devoted to enhancing coordination, from 1 July 1990; stage two, a transition stage
on the way to the final stage, preparing the ground for what were ultimately to be the
institutions of the Economic and Monetary Union; and the last stage, at which the
exchange rates between the currencies themselves and between them and the single
currency would be laid down irrevocably.”17
Pierre Werner served as a mentor and leadership trend-setter for other leading
political figures in Luxembourg. Since the time of Joseph Bech, from Pierre Werner
and Gaston Thorn (1928-2007) to Jacques Santer and Jean-Claude Juncker, more
recently, Luxembourg has proven itself to be a master of the art of political consensus
and a rich source of great Europeans who have been able to find a way out of
Europe’s successive impasses. The influential nature of its leadership gave
Luxembourg a role in the European integration process that far outweighed the
country’s socio-economic impact.
16 Werner, Pierre. L’Union économique et monétaire d’un rapport à l’autre, September 1989. Source:
Pierre Werner family archives.
17 Delors, Jacques. Mémoires, Paris : Éditions Plon, 2004, p. 338.
18

June 16-17, 2022
Investigating Public-Private Partnership’s Potential

for Innovation in the Romanian Agriculture
Laura Mariana CISMAȘ1, Cornelia DUMITRU2*
DOI: 10.2478/9788367405072-003
Abstract
The Romanian agricultural sector has had a difficult history over the past 100 years.
Economic and social issues in the sector have influenced significantly Romanian economic
development, and continue to represent a huge challenge in the current changing economic
and social context fraught with risks from climate and demographic change, to change
triggered by geopolitical and geo-economic realignments inside and outside the European
Union. The financial-economic crisis, the austerity, the subsequent pandemic and now the
conflictual circumstances imply identifying resilient and smart solutions for all sectors, but
especially for ensuring sustainable agricultural growth at the EU and each member-state’s
level.
In difficult periods, mobilizing stakeholders from the public and private sector to ensure
financing through investments and subsidies, should focus on public-private partnerships as
a tool and not an objective for developing a resilient and sustainable agricultural sector at
the country and the EU-27 level. The present paper shows some of the issues and main
objectives that should guide this type of partnership in agriculture aimed at innovation and
delivering viable solutions for Romania’s rural area. Some good practice examples are
analysed, and proposals are made regarding general framework solutions for actually
operationalizing the potential of innovation and sustainable, smart growth in agriculture.
By considering the public-private partnership as a systemic innovation policy tool, we
aim to identify the best improvements that, from a holistic perspective, could give answers to
most pressing challenges regarding financing, avoiding negative demographic change, and
strengthening the competitiveness of the Romanian agricultural sector. The main issue to
tackle is the institutional economic, and stakeholders’ framework, for which the strength and
weaknesses are identified, and policy improvements suggested.
The results show that Romania has potential to strengthen an innovative, smart, and
green national agricultural sector if the right measures are taken and public-private
partnerships in the sector are approached flexibly.
1West University of Timișoara, Timișoara, Romania, [email protected].

2Institute of National Economy, Romanian Academy, Bucharest, Romania,
[email protected].
* Corresponding author.
© 2022 L.M. Cismaș, C. Dumitru, published by Sciendo. This work is licensed under the Creative Commons
Attribution 4.0 License.
Keywords: agriculture, innovation, public-private partnership, rural development,

sustainability.
JEL Classification: O13, O17, O31, O43, Q01, Q15.
1. Introduction
The agricultural sector at both national and European Union level was somewhat
neglected as compared to the other industry sectors, despite having its own
representative Directorate General, and being included specifically in the EU
funding opportunities. However, climate change, biodiversity and food safety
challenges, to which the pandemic, and the current conflictual situation at the EU
borders contributed, shed new light on the importance of the sector, and the impact
it might have on the economic, social and even political outlook at the EU-27 and at
each member state level.
In this context, the Common Agricultural Policy (CAP) while maintaining its core
goals of improved productivity, stable markets, and ensuring reasonable food prices,
and at the same time increasing the living standards of farmers has also been
increasingly more focused on the value of innovation in the sector, as it will become
one of the necessary and required features for the next programming period, 2023-
2027.
Innovation thus proves to be relevant not only for industries that become more
and more dependent on high-tech technologies, digitalization, and automation, but
also for technologizing, and improving productivity, competitiveness, and
sustainability of the agricultural sector, with impact on both the economic and social
dimensions.
Obviously, this means that the issues that must be dealt with at policy and
strategic level become more complex and need holistic approaches, as they are of
interest for economic, and non-economic stakeholders in all and each economy
at European and world level (Knickel et al., 2009), while innovation means
transitioning to more sustainable agriculture, that involves stakeholders from various
other sectors (Beers et al. 2013; Hermans et al., 2015 and 2019). The complexity
requiring the involvement of stakeholders from other industry sectors, considering
the current volatile economic, social and political environment, suggests that public-
private partnership might be one of the better solutions for Romania’s agricultural
sectors, but also at the EU-27 level.
However, as shown by a recent European Court of Accounts special report
(2018), public-private partnerships continue to be regarded with scepticism in most
EU countries, a fact that has to do with several factors that need to be addressed,
from legal-institutional ones, to those related to increased costs during the
development of the projects, delays, and risk-sharing. While the pre-pandemic
perspective was rather negative, the pandemic period, and the current period of
uncertainty, corroborated with increased needs of satisfying demands from ensuring
the necessary food-safety at the EU and world level to those of reducing to a
‘net-zero’ the carbon footprint indicates that public-private partnership might still be
20
a solution, if certain steps are taken and a reinterpretation of it especially from

the institutional-legal perspective would be considered. For Romania, where the
public-private partnership (PPP) is still at its beginning, and former experiences tend
to continue discouraging such undertakings, it would be an opportunity to set the
ground for new and innovative types of PPPs, which are instrumental and might
even change the ranking of the country in terms of innovation.
The paper is structured as follows: First, we provide the background on the
development of agriculture and the rural areas of our country. Next, we discuss the
overall PPP framework at national and EU-level, and bring arguments for revising
the legal-institutional framework as to extend the meaning and use of PPPs for
generating innovation in the Romanian agricultural sector, and identify some recent
opportunities in this respect. Finally, we present some examples of how agriculture
and innovation might become drivers for the specific aims of the Green Deal if
brought together, based on some insights delivered by the Analysis of the Needs
within the National Strategic Plan 2021-2027, and the National Program for Rural
Development 2014-2020.
2. Background
2.1 Agriculture
Romania’s agriculture has a rich history, characterized by many disruptions and
distortions influencing the institutional economic, social and cultural development
of the country in all economic and social sectors.
For the purposes of our paper, we divided the important historical stages into
three large historical periods:
a) The period of the Great Unions and shifting to a modern capitalist economy,
respectively, the period of constituting the Romanian modern state, covering the
entire time from 1864 to 1921, when the national objectives of Greater Romania
were achieved:
The first step in the agricultural development of the country was made by the
Agrarian Reform of 1863/1864 based on the French model, which meant parting
with the feudal system by secularizing the wealth of monasteries (1863) and land
endowments for the peasants (1864). It is the beginning of the peasants’ question in
Romania (Zamfir et al., 2019), due to the fact that it failed the natural progress
present in western economies regarding landownership, redistribution of lands, land
endowment for peasants, etc. The Agrarian Reform of 1864 did not solve any of
these issues, as it only attenuated some, as land was still in abundance. Nonetheless,
it was the beginning of a new stage, triggering increases in the number of the rural
population, and in time, land became insufficient, and thus, this reform generated a
rather hybrid economic and social structure, becoming one of the reasons for the
subsequent crises in the last half of the 19 th century (Dobrogeanu-Gherea, 1910) and
thus creating a new type of ‘serfdom’ specific to the country; neoiobagia. It is the
time when the land begins its fragmentation based on inheritance rules, and
21
researches show that by the end of the 19 th century and the beginning of the 20 th,
99% of the peasants who were farmers, represented less than half of total farmland
as regards ownership, that is, there were 4171 owners totalling 54.7% from total
farmland, while 920.939 peasants had properties that represented just 45.3% from
total (Zamfir et al., 2019).
b) The interwar and first post-war period 1921-1948: accelerated industrialization

fraught with economic, social, and political challenges 1921-1940; the
communist system and the first signs of compromising free market, initiative,
entrepreneurship in agriculture and industry.
While the poor peasants with incomes under 300 Lei per year represented 95.5%
of farmer households, the middle and wealthy farmers had incomes varying between
300 and 10000 Lei and represented 4.3% of the farmer households, the rest being the
upper-class (boyars) who had incomes above 10,000 Lei and represented 0.17% from
farmer households. The conclusion is visible clearly: it is rather a feudalistic
economy, not a capitalist one. The subsequent Agrarian Reform began in 1918 and
was concluded in 1922. Its major objective was to cut down the numbers of great
landowners, and to attenuate the social frictions generated by the peasants’
circumstances. It failed, as one of the most important reasons was the excessive
fragmentation of the land (Table 1).
Table 1. Size of properties, and weight of farming exploitations

after the reform by 1922
Properties Romania (1930) Households Plot
Under 1 ha* 18,6% 1,6%
1–5 ha 56,6% 26,4%
Between 5–10 ha 16,9% 20,0%
10–50 ha 7,2% 19,8%
Over 50 ha 0,8% 32,2%
Source: V. Axenciuc, 1996, pp. 242-243, from C. Zamfir, Istoria socială a României, 2019
[The social history of Romania, 2019].
* Farm workers, that is, peasants without land or very few persons from other categories that
also had a small garden.
c) The communist period 1945-1990: the development under a new and imposed
economic system, the massive collectivization, and disruption of free-market
institutions, compromising relevant economic institutions that are increasingly
relevant nowadays.
The situation did not improve after the Second World War, when the capitalist
road to modernizing the country was disrupted. It is the period which is at the
basis of some significant institutional economic issues that impact the agricultural
sector up to present: it compromises important institutional factors such as
22
ownership rights, how cooperatives are managed and profits are distributed, and
even the notion of cooperative itself, which returns and may gain significance in the
future regarding models of governance for the current period of ‘disruptive’
transitions (Menard, 2006). By the end of the collectivization process (1962), there
were 6546 cooperatives and 3.194 thousand families in cooperatives. The process
had, nevertheless, some beneficial results as it contributed to the sped-up
modernization and incorporation of modern technologies (Table 2).
Table 2. Changes in technology, human resources and investments

Experts
Irrigated
Upper land
Years Tractors Combines Tertiary Investments/year
secondary (thou.
education
(thou.) (thou.) education ha) thou. USD
(thou.)
(thou.)
1950 14 0,0 3,3 3,1 43 45
1960 44 3,3 5,3 5,9 138 355
1970 107 23,7 16,4 12,8 665 858
1980 147 56,8 26,4 20,9 2048 1828
Source: V. Axenciuc, 2000, p. 155.
Over the entire communist period, despite investments from 1950 to 1989, the
agricultural sector remained behind investments in industry at national level, and it
failed to close the gap as compared with the agricultural sector from western
countries. Investments in agriculture varied between 10.6% in 1950 to only 17.0%
in 1989, much below the shares for industry for the same period 43.6% (1950) and
43.7% in 1989, a fact signalling the downward slope of the last year of communism,
as industrial investments decreased constantly as of 1980, when they peaked by
50.9% (Murgescu, 2010, p. 338).
2.2 Public-Private Partnerships: Theory and Main Findings

Public-private partnerships are defined largely as a long-term contract between a
private and a government entity for providing/supplying goods/assets, and public
services, and in which the private partner assumes considerable risks, and the
management responsibility, the remuneration being correlated with the performance
(OECD, 2017). This general definition identifies and aims to cover the various
legislative-institutional frameworks governing public-private partnerships. From
legal perspective, this type of partnership occurs either in the framework of civil law,
for most of the European countries, or according to common law, hence also a
multitude of other definitions that might be encountered, and which show, finally,
that public-private partnership should not be necessarily linked to concession, and
that it might be reinterpreted so as to provide for (contractual or other arrangements)
opportunities that would gain on multiple dimensions: interorganizational
23
relationships, cooperation, shared investment objectives, risk-sharing, etc. This

means creating a more flexible and agile legislative-institutional framework for
public-private partnerships, which again, could turn into a useful tool, and not
objective in generating the outcomes aimed by the EU Green Deal Agenda, and
especially in providing a more competitive and agile framework for improving
overall sustainability and resilience in times of multiple risks, from climate, to
demographic, social, and even political ones.
The need for reviewing the overall framework of the public-private partnership
is substantiated by legislative initiatives in several EU-27 countries as, among others,
in Germany (2017), France (2015 and 2016), Italy (2016). A particular case of
interest is the Netherlands, a country which has used public-private partnerships
extensively, including in agriculture by creating a favorable eco-system for
agricultural innovation based on such partnerships (Hermans et al., 2019, Job et al.,
2022).
On sectors, we noticed that most projects were in education (189), followed by
transports (151) and healthcare (Figure 1), indicating the essential role played
by education for the current stage in the development of the knowledge economy
and society.
Figure 1. Total number of EU public-private partnership projects on sectors,

2010-2020
Transports
104
44 151 Recreation and culture
6
48 Housing and community
services
189 Environment
62 32
General Public Services

27 20
Source: Author’s processing after European Investment Bank (2022), EPEC database,
https//data.eib.org./epec.
However, if we consider the allocated amounts, we notice that the highest values
were for transports’ 90.192 billion euro, followed by healthcare 19.091 billion euro,
and education with 14.888 billion euro (EIB, 2022). This is relevant and it might also
be one of the reasons for the increased scepticism, as many of the projects in
transports and healthcare recorded higher costs and delays, against the original
provisions of the respective contracts.
The period 2016-2020 could be regarded as one of the most challenging, as
public-private partnerships are subjected to reviews of the legal-institutional
24
framework, of the various types, forms, and dimensions they could gain, so that
we might consider that the ‘market’ for public-private partnerships is still in
development, and might have a long way to reach its maturity .
The pandemic of 2020 has emphasised the significance of public-private
partnerships, as the evolution in the first half clearly indicates the trend of greenfield,
and brownfield initiatives in the fight against the Covid-19 pandemic.
Currently, the main debates are focused on the main reasons for dysfunctions of
the public-private partnership framework, and among the most interesting ones, are
the institutional economic indicators that might contribute to an overall improved
ecosystem for it respectively the institutional economic indicators regarding the
financial autonomy of sub-national authorities, trust in official economic
information, transparency of economic policies, level of corruption, efficiency of
fiscal administration, and transparency in the field of public acquisitions. To these,
other indicators might be added, for instance, the capacity of building clusters, the
cooperation between universities and the private sector, human resources in
science and technology, investments in research-development and innovation, as all
these might create a more complete image about the interventions required for
improving, expanding, rendering more flexible and agile public-private partnerships,
in brief, for changing them into an actual tool in ensuring a climate favourable to
change, to innovation, competitiveness, and sustainability for all economic sectors,
including agriculture.
3. Public-Private Partnership’s Potential for Innovation in Agriculture

in Romania
Economic institutions take shape based on the interaction of endogenous and
exogenous processes, and depend on hundreds and even thousands of years to be
assimilated/embedded in society and culture, others, respectively, the ‘rules of the
game’ (North, 1990) have a time horizon from 10 to 100 years, and on them depends
the institutional environment of the countries expressed in constitutions, laws, bills,
property rights, judicial system, etc., while shorter time horizons of 1 to 10 years
refer to governance, and the formal and informal networks work in managing
transaction costs. All these depend on how resources are allocated and the process
of allocating resources, either tangible or intangible, is ongoing with no definite time
horizons (Williamson, 1985; Voigt, 2013).
In Romania, a country which did not finish building and consolidating strong
economic and social institutions in the shift from an agrarian land to a modern
industrialised one, and where the disruption generated by the communist ruling even
distorted some of the economic institutions relevant for public-private partnerships,
making use of them as tools is almost inexistent over the entire period as of 1990 up
to 2021. This is particularly relevant, if we consider that from a historical
perspective, the first economic and social institutions were created in agriculture,
with the emergence of the first generations of permanent settlements and tended
crops. Therefore, if we aim to transform public-private partnership into a tool for
25
innovation in agriculture, we should consider as relevant how this could be applied

considering the current situation in the Romanian agricultural sector.
A caveat is here necessary: we do not insist on the huge legislative body, but
mention that reviewing the public-private partnership legislation is necessary, in
particular for making it flexible, and encompassing more types of public-private
partnerships. Moreover, it would be necessary to remove all overlaps with the Law
of Concessions, and other provisions that do not clearly help in understanding the
difference between public-private partnership and the legislation regarding public
acquisitions.
Innovation is currently essential for ensuring economic growth, competitiveness,
sustainability and resilience, and public-private partnership in agriculture might
contribute to achieving some of the main objectives of this sector, from among which
we mention promoting a smart, resilient, and diversified agricultural sector by
providing assured and stable incomes to farmers, increasing the value added of the
agricultural output, increasing the digitalisation level in the agro-food sector and in
the rural area. Another main objective would be strengthening the socio-economic
structure of rural areas by increasing quality of life, the numbers of youth involved
in the agro-food sector and non-agricultural sector in the rural area, increasing the
degree of using new technologies in the agro-food sector, and contributing to
improving the demographic structure in the rural areas, including here the
development of human resources that are attracted to work in the rural area based on
new work typologies in accordance with the needs of an agricultural sector in full
process of adjusting to the technologized and digitalized economy (Lumea Satului
[Village’s World], 2020).
From the perspective of institutional economic indicators, Romania has compared
with other EU-countries, on a scale from 0 to 4, where 0 is worst and 4 is best, most
challenges as regards financial autonomy of sub-national authority where it ranks
1.50, compared with Germany (3.0), or Poland (2.50), while Hungary is below
Romania (0.50), just like Greece (1.0), Austria (0.50). Portugal is ranked at 2.00,
according to data from 2012, while for the same indicator, in 2016 Romania registers
a decrease in ranking to 1.00, the same as Spain from 2.50 in 2012, to 2.00 in 2016,
while Hungary increases performance and leaps to 2.00 in 2016, France and
Germany remain constant by 3.0. As regards trust in official economic information,
and transparency of economic policies, Romania is at par with the other countries,
respectively Germany, France, Poland, Portugal, Greece, etc. as all of them have
slight variations between 3.0 and 4.0 on the scale. Also, regarding public acquisitions
transparency, the situation is comparable. Nonetheless, a concerning factor is the
level of corruption, where Romania has a considerable drop, signalling an increased
perception about high corruption, as the value drops from 3.25 in 2012 which means
mild corruption to 0.25 indicating concerning corruption (data from Institutional
Profile Database, CEPII).
Other such indicators worth considering for public-private partnership as an
innovation tool in the agricultural sectors are the capacity of public-private
cooperation, where Romania has a very low capacity in both years with available
26
data (2012 and 2016), registering even a drop from 2.33 to 1.67, whereas other
countries improved their capacity in this respect.
The pandemic period showed the capacity for taking initiative, and the year 2020,
was taken a decisive step as the collaboration basis was laid between the League of
Agricultural Producers Association from Romania and the Academy of Agricultural
and Forestry Sciences “Gheorghe Ionescu-Sisesti” with the aim of pooling together
resources and providing mutual support in the challenges generated by the new
Common Agricultural Policy, and the pandemic and post-pandemic context.
Considering the aims and the transition from a mostly traditional and lagging
agriculture to the new technologized and digitalized agriculture, according to our
view, we consider that the holistic approach for ensuring the change of public-private
partnership into an innovation tool in agriculture from a systemic perspective should
begin by establishing the rules of the game, contributing to creating a formal and
informal operational institutional framework. The first condition is to establish who
is relevant and should take the lead, according to the objectives of the partnership.
For instance, there are cases where the public authority should take the lead, when
the initiatives refer to policy development, legislative issues, ensuring the necessary
governmental agencies, and support organisations, while the private, entrepreneurial
partner should take the lead in practical projects that aim to combine mixed-goals,
for instance increasing agricultural output, while also obtaining profits from other
related activities, for instance setting up small-scale energy generating facilities in
the rural areas, while the education and research-development system should take
lead in realizing technological and digital solutions and innovations for the rural area
and for improving farming activities. A possible framework should also be
considered with respect to the management, control, and risk-sharing capacities of
each of the partners, and also applying the ‘test before invest’ principle by
developing pilot-projects that would also encourage small farmers to pool together
their resources in cooperatives, or other association alternatives for increasing the
potential of the agricultural sector in Romania.
4. Conclusions
The public-private partnership solution needs a changed perspective from legal-
institutional, economic, and social viewpoint not only in Romania, but also at the
EU-27 level. Evidence is the few data available about such partnerships and the
increased concerns about its use, while best practice examples, in particular for the
agricultural sector, like the Netherlands, are barely reproduced or tested.
The required interventions, for changing public-private partnerships into an
effective systemic tool of innovation for the Romanian agricultural sector, would be
providing an improved framework for cooperation in a clear and transparent
framework, improving the perception about corruption, improving trust and
confidence in governmental economic/social information, encouraging the
development of start-ups and SMEs tailored for the needs of the rural area and of the
agro-food sector, etc.
27
Some effective measures would be reviewing and improving contract laws and
frameworks, by rendering them more flexible, and improving on the definition of
public-private partnership, in the spirit of the OECD broad definition, and extending
its operation – at least at national level – so as to eliminate overlaps with the
procurement/acquisitions law, as a first step. A necessary secondary step would be
to extend its sphere, from limited strictly to concession, to something more, and
setting up the framework for innovative cooperation between interested stakeholders
from the agricultural sector and from other complementary (possibly) industrial
sectors that use the goods provided by the agricultural sector in their manufacturing
processes, for finished or semi-finished food- and other types of goods.
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29

June 16-17, 2022
Comparative Analysis of Wheat

and Sunflower Seeds Branches in Romania and Serbia
Drago CVIJANOVIC1, Maria Cristina STERIE2*,
Vlado KOVACEVIC3, Raluca Andreea ION4
DOI: 10.24789788367405072-004
Abstract
Wheat and sunflower seeds are significant products to ensure domestic food security and
international trade exchanges. The paper develops a comparative analysis between Romania
and Serbia in those regarding the production and export potential of wheat and sunflower,
considering that the topic is interesting to study in the current economic, social and political
context. The article answers the questions: what role do Romania and Serbia play in the
world market for wheat and sunflower seeds and is the current availability of wheat and
sunflower seeds sufficient to cover domestic needs in Romania and Serbia? The objectives of
the research are to identify the production and export potential for wheat and sunflower
seeds and to estimate future trends in the production of these products. The main findings
show that the production of wheat and sunflower seeds is sufficient to cover the domestic
food security for both countries and to ensure future trade, despite the current unstable
political and social situation in Eastern Europe.
Keywords: food security, wheat, sunflower seeds, Romania, Serbia.
Jel Classification: Q10, C53, F10.
1. Introduction
Agriculture is the sector of the economy that is dependent on the soil and the
climate conditions, which are important to ensure the food needs of the population.
It is characterized by distinct production structures that are not fully exploited and
are maintained at a potential stage (Dumitru et al., 2022, Dumitru, 2017).
1 University of Kragujevac, Vrnjacka Banja, Serbia, [email protected].

2 Bucharest University of Economic Studies, The Research Institute for Agriculture Economy and
Rural Development (ICEADR), Bucharest, Romania, [email protected].
3
Institute of Agricultural Economics, Belgrade, [email protected].
4 Bucharest University of Economic Studies, Bucharest, Romania, [email protected].
© 2022 D. Cvijanovic, M.C. Sterie, V. Kovacevic, R.A. Ion, published by Sciendo. This work is licensed under the
Creative Commons Attribution 4.0 License.
Romania occupies an important place in terms of the agricultural area used at the
EU level, ranking 6th with approximately 13.9 million hectares, after countries such
as France, Spain, and Germany. Of the total area used, about 60% was cultivated
arable land, of which 66% was cereals, such as wheat (25.7%) and maize (31.1%)
(PwC, 2017).
Globally, the main wheat producing countries in 2019 were China, India, Russia,
the United States, and France (FAO, 2019). Wheat is a product of great economic
importance in Romania, as demonstrated by the large area cultivated and the volume
of trade, both nationally and internationally. Furthermore, for producers, wheat is a
main source of income and for consumers it contributes to the country's food security
(Boboc, 2017; Arghiroiu, 2015).
Along with cereals, wheat, maize, etc., oilseed crops play an important role for
both producers and consumers, both for the production of edible oil and biofuels.
Globally, the leaders in sunflower production and trade are Argentina, Ukraine, and
Russia, producing 52% of world production (FAOSTAT, 2022). As for Eastern
Europe, the main producers are Romania, Bulgaria, Turkey, Moldova, and Serbia
(Popescu, 2018, Petre, 2019).
In Serbia, among the predominant cereals, maize is cultivated in 56% of the total
cereal area, followed by wheat, which occupies 35%, and represents up to 90% of
the cereal area. Wheat appears to be a relatively stable crop, with small variations in
production, much smaller than those recorded for maize cultivation (Novković,
2020). Sunflower is one of the most important crops for edible oil production in
Serbia, with harvested areas ranging from 154,793 to 187,822 hectares, with an
output of 294,502 to 454,282 tonnes, and average grain yields ranging from 1.9 to
2.4 tonnes/hectare (Branković, 2011; Novković, 2020).
Given the importance of wheat and sunflower crops in ensuring food security and
in international trade, this paper will compare their situations in Romania and Serbia,
which are among the main producing countries in Europe. The paper is structured in
six parts. After the introduction, the problem to be studied is stated; then the research
question and purpose are established. The fourth part presents the methods used and
the results obtained in the following part. Finally, the conclusions of the research are
drawn.
2. Problem Statement
Geopolitical changes in Europe in recent decades have had a direct impact on
agricultural markets, such as world trade and food markets. Demand for food on
world markets is growing due to international developments, global cereal
consumption is estimated to increase by 11% by 2026 (Voicilaș, 2020).
The milling sector is dependent on the cereals sector, with extremely high cereal
exports and the bakery sector importing large quantities of products to meet domestic
demand. The year 2017 presented the highest values in terms of imported quantities
of bakery products between 2012 and 2017, with the imported quantity being
140,730 tons, worth 325,978 thousand euros, while the quantity exported by
Romania was 59,094 tons, with a value of 139,898 thousand euros (Radu, 2019).
31
In Romania, the area cultivated with oilseeds reached almost 2 million hectares.
Rainfall levels increased soil moisture throughout the country, creating favorable
conditions for germination and spring growth. Farmers have reported this in all
of Romania, and the annual sunflower harvest is very good, although in the
South-Eastern and the Western Region production is 10-25% lower than last year
(Iancu, 2022; Micu, 2022).
In Serbia, the sunflower-growing area ranged from 16,415 hectares to
199,316 hectares, with family farms growing sunflowers in 66.8% of the total area.
Among the challenges encountered in the market are the rising prices of inputs and
primary products, family farms are severely affected, and the only solution is
continuous monitoring of profitability (Todorović, 2010).
The importance of wheat and sunflowers in ensuring food security for the
population, farmers' income, and international trade makes it an interesting topic to
study, especially in the current socioeconomic and political context. Wheat and
sunflower prices have increased in recent months due to the uncertain political
situation in Eastern Europe: in the week 7-13 April 2022, the average price of
sunflower was 625 Euros/tonne, compared to 506 Euros/tonne at the beginning of
March, according to the quotations of the Romanian Commodity Exchange
(https://www.brm.ro/cotatii-cereale/, 2022), indicating a 23% increase in just a few
weeks. The price of wheat rose from 257 Euros/tonne to 307 Euros/tonne in the same
period, an increase of 19%. Furthermore, FAO statistics show the same price
increases for cereals and sunflower seeds.
3. Research Questions and Objectives

In view of the above, the article aims to answer the following questions: What
role do Eastern European countries play in the world market for wheat and sunflower
seeds?; Is the current availability of wheat and sunflower sufficient to cover domestic
needs in Romania and Serbia?
The objectives of the research are to identify the production and export potential
of wheat and sunflower in Romania and Serbia and to estimate future trends for the
production of these products.
The research hypothesis is that Romanian and Serbian outputs of wheat and
sunflower seeds are sufficient to cover the domestic food security and the foreign
trade, although the current unstable political and social situation in Eastern Europe.
The assumption is based on previous research (Turek et al., 2018), showing that
Romania ranked first among the top sunflower seeds exporters in 2014, with
$546,644,000 export value (FAOSTAT).
4. Research Methods
The research is based on data provided by the Food and Agriculture Organization
of the United Nations and the Trade Map. Based on the data, forecasts will be made
using the Excel function FORECAST. This function predicts values based on data
32
that exist along with a linear trend and calculates these predictions of future values
using linear regression.
The main indicators comparatively analysed are: area and production of
sunflower seeds and wheat, export potential of Romania and Serbia for the two crops,
and performance of the wheat and sunflower seeds branches in Romania for the time
horizon 2021-2030, in the context of existing situations (COVID-19 pandemic, war
in Eastern Europe).
5. Findings
In Romania, the area cultivated with sunflowers in 2015 recorded more than
1 million hectares, reaching in 2020 a cultivated area of about 1.2 hectares, showing
an increase of more than 18% in the period under review. Sunflower seeds’ yield
increased by 4%, from 1770 kg/ha in 2015, to 1840 kg/ha in 2020. In 2015, Romania
produced 1.15 million tonnes of sunflower seeds, reaching a production of about
2.2 million tonnes in 2020, an increase of 23% (Table 1).
Table 1. Main technical indicators for sunflower cultivation

Country Indicator 2015 2016 2017 2018 2019 2020 2020/2015 (%)
Total area
1,009,140 1,038,414 999,162 1,006,990 1,282,700 1,194,320 18.35
(ha)
Average production
Romania 1,769 1,957 2,915 3,041 2,782 1,840 4.03
(kg/ha)
Total production
1,785,771 2,032,340 2,912,743 3,062,690 3,569,150 2,198,670 23.12
(tonnes)
Total area
166,192 200,299 219,338 239,148 219,404 221,149 33.07
(ha)
Average production
Serbia 2,630 3,101 2,464 3,068 3,323 2,879 9.47
(kg/ha)
Total production
437,084 621,127 540,590 733,706 729,079 636,688 45.67
(tonnes)
Source: FAO.
In 2015, Serbia had an area under sunflower cultivation of 166.1 thousand

hectares, reaching 221.1 thousand hectares in 2020, an increase of 33%. In terms of
average sunflower production, Serbia has seen an increase of 9.5%, from 2630 kg/ha
to 2880 kg/ha. The total sunflower seed production recorded by Serbia in 2020 was
636.7 thousand tonnes, an increase of more than 45% compared to the production
recorded in 2015 (437 thousand tonnes).
It can be seen that in 2020, the sunflower growing area in Romania is five times
larger than the area cultivated by Serbia, and in terms of production, Romania
recorded 3 times higher production than Serbia (Table 1). This indicates a
higher level of average production in Serbia compared to Romania, as can be seen
in Table 1.
33
Table 2. Evolution of main technical indicators for wheat cultivation

Country Indicator 2015 2016 2017 2018 2019 2020 2020/2015 (%)
Total area
2,102,444 2,135,304 2,051,664 2,116,150 2,168,370 2,281,690 8.53
(ha)
Average production
Romania 3,787 3,948 4,891 4,793 4,748 2,960 -21.83
(kg/ha)
Total production
7,962,421 8,431,131 10,034,955 10,143,670 10,297,110 6,754,530 -15.17
(tonnes)
Total area
589,922 595,118 556,115 643,083 577,499 581,128 -1.49
(ha)
Average production
Serbia 4,116 4,847 4,092 4,574 4,389 4,944 20.13
(kg/ha)
Total production
2,428,203 2,884,537 2,275,623 2,941,601 2,534,643 2,873,503 18.34
(tonnes)
Source: FAO.
In Romania, the wheat area increased by 8% in 2020 (2.53 million hectares),

compared to the area recorded in 2015 (2.1 million hectares). Wheat yield decreased
by approximately 22%, from 3780 kg/ha in 2015 to 2960 kg/ha in 2020. Total
production also decreased by more than 15% in 2020 (6.7 million tonnes), compared
to production in 2015 (8 million tonnes).
In Serbia, the wheat area decreased by 1.5% in 2020 when 581 thousand hectares
were recorded, compared to the area in 2015 (590 thousand hectares). Although the
cultivated area decreases, the average yield increases by 20% in 2020 (4.94 kg/ha)
compared to 2015 (4.12 kg/ha). Total production increased by 18% in 2020
(2.9 million tonnes) compared to 2015 (2.4 million tonnes).
Thus, it can be seen that Romania's wheat area in 2020 was higher, about 4 times
higher than the area recorded in Serbia, and Romania's production was twice as high
(Table 2), again indicating higher wheat yields in Serbia compared to Romania.
Figure 1. Romania's export potential for sunflowers
Source: intracen.org.
34
According to the intracen.org website, the markets with the highest potential for
sunflower exports are Bulgaria, Turkey, and the Netherlands. Current exports to
Bulgaria amount to $124 million and the remaining potential would be $123 million,
while in the case of Turkey, current exports amount to $60 million and the remaining
potential would be $145 million (Figure 1).
Figure 2. Romania's wheat export potential
Source: intracen.org.
In the case of wheat, the markets with the highest potential for Romanian
exports are France, Moldova, and Germany. Current wheat exports to France are
worth $202 million, and the remaining potential is around $60 million. And in the
case of Germany, current wheat exports stand at $26 million, but the remaining
export potential would be $128 million (Figure 2).
Table 3. World's main sunflower producers in 2019 (tonnes)
Country Production % of Top 25
Russia 15,379,287 28,31%
Ukraine 15,254,120 28,08%
Argentina 3,825,750 7,04%
Romania 3,569,150 6,57%
China 2,420,000 4,45%
Serbia 729,079 1,34%
Source: FAO.
35
In 2019, at the world level, the first place was occupied by Russia with
15.4 million tonnes, followed by Ukraine with a production of 15.3 million tonnes
and Argentina with 3.8 million tonnes. Romania is an important player in the
oilseed market, ranking fourth in 2019 in sunflower production. Serbia also ranks
15th with a production of 729 thousand tonnes (Table 3).
Figure 3. The area under sunflower in Romania, trends and estimates (ha)
Source: Own processing based on FAO data.
In 2000, the area under sunflower cultivation was about 822.1 thousand hectares,
reaching a cultivated area of about 1.2 million hectares in 2020. It is estimated that
the area under sunflowers in 2030 will be more than 1.2 million hectares. The
pessimistic variant estimates an area of 1 million hectares, while the optimistic
variant estimates an area of 1.5 million hectares in 2030 (Figure 3).
Figure 4. Sunflower seeds production in Romania, trends and estimates (tonnes)
5000000
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Sunflower seed production
Forecast(Sunflower seed production)
Lower Confidence Bound(Sunflower seed production)
Upper Confidence Bound(Sunflower seed production)
36
Sunflower seed production in 2000 was around 270.8 thousand tonnes, reaching
2.2 million tonnes in 2020. According to estimates, 3.9 million tonnes will be
produced in 2030, an increase of 77% compared to 2020. The pessimistic scenario
also estimates sunflower seed production of around 3 million tonnes, while the
optimistic scenario estimates production of 4.8 million tonnes in 2030 (Figure 4).
Figure 5. Wheat area in Romania, trends and estimates (ha)
3000000
2500000
2000000
1500000
1000000
500000
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Wheat area
Forecast(Wheat area)
Lower Confidence Bound(Wheat area)
Regarding the evolution of the wheat area in Romania, in 2000 an area of

1.9 million hectares was recorded, reaching a cultivated area of 2.3 million hectares
in 2020. Estimates show that in 2030 the wheat area will reach 2.2 million hectares,
a decrease of 4.3% compared to 2020. The optimistic scenario estimates a cultivated
area of 2.6 million hectares, while the pessimistic scenario estimates a cultivated area
of 1.7 million hectares in 2030 (Figure 5).
Figure 6. Wheat production in Romania, trends and estimates (tonnes)
20000000
10000000
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Wheat production
Forecast(Wheat production)
Lower Confidence Bound(Wheat production)
Upper Confidence Bound(Wheat production)
Liniară (Wheat production)
37
Wheat production in 2000 was 4.4 million tonnes, which increased to 6.7 million
tonnes in 2020. Production in 2030 is estimated to be 16 million tonnes, up 138%
from 2020. The optimistic scenario estimates production at 14.1 million tonnes,
while the pessimistic scenario estimates production at 8 million tonnes in 2030
(Figure 6).
Figure 7. The area under wheat in Serbia, trends and estimates (ha)
1000000
500000
0
2006
2014
2021
2028
2007
2008
2009
2010
2011
2012
2013
2015
2016
2017
2018
2019
2020
2022
2023
2024
2025
2026
2027
2029
2030
Wheat Area Forecast(Wheat Area)
Lower Confidence Bound(Wheat Area) Upper Confidence Bound(Wheat Area)
Liniară (Wheat Area)
In 2006, Serbia recorded an area of 539,813 hectares of wheat cultivation,

reaching 581,128 hectares in 2020. According to estimates, in 2030 Serbia will
cultivate wheat on 690,000 hectares, an increase of 17.7% compared to the area
recorded in 2020. The optimistic variant estimates an area of 780,000 hectares and
the pessimistic variant estimates 600,000 hectares (Figure 7).
Figure 8. Wheat production in Serbia, trends and estimates (tonnes)
6000000
4000000
2000000
0
2019
2022
2025
2028
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2020
2021
2023
2024
2026
2027
2029
2030
Wheat prodution
Forecast(Wheat prodution)
Lower Confidence Bound(Wheat prodution)
Upper Confidence Bound(Wheat prodution)
In Serbia, wheat production in 2006 was 1,875,335 tonnes, reaching

2,873,503 tonnes in 2020. According to estimates, in 2030 production will reach
3,600,000 tonnes, the optimistic variant estimating production of over
38
4,000,000 tonnes, while the pessimistic variant estimates production of

3,200,000 tonnes (Figure 8).
Table 4. Comparative analysis of wheat balance in Romania and Serbia (1000 tonnes)
România Serbia
Specification
2018 2019 2018 2019
Production 10,143.67 10,297.11 2,941.60 2,534.64
Import Quantity 692.64 853.98 0,95 1.09
Stock Variation 820.01 1,099.59 73,23 428.83
Export Quantity 5,880.52 6,103.15 1,107.38 324.41
Feed 370.32 493.66 310.80 367.35
Seed 889.49 584.63 137.42 166.06
Loss 22.00 15.62 73.71 49.08
Processed 2,853.33 2,853.33 1,240.00 1,200.00
Source: FAO.
In 2019, Romania recorded a production of 10.3 million tonnes of wheat, to

which 854 thousand tons of imported wheat were added. At the same time, the
quantity exported was 6.1 million tonnes, while animal feed, sowing and losses
totalled 1.1 million tonnes, to which was added the 2.85 million tonnes intended
for processing, resulting in a change in stocks of around 1.1 million tonnes.
In the case of Serbia, production in 2019 totaled 2.53 million tonnes, of which
429 thousand tonnes were exported, while animal feed, sowing and losses totalled
582 thousand tonnes, resulting in a stock change of 428 thousand tonnes.
Both Romania and Serbia, in terms of wheat, it can be said to ensure food security
(Table 4).
6. Conclusions
The results of the study show that the wheat sectors in Romania and Serbia
registered growth in both area and production in the reference period 2016-2020.
Therefore, the wheat area in Romania increased by 18% in 2020 compared to 2016,
while in Serbia the area increased by 33% in the same period. In terms of total
production, in Serbia it increased by 9% in 2020 compared to 2016, while in
Romania it increased by only 4%. Sunflower cultivation in Romania increased by
approximately 9% in terms of area cultivated in 2020 compared to 2016, while
Serbia recorded a decrease of 1.5%. In terms of yields, Romania recorded a 22%
decrease in average production in 2020 compared to 2016, while Serbia recorded an
increase of more than 20%.
According to estimates, the area under sunflower in Romania will remain at
1.2 million hectares in 2030. In the case of sunflower seed production, estimates
show that it will reach 3.9 million tonnes in 2030, an increase of 77% compared
to the production recorded in 2020. The estimates of the wheat area in 2020
show a decrease of 4.3% in 2030 (2.2 million hectares) compared to the area
in 2020 (2.3 million hectares). Wheat production estimates show a significant
39
increase of 138% in 2030 (16 million hectares), compared to production in 2020

(6.7 million tonnes).
These results validate the hypothesis that the Romanian and Serbian outputs
of wheat and sunflower seeds are sufficient to cover the domestic food security
and the foreign trade. Future research should consider the political risks that could
be significant drivers in agricultural output achievement, logistic issues that could
block the proper distribution of cereals, and other unpredictable factors.
References
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Oleaginous Seeds Of Romania. Scientific Papers Series Management, Economic
Engineering in Agriculture and Rural Development, 15(3), pp. 49-53, Print ISSN 2284-
7995, e-ISSN 2285-3952.
[2] Boboc, D., Popescu, G., Stoian, M., Lădaru, G.R. & Petrache, D.C. (2017). Best
Practices for Integrating the Romanian Small Farmers into the Agri-Food Chain.
Amfiteatru Economic Journal, 19(44), pp. 315-326.
[3] Branković, G.R, Balalić, I.M., Miroslav, Z.Z., Vladimir, J.M., Siniša, B. J., Gordana,
G., Šurlan, M. (2011). Characterization of Sunfl Ower Testing Environments in Serbia,
Turk Tarim Ve Ormancilik Dergisi/Turkish Journal of Agriculture and Forestry 36(3).
[4] Dumitru, E., Tudor, V., Micu, R. (2017). Analysis Regarding the Direct Payments in
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Agriculture and Rural Development, Vol. 17(4), pp. 113-116.
[5] Dumitru, E.A., Ursu, A., Tudor, V.C., Micu, M.M. (2021). Sustainable Development of
the Rural Areas from Romania: Development of a Digital Tool to Generate Adapted
Solutions at Local Level. Sustainability, 13, p. 11921, https://doi.org/10.3390/su132111
921.
[6] FAO (2019). www.fao.org.
[7] Iancu, T., Petre, I.L., Tudor, V.C., Micu, M.M., Ursu, A., Teodorescu, F.-R., Dumitru,
E.A. (2022). A Difficult Pattern to Change in Romania, the Perspective of Socio -
Economic Development . Sustainability , 14, p. 2350, https://doi.org/10.3390/su140423
50.
[8] Micu, M.M., Dumitru, E.A., Vintu, C.R., Tudor, V.C. (2022). Fintineru, G. Models
Underlying the Success Development of Family Farms in Romania. Sustainability, 14,
2443, https://doi.org/10.3390/su14042443;
[9] Novković, N., Vukelić, N., Janošević, M., Nikolić, S., Arsić, S. (2020). Analysis and
Forecast of the Production Parameters of Major Cereal Crops in Serbia, Journal on
Processing and Energy in Agriculture.
[10] Petre, I., Nica, M. (2019). Analysis of the Rentability of the Conventional and
Ecological Farming in Romania, Quality-Access to Success, 20(S2).
[11] Popescu, A. (2018). Romania's Sunflower Seeds Production, Export And
Importanalysis of the 2007-2017 Period and Forecast for 2018-2022 Horizon. Scientific
Papers. Series "Management, Economic Engineering in Agriculture and Rural
Development", 18(4), Print ISSN 2284-7995, pp. 261-270.
[12] PwC (2017). The development potential of the agricultural sector in Romania.
40
[13] Radu, L. (2019). The Bakery Sector of Romania – Present, Challenges and Perspectives
in the Context of Increasing Competitiveness, Basiq International Conference, New
Trends in Sustainable Business and Consumption.
[14] Todorović, S., Filipović, N., Munćan, M. (2010). Economic Analysis Of Sunflower
Production on Family Farms in the Republic of Serbia, Research Journal of
Agricultural Science, 42(3).
[15] Turek Rahoveanu, A., Turek Rahoveanu, M.M., Ion, R.A. (2018). Energy crops, the
edible oil processing industry and land use paradigms in Romania – An economic
analysis. Land Use Policy 17, pp. 261-270.
[16] Voicilaş, D.-M., Kalaman, O. (2020). Cereal Market in the Black Sea Region –
Comparative Analysis for Romania and Ukraine, Agricultural Economics and Rural
Development, New Series, Year XVII, No. 2, pp. 183-198.
41

June 16-17, 2022
Trends of Vegetables Market in Romania

Andreea Daniela GIUCĂ1*, Laurențiu Ionuț PETRE2
DOI: 10.24789788367405072-005
Abstract
The paper presented the main directions and trends that are manifested on the
Romanian vegetable market in order to identify the market perspectives in the context of a
sustainable development of the agri-food market. The agri-food sector is currently facing a
reduction in the pressure on resources by reducing meat consumption and increasing the
consumption of vegetables and fruits, which is one of the global directions that should be
followed. In Romania, the vegetable market is a dynamic, characterized by a specific
behavior resulting from the following characteristics: seasonality of products, high degree
of perishability, specific areas of production, and automatic demand and supply. The paper
begins with a brief review of the data on the Romanian market of vegetable products. From
the statistical data published by the National Institute of Statistics in Food Balances from
2015-2020, it was found that both the demand and the supply increased at these times;
however, it was found that the supply is higher reduced face. This is why it is necessary to
carry out imports of vegetable products.
Keywords: vegetables, demand, supply, trade balance, Romania.
JEL Classification: Q13.
1. Introduction
In Romania, the vegetable market has certain peculiarities that differentiate it
from the markets of other agricultural products, among which the most important
are the following: atomization of supply and demand, seasonality of vegetable
products, vegetable zoning, and the existence of a poorly developed marketing
system. On the other hand, the demand for vegetable products is continuous,
1 Bucharest University of Economic Studies, Bucharest, Romania, [email protected],

Research Institute for Agricultural Economics and Rural Development, Bucharest, Romania,
[email protected].
2 Bucharest University of Economic Studies, Bucharest, Romania, [email protected],
Research Institute for Agricultural Economics and Rural Development, Bucharest, Romania,
[email protected].
© 2022 A.D. Giucă, L.I. Petre, published by Sciendo. This work is licensed under the Creative Commons
while the supply is seasonal. This generates increased price volatility in these
product categories.
Romania ranks 5th in the top countries producing fruits and vegetables in
Europe, after countries such as Spain, Italy, Poland, and Greece. Surprisingly,
despite this excellent position, the country still has to import more than 65% of the
fruits and 40% of the vegetables consumed (Best food importers, 2017).
Romania exported in 2020 a quantity of vegetables of approx. 35,320 metric
tons. In 2019, Romania sold approximately 61,368 tons of vegetables. Only for
2019, the Romanian vegetable market increased, the change being 26.085%
compared to 2018. Between 2017 and 2019, vegetable exports decreased by -5.7%.
Regarding the value of exports, in 2019 Romania sold vegetables worth
179.41 million USD, registering a decrease of -20.66% compared to the total
export of vegetables in 2018, respectively, 226.136 million USD. Romania's most
popular vegetable destinations are Armenia, Hungary, Italy, Greece, and the United
Kingdom (UK) (Selina Wamucii, 2022).
Market prices for vegetables have fallen. Before 2019, a kilogram of vegetables
for export cost USD 2.87 in 2017 and USD 4.65 in 2018. Starting in 2019, the
export price decreased to USD 2.92 per kilogram, by -37.076% more reduced.
Currently, the price range for Romanian vegetables is between 2.92 USD and
4.65 USD per kilogram, in the national currency being 11.91 lei per kg. The
average price per ton is 2923.48 USD in Iasi and Bucharest (Selina Wamucii, 2022).
According to the Food and Agriculture Organization (FAO), it is recommended
to eat different types of vegetables depending on the age group. For consumers
over 12 years of age, vegetables in a quantity of 350g / day are recommended. This
consumption leads to an average annual consumption of 120 kg of vegetables.
However, at the national level, the consumption of vegetables is lower than the
recommendations of nutritionists, although their consumption brings many health
benefits (Soare et al., 2017).
The United Nations report states that only high-middle-income countries have
enough fruits and vegetables available to consumers, so that the 400 g per day
recommendations can be met globally, so low-income countries rely on cereals. To
ensure the food security of the population, the food pattern being transferred to a
secondary plan (Lădaru et al., 2020).
According to a study conducted at the the European Union (EU) level in 2014,
it was found that Romania is on the last place in the ranking in terms of
consumption of fruits and vegetables. The first places in the ranking are occupied
by countries such as: Greece, Croatia, and Slovenia (Soare et al., 2016).
The research conducted by Constantin et al., 2022, specifies that the diet of
Romanians is quite diverse and ensures nutritional security, although low income
levels have been observed in some regions of the country, which influences the
buying behavior of food.
43
At the market level, demand is a deciding factor. It decides how much to

produce for that market. Potential demand is heavily influenced by consumption
patterns and physiological needs, while actual demand is influenced by consumer
purchasing power. The supply of vegetables should meet the demand. This being
quantitatively influenced by the cultivated area and qualitatively by the yields
obtained (Turek et al., 2008).
Previous research (Ion et al., 2015) shows that domestic vegetable production
does not cover domestic consumption, the main reasons being the specific demand
and supply of agricultural products and the high losses in this sector. The latter
are largely recorded in the field, during transport, due to its poor transport and
poor storage, due to the lack of shelters to ensure optimal climatic conditions for
storing vegetables.
Romania has a high production potential, being able to produce a wide variety
of vegetable varieties throughout the year due to its climate and soil conditions that
give them a special taste. Vegetable production is seasonal, which means that it
cannot meet the needs of the market at all times of the year (Popescu, 2013).
Vegetable production requires a very high consumption of factors of
production, especially labor. The assortments of vegetables on the market are
varied, and the production of vegetables has different destinations, such as: for
fresh consumption, processing, and export that requires the organization of
distribution channels to consumers (Ion & Dobre, 2015).
3. Research Questions / Aims of the Research

This research aims to analyze the market with the general objective of
identifying the main trends of the Romanian vegetable market. The paper aims to
answer one of the most important questions for those working in this market,
namely: "What are the trends in the Romanian vegetable market?" Also, another
question that underlies the research refers to the supply of the necessary vegetables,
namely: "If the demand is greater than the supply?"
The results of the research will help farmers, processors and retailers in their
efforts to make investments in certain branches of this industry and to better
understand the factors that have a direct impact on the consumption and production
of vegetables in Romania.
4. Research Methods
The paper is based on statistical data provided by the National Institute of
Statistics, on food balances in 2015-2020, from which data were collected on
resources, its components (usable production and imports) and uses with its
components (export, domestic availability for consumption, intermediate
consumption, total losses, stock change, and availability for human consumption).
The research method used in conducting the study consisted of quantitative and
qualitative analysis of data, in order to highlight the trend of evolution of the
statistical indicators analyzed. The demand of the vegetable market was
44
substantially supported (in time), being taken into account several time series, in
order to be able to identify the trends and changes on the market, respectively, on
the demand and supply of vegetables.
5. Findings
In a statistical approach, the nutritional balances were analyzed for the main
vegetables obtained in Romania, respectively: legumes, vegetables and vegetable
products, tomatoes, dried onions, cabbage, and edible roots, the data being
expressed in tons of fresh vegetables.
Table 1. Nutrition balance for pulses at the levels of the period 2015-2020
Years
GRAIN LEGUMES 2015 2016 2017 2018 2019 2020 2020/2015
tons tons tons tons tons tons %
A. RESOURCES 101440 127682 366646 232820 275274 163737 161,41
1. Usable production 75757 99312 301680 191475 236423 121679 160,62
2. Import 25683 28370 64966 41345 38851 42058 163,76
B. USES 101440 127682 366646 232820 275274 163737 161,41
3. Export 3554 63023 197037 69000 76872 5612 157,91
4. Internal
availability 97886 64659 169609 163820 198402 158125 161,54
for consumption
5. Intermediate
32355 31654 104212 81335 113456 91949 284,19
consumption
5.1 Seed consumption 11679 12815 32807 36660 42980 34580 296,09
5.2 Feed consumption 20676 18839 71405 44675 70476 57369 277,47
5.3 Industrial
- - - - - - -
processing
5.4 Industrial
- - - - - - -
transformation
6. Total losses 446 206 1391 476 785 254 56,95
7. Stock change (±) 2619 -8023 16994 2952 5848 -2934 -112,03
8. Available for
62466 40822 47012 79057 78313 68856 110,23
human consumption
Source: Food balances 2015-2020, INS.
The total resources of legume grains decreased in 2020, by 111.5 thousand tons,
compared to the previous year, mainly due to the decrease in production. Imports
increased by approx. 163.76% in 2020 (42.058 tons) compared to 2015 when
25,683 tons were registered (Table 1).
45
Figure 1. Dynamics of trade balance for pulses (tons)
150000 132071
100000
50000 34653 38021

27655
0
2015 2016 2017 2018 2019 2020
-22129
-50000 -36446
Source: processing data from the 2015-2020 food balances, INS.
Analyzing the dynamics of the trade balance in the analyzed period, a variation
of it was noticed in the legume grains. In 2015, the trade balance registered a
deficit of 22.129 tons. After a relatively stable period with positive values, the trade
balance reached a deficit of 36.446 tons in 2020 (Figure 1).
Table 2. Food balance for vegetables and vegetable products for the period 2015-2020
VEGETABLES Years
AND 2015 2016 2017 2018 2019 2020 2020/2015
VEGETABLE tons tons tons tons tons tons %
PRODUCTS
A.
3709369 3550011 3751276 3985390 3800291 3784193 102,02
RESOURCES
1. Usable
3123575 2880833 3084932 3213561 3010704 2970641 95,10
production
2. Import 585794 669178 666344 771829 789587 813552 138,88
B. USES 3709369 3550011 3751276 3985390 3800291 3784193 102,02
3. Export 59837 43654 54799 61842 57101 80085 133,84
4. Internal
availability 3649532 3506357 3696477 3923548 3743190 3704108 101,50
for consumption
5. Intermediate
140481 127956 132495 138240 130848 128979 91,81
consumption
5.1 Seed
3063 2939 2912 2984 2933 2891 94,38
consumption
5.2 Feed
137418 125017 129583 135256 127915 126088 91,76
consumption
5.3 Industrial
- - - - - -
processing
5.4 Industrial
- - - - - -
transformation
6. Total losses 291329 270110 289103 309750 291403 294101 100,95
7. Stock change
76936 37289 99099 97048 23882 47968 62,35
(±)
8. Available
for human 3140786 3071002 3175780 3378510 3297057 3233060 102,94
consumption
46
For vegetables and vegetable products in 2020, the total resources were lower
than in the previous year by 16.09 thousand tons (Table 2).
Figure 2. Dynamics of trade balance for vegetables and vegetable products (tons)
0
-100000 2015 2016 2017 2018 2019 2020
-200000
-300000
-400000
-500000
-525957
-600000
-625524 -611545
-700000
-709987 -732486 -733467
-800000
Regarding the dynamics of the trade balance registered in vegetables and

vegetable products, a significant increase of the deficit was observed in the
analyzed period, thus in 2020, the deficit reached 733.467 tons, 39% higher than in
2015, respectively 525.957 tons (Figure 2).
Table 3. Nutrition balance for tomatoes for the period 2015-2020

TOMATOES Years
(equivalent to fresh 2015 2016 2017 2018 2019 2020 2020/2015
vegetables) tons tons tons tons tons tons %
A. RESOURCES 943323 904756 917240 1012202 978126 1022008 108,34
2. Import 248135 277579 237433 269303 288725 323584 130,41
B. USES 943323 904756 917240 1012202 978126 1022008 108,34
3. Export 4421 3291 3987 4678 6442 8792 198,87
4. Internal
availability for 938902 901465 913253 1007524 971684 1013216 107,91
consumption
5. Intermediate
- - - - - - -
consumption
5.1 Seed consumption - - - - - - -
5.2 Feed consumption - - - - - - -
5.3 Industrial
- - - - - - -
processing
5.4 Industrial
- - - - - - -
transformation
6. Total losses 176771 161625 172651 189068 177005 180565 102,15
7. Stock change (±) -2299 -15406 3470 13085 -7815 21083 -917,05
8. Available for
764430 755246 737132 805371 802494 811568 106,17
human consumption
47
The total resources of tomatoes (equivalent to fresh vegetables) in 2020 were

43.8 thousand tons higher than in the previous year, mainly due to the increase in
production (Table 3).
Figure 3. Dynamics of the trade balance for tomatoes (tons)

0
2015 2016 2017 2018 2019 2020
-50000
-100000
-150000
-200000
-250000 -233446
-243714
-274288 -264625
-300000
-282283
-314792
-350000
In the period 2015-2020, the trade balance for tomatoes was deficient. In 2015,
the trade balance registered a deficit of 243.714 tons, in 2020 it reached a deficit
of 314.792 tons (Figure 3).
Table 4 Nutrition balance for dried onions in the period 2015-2020

DRIED ONIONS Years
A. RESOURCES 417478 404470 415620 460586 452776 408373 97,82
2. Import 63856 79396 63455 110427 112141 81633 127,84
B. USES 417478 404470 415620 460586 452776 408373 97,82
3. Export 1663 666 1368 1520 1014 1937 116,48
4. Internal availability
415815 403804 414252 459066 451762 406436 97,74
for consumption
5. Intermediate
433 386 418 434 425 405 93,53
consumption
5.1 Seed consumption 433 386 418 434 425 405 93,53
5.2 Feed consumption - - - - - - -
5.3 Industrial processing - - - - - - -
5.4 Industrial
- - - - - - -
transformation
6. Total losses 12664 12440 12813 14160 13910 12567 99,23
7. Stock change (±) -13390 -10941 10364 1440 -3479 -4588 34,26
8. Available for human
416108 401919 390657 443032 440906 398052 95,66
consumption
48
For dried onions, the total resources (equivalent to fresh vegetables) in 2020
(408.373 tons) were reduced by 44.4 thousand tons compared to the previous year
(452.776 tons) (Table 4).
Figure 4. Dynamics of the trade balance for dried onions (tons)

0
2015 2016 2017 2018 2019 2020
-20000
-40000
-60000
-62193 -62087
-80000
-78730 -79696
-100000
-120000 -108907 -111127
Regarding the dynamics of the trade balance recorded for dried onions, there
was an increase in the deficit in the analyzed period, so in 2020, the deficit reached
79.696 tons, 28% higher than in 2015, respectively 62.193 tons.
Table 5. Food balance for cabbage in the period 2015-2020

CABBAGE Years
A. RESOURCES 1086472 1018824 1052568 1097213 1015208 1003455 92,36
2. Import 20173 26426 25993 31676 29366 29788 147,66
B. USES 1086472 1018824 1052568 1097213 1015208 1003455 92,36
3. Export 1792 1424 2061 2090 3332 2819 157,31
4. Internal
availability 1084680 1017400 1050507 1095123 1011876 1000636 92,25
for consumption
5. Intermediate
106630 99240 102658 106554 98584 97367 91,31
consumption
5.3 Industrial
- - - - - - -
processing
5.4 Industrial
- - - - - - -
transformation
6. Total losses 34706 32536 33625 35034 32412 32055 92,36
7. Stock change (±) 108591 75915 80666 86633 32183 31391 28,91
8. Available
for human 834753 809709 833558 866902 848697 839823 100,61
consumption
49
The total resources of cabbage (in the equivalent of fresh vegetables), in the
year 2020, were lower than those of the previous year by 11.7 thousand tons, due to
the decrease of the production mainly (Table 5).
Figure 5. Trade balance in cabbage (tons)
0
-5000 2015 2016 2017 2018 2019 2020
-10000
-15000
-20000
-18381
-25000
-25002 -23932 -26034
-30000 -26969
-29586
-35000
Analyzing the dynamics of the trade balance registered in cabbage, a significant

increase of the deficit in the analyzed period was noticed, from 18.381 tons in 2015
to 26.969 tons in 2020, the increase being of 47%.
Table 6. Food balance for edible roots in the period 2015-2020
EDIBLE ROOTS Years
A. RESOURCES 308196 290904 309566 330441 313910 295347 95,83
2. Import 81192 71672 91692 97605 87718 87217 107,42
B. USES 308196 290904 309566 330441 313910 295347 95,83
3. Export 1634 273 565 1026 979 1851 113,28
4. Internal availability
306562 290631 309001 329415 312931 293496 95,74
for consumption
5. Intermediate
20430 19731 19609 20955 20357 18732 91,69
consumption
5.3 Industrial processing - - - - - - -
5.4 Industrial
- - - - - - -
transformation
6. Total losses 6267 5913 6293 6715 6379 6004 95,80
7. Stock change (±) -1803 -1563 1100 219 336 -927 51,41
8. Available for human
281668 266550 281999 301526 285859 269687 95,75
consumption
The total resources of edible roots (equivalent to fresh vegetables), in 2020,

were lower than in the previous year by 18.5 thousand tons, mainly due to the
decrease in production (Table 6).
50
Figure 6. Dynamics of the trade balance for edible roots (tons)

0
2015 2016 2017 2018 2019 2020
-20000
-40000
-60000
-80000
-71399
-79558 -86739 -85366
-100000 -91127 -96579
-120000
In the case of edible roots, the registered trade balance was a deficient one, at
the level of the analyzed period, respectively 2015-2020 the deficit showed
increases reaching thus in 2020 to 85.366 tons, higher by 7.3% than in 2015,
respectively, 79.558 tons.
Vegetable production per capita is higher in Romania compared to the average
production per capita in the EU. On average, consumption increased in a positive
way reflecting the production and imports obtained (Popescu, 2013).
In the period 2015-2020, the average annual per capita consumption of
vegetables increased. For vegetables, the average consumption increased by
approx. 112.5% in 2020 (3.6 kilograms / inhabitant) compared to the respective
reference year 2015, when a consumption of 3.2 kilograms / inhabitant was
reported.
Figure 7. Dynamics of the average annual consumption per inhabitant,

for vegetables (kg)
200 173,4
158,5 155,8 162,1 170,2 167,8
150
100
50
3,2 17,2 2,1 16,9 2,4 18,9 4,1 20,3 4 19,5 3,6 19,9
0
2015 2016 2017 2018 2019 2020
Legumes
Vegetables and vegetable products equivalent to fresh vegetables
Source: processing data from the 2015-2020 food balances, IN.
Regarding the consumption of vegetables and vegetable products in the

equivalent of fresh vegetables, there was an increase of 105% in the analyzed
period, from 158.5 kg / inhabitant in 2015 to 167.8 kg / inhabitant in 2020
(Figure 7).
51
Figure 8. The average prices of the main vegetable products for the whole country
in the period 2015-2020 (lei/kg)
4,5
4
3,5
3
2,5
2
1,5
1
0,5
0
2015 2016 2017 2018 2019 2020
White cabbage - early White cabbage - autumn

The average prices of early white cabbage and autumn white cabbage increased
during the analyzed period by 156% and 118%, respectively. Regarding the
average price of tomatoes in the field, it varied between 2.7 lei/kg in 2015 and
4.16 lei/kg in 2020, when there was an increase of 136%. For dried onions, the
average annual price varied between 1.99 lei/kg in 2017 and 3.46 in 2019, with an
increase of approximately 150% during the period.
6. Conclusions
Current research shows that the Romanian vegetable market is dynamic, with
both demand and supply on an upward trend. However, the need for vegetable
products cannot be met from domestic production, as imports have increased
significantly in recent years. The supply of vegetable products is relatively
unstable; this situation leads to the appearance of obstacles in the organization of
production and marketing activities in this sector, for which it is very necessary to
concentrate production to purchase large quantities of goods.
Following the research, it was found that self-consumption remains a feature of
the Romanian vegetable market, as it was in the previous period. Given the
particularly important role that vegetables play in their diet, their role is also
highlighted in the place they have in the healthy food pyramid, as they are in the
second position, the future strategic directions of the vegetable market would be it
must focus on encouraging the consumption and export of vegetables, which
requires the production of a large quantity of vegetables from domestic production.
Given that Romania is a net importer of agri-food products, with the exception
of cereals, the level of competitiveness is constantly declining, vegetable
production should increase in order to better cover the needs of the internal market
and to support exports to the EU market.
52
Acknowledgment
This paper was co-financed by The Bucharest University of Economic Studies
during the PhD program.
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53

June 16-17, 2022
Understanding the Factors Underlying Czech Consumers’

Choice of Healthy Food: a Conceptual Framework
Ismat HAIDER1*, Mark RATILLA2,

Denisa KAROLYOVÁ3, Zuzana DOHNALOVÁ4
DOI: 10.24789788367405072-006
Abstract
Obesity and other diet-related diseases remain a significant public health concern around
the world. Besides, obesity rates continue to overwhelm in the Czech Republic, pressing
policymakers to design interventions that support disease prevention and promote
overall health among the population. However, crafting effective interventions requires
comprehensive knowledge about consumers’ food choices and dietary patterns, which
remains limited in the context of Czechia. In an attempt to narrow this gap, this paper
presents a conceptual framework for understanding the factors underlying Czech consumers’
choice of healthy food. A comprehensive review and synthesis of the literature in various
domains was performed to establish the concept. Founded on the theory of planned behavior,
it is postulated that consumers’ attitudes toward healthy food form their intention to consume
healthy food. Concurrently, the attitude toward healthy food is preceded by food choice
motives (e.g., health, mood, convenience, sensory appeal, natural content, price, weight
control, familiarity, and ethical concern). It is also argued that personality traits could
potentially moderate the strength of motive-attitude-intention relationships. It is important
to empirically examine the parameter relationships specified in the proposed
research framework to expand theoretical knowledge about the motivation, attitude, and
intention paradigm and the indirect effects of personality traits. Most importantly, future
empirical assessment of the research model will offer practical insights into the design of
behavioral interventions that promote healthy dietary patterns and promote overall health
among Czech consumers, especially in the post-pandemic era.
Keywords: personality traits, theory of planned behaviour, healthy food choice,

consumer behaviour.
JEL Classification: M30, I12, E20.
1 Tomas Bata University in Zlin, Zlín, Czech Republic, [email protected].

© 2022 I. Haider, M. Ratilla, D. Karolyová, Z. Dohnalová, published by Sciendo. This work is licensed under the
1. Introduction
The increasing urbanization of societies is inciting the shifts in lifestyles,
consumption, and dietary patterns among consumers, exacerbating the gravity of
obesity and other diet-related health concerns (World Health Organization, 2020).
The World Health Organization (WHO) continues to emphasize the urgency in
addressing the issue of “globesity” as it escalates around the world. The WHO
instituted a global strategy framework that promotes a cooperative response effort
from the civil society and stakeholders in the public and private sectors. It mainly
encompasses supporting healthy diets and physical activity towards disease
prevention and overall health promotion, consequently reducing healthcare
expenditures and yielding economic incentives.
The Czech Republic is one of the European countries that suffers from a high
incidence of obesity. Obesity rates reached 20% of the population in 2017, exceeding
the 15% EU average (OECD/European Observatory on Health Systems and Policies,
2019). Rising unemployment, poor sleeping habits for certain groups of the
population (Olišarová et al., 2018), low physical activity, high tobacco/cigarette
consumption, and alcohol consumption all contributed to the prevalence of obesity
in the country (Fialova, 2018). Overweight and obesity appear to be most common
among men, people over the age of 64, people living in rural areas, and lower
socioeconomic class (Marques et al., 2018, Olišarová et al., 2018).
National policies and programs combatting diet-related health concerns are still
underdeveloped in the Czech Republic (Voráčová et al., 2015). Some efforts are
being made to increase nutrition literacy, and reportedly more and more Czech
consumers express interest in calories, carbohydrates, and sugar information on food
(Vesela et al., 2021). However, the prevalence of overweight and obesity continues
to challenge the country. The trend is even stretching toward children (Landovska,
2021). Family affluence seems to be a contributing factor (Sigmund et al., 2018),
where overweight problems among adolescents and school children have been found
in families with lower welfare. Furthermore, Czech children and adolescents have a
low daily consumption of fruit and vegetables compared to other European countries
(Voracova et al., 2015).
Obesity and dietary issues are important economic discourses. The associated
costs of these problems seem to increase substantially in the future, especially when
left ignored. As this transpires, Czech health care may become unsustainable as
obesity among adults and children grows (Landovska, 2021, Vesela et al., 2021).
Only a handful of research investigations accent the eating habits in the Czech
Republic (Vesela et al., 2021) to promote healthy dietary patterns and consequently
alleviate obesity and dietary-related issues. Little is known about Czech consumers’
motives and other factors influencing their food choices. Securing information
on such matters is crucial, as the efficacy of the proposed resolution demands
a comprehensive understanding of the population’s behavior regarding food
consumption.
55
Urging consumers to adopt a healthy dietary pattern demands understanding their
food choices’ motives (Mielmann & Brunner, 2020). Scholars claim that health
considerations do not solely drive healthy food selection or dietary habits.
Individuals hold on to different motives (i.e., health, mood, convenience, sensory
appeal, natural content, price, weight control, familiarity, and ethical concern) in
selecting food (Steptoe et al., 1995). The level at which these motives affect their
food consumption varies in different socioeconomic and cultural settings. As far as
the existing literature is concerned, knowledge about the motives and biases toward
healthy food consumption among Czech consumers remains limited. It is critical to
acquire information about such matters to devise countermeasures that alleviate
obesity and other diet-related issues pervading the country.
Meanwhile, the choice of what food to consume may also be affected by
personality traits. Previous studies operationalized the five-factor theory of
personality (i.e., openness, extraversion, conscientiousness, agreeableness, and
neuroticism) to predict general health-related behaviors (Bogg & Roberts, 2004),
eating habits (Mõttus et al., 2012), acceptance of controversial food technology (Lin
et al., 2019), and in other contexts. Nystrand et al. (2021) reveal the significance of
personality traits in functional food consumption, featuring the dominant influence
of conscientiousness, agreeableness, and neuroticism. However, the authors
suggested incorporating the moderator-mediator interaction effects of health habits,
eating values, or attitudes towards food.
Notably, recent studies reported that the ongoing pandemic engendered a shift in
consumer behaviour in general (Di Crosta et al., 2021; Guthrie et al., 2021; Hesham
et al., 2021). Given the pandemic’s economic and social repercussions, it is argued
that consumers’ overall consumption habits and food choices may have changed. In
addition, the initial observation of Snuggs & McGregor (2021) reveals that
consumers have amended priorities and needs since the pandemic-related measures
were enforced. The authors point out that the pandemic caused anxiety and a feeling
of loneliness among consumers, which have changed their shopping patterns and
even caused weight gain. Głabska et al. (2020) assert the role of pandemic stressors
in changing the dynamics behind the motives and the choice of healthy food. Tribst
et al. (2021) highlight improvements in diet quality during the pandemic for
Brazilians who have adequate time to cook, have positive feelings and are not
overworked. Enriquez-Martinez et al. (2021) also reported that eating habits are
mostly left unchanged during the pandemic, yet, lifestyle changes and anxiety
levels suffuse. The authors argue that individuals with high anxiety levels and
who were positively diagnosed with COVID-19 adopted changes in dietary
patterns favoring healthier food alternatives. Essentially, the evidence reported on
consumer changes in consumption habits is still contrasting on a country-to-country
basis. More research is needed to comprehensively understand people’s dietary
patterns as influenced by the pandemic occurrence. These are important to design
and implement custom policies and inventions that promote health in the
post-pandemic world.
56

This paper reviews the literature and presents a conceptual framework for
understanding the factors that influence the consumers’ intention to consume healthy
food. Based on the theory of planned behaviour, this work elucidates the motivations
underlying consumers’ healthy food choices and the potential role of individual
personality traits on their food choice. Alternately, this study addresses the following
research questions: i) what are the potential determinants of consumers’ intention to
consume healthy food?; ii) what motives influence consumers’ cognitive evaluation
to consume healthy food?; iii) what is the role of personality traits in food choice?
4. Research Methods
This paper used data from secondary literature sources to secure sufficient
theoretical support in developing the conceptual framework for understanding
consumers’ choice of healthy food in the Czech Republic. Google Scholar, Web of
Science, and Scopus databases were consulted, and queering keywords like “healthy
food,” “food choice motives,” “theory of planned behaviour,” and “personality and
consumer behaviour.” The keyword search resulted in a considerable number of
research articles. Hence, the articles were carefully chosen based on three major
screening criteria: a) articulates the determinants/factors related to healthy food
choice, b) theory of planned behaviour and food choice, and c) personality traits and
food choice. As the study aims to explore and bridge the relationships between food
choice motives, the theory of planned behaviour, and personality traits, the review
of the articles focuses on identifying potential links between the concepts in the
healthy food choice context. Subsequently, the accumulated evidence was used to
develop and explain the conceptual framework presented in this paper.
5. Findings
5.1 Theory of Planned Behaviour and Food Choice

Several studies have utilized the Theory of Planned Behaviour (TPB) (Ajzen,
1991) to explain consumer behaviour in diverse social contexts. The theory
postulates that behavioural intention is a proximal determinant of actual behaviour
(Ajzen, 1991; Armitage & Conner, 2001). Meanwhile, behavioural intention is
influenced by attitudes (appraisal of a given behaviour), subjective norms
(perceived social pressure affecting a given behaviour), and perceived behaviour
control (perceived ease of performing a given behaviour) (Ajzen, 1991) (p. 188). A
review of the literature reveals that dietary patterns (M. S. McDermott et al., 2015),
food choice (Dowd & Burke, 2013; Nardi et al., 2019), and health-related behaviour
in general (McEachan et al., 2011) can be robustly explained by the TPB model.
Existing meta-analytic evidence also argues that the attitude exerts the strongest
effect among other predictors of behavioural intention in the TPB model (Máirtín S.
McDermott et al., 2015; McEachan et al., 2011; Nardi et al., 2019). Despite the
robustness and flexibility of the TPB model to explain such behaviours, pioneering
57
authors of TPB assert the importance of understanding salient belief factors that
shape attitude and other predictors of behavioural intentions (Ajzen, 1991).
5.2 Food Choice Motivations

Previous studies have investigated the underlying motivations of consumers in
selecting food. Scholars typically operationalized the food choice questionnaire
(FCQ), pioneered by Steptoe et al. (1995), to measure and identify what motives
unpin consumers’ food-related choices. The FCQ underscores nine food choice
motives: health, mood, convenience, sensory appeal, natural content, price, weight
control, familiarity, and ethical concern. However, the authors accentuate
differences in the relevance of each motive according to sex, age, and income
(Steptoe et al., 1995). For example, individuals in the low socioeconomic class tend
to choose food for price and social reasons (Moraes et al., 2020). Young people’s
awareness of the health and nutrition aspects of food remains poor (Marsola et al.,
2020). For parents choosing food for children, the motivations for weight control,
price, and mood were insignificant (Roos et al., 2012).
Moreover, the evidence acquired from recent studies similarly reported the
varying extent to which the motives influence food choice. For example, consumers
driven by convenience motivation are more likely to consume fast food, processed,
and less healthy food (Marsola et al., 2020). In cultures that emphasize the
importance of body image, food selection is influenced by nutrient content and
weight control motives (Gong et al., 2020). In the incidence of the COVID-19
pandemic, recent findings reported the relevance of health motives in the dietary
patterns of consumers (Tan et al., 2021). Many more FCQ-research replications have
been done; however, as context and regional variations matter, pressed FCQ
variables to be re-examined, revised, and adjusted (Pula et al., 2014).
5.3 The Role of Personality Traits on Food Choice

The extent to which people prefer healthy food has become an important research
theme, but preferences may differ due to personality traits. Several studies have
associated five-factor personality traits: openness, extraversion, conscientiousness,
agreeableness, and neuroticism with food choice. Existing evidence reported the
importance of personality dimensions in explaining health behaviour, and thus
should be used as input when designing health interventions. For example, high
levels of neuroticism were more likely to consume carbohydrate-rich and salty foods
(Golestanbagh et al., 2021; Pfeiler & Egloff, 2020; Keller & Siegrist, 2015). Neurotic
or emotionally unstable individuals appear to engage in counter-regulatory
emotional eating, consuming sweet and savory foods to cope with mood or
unpleasant feelings (Keller & Siegrist, 2015; Golestanbagh et al., 2021). Meanwhile,
the people’s propensity to consume nutritious foods was favourably associated with
their level of conscientiousness (Golestanbagh et al., 2021; Machado-Oliveira et al.,
2020). Conscientious individuals are determined and deliberate and thus more
58
concerned with maintaining healthy eating habits and avoiding negative long-term
health consequences (Nystrand et al., 2021).
Moreover, a high level of openness was connected with increased consumption
of fruits, vegetables, salads, and fish among pregnant women in the US (Leszko et
al., 2020). Individuals who score well on agreeableness exhibit trust, simplicity,
camaraderie, and a great capacity for adapting to people and surroundings. Kessler
et al. (2016) reported that vegan consumers exhibit more open and agreeable
personalities and manifest universalistic and ethical motives in consuming food. In
the Netherlands, in addition to openness, extraversion was the most consistently
observed personality predictor of increased fruit and vegetable consumption among
students (Conner et al., 2017). Extraversion is associated with increased urgency and
motivation, enabling individuals to overcome innate aversions to fruit and vegetables
(Conner et al., 2017).
5.4 The Conceptual Framework

Given the arguments presented above, this work postulates a potential association
of food choice motives in the attitude-intention nexus within the bounds of TPB. A
few attempts have been made to explore and validate such a conception. For
example, Kim & Jeon (2020) associated motives (i.e., health, sensory response,
mood, and weight control) in consumers’ cognitive evaluation (attitude) and the
selection of chocolate products. Ahmad et al. (2020) similarly investigated the link
between food choice motives (i.e., health, mood, familiarity, sensory appeal, natural
content, and price) towards attitude and consumption of ethnic food in Pakistan.
Studies on the choice of organic food products also postulate the link behind food
choice motives and constructs in the TPB model (Chen, 2007; Lee et al., 2015).
These investigations imply that bearing certain food choice motivations influence
the attitude formation toward the food product and its subsequent consumption.
However, what food choice motivations and the extent of their influence on attitude
vary from country to country. Pearcey & Zhan (2018) argue that food cultures, social
and economic situations, and other contextual factors affect the differences in food
choice motivation scores across nationalities. Furthermore, this work emphasizes
that personality traits can strengthen or weaken the relationships between the
consumers’ food choice motivations and attitudes toward healthy food (Figure 1).
Empirical evidence to validate the study’s research concept can help design custom
strategies and interventions to address obesity and other diet-related health issues in
less-explored territories, such as the Czech Republic.
59
Figure 1. Conceptual framework for healthy food consumption
Source: Authors’ own creation.
6. Conclusions
This paper presents a conceptual framework for understanding the factors
influencing consumers’ choice of healthy food. Building on the theory of planned
behaviour (TPB), this work proposes that consumers’ attitudes toward healthy food,
subjective norms, and perceived behavioural control can predict healthy food
consumption intentions. Meanwhile, it is postulated that consumers’ food choice
motivations form part of one’s appraisal (attitudes) of eating healthy food. Previous
findings also reported the role of personality traits on food choice and consumption.
Therefore, this study argues that the strength of motives - attitude relationships can
be moderated by personality traits. This work contributes to the literature by
expounding on the potential links among consumers’ food choice motives, attitudes,
and intention to consume healthy food, including the possible indirect effects of
personality traits.
Nevertheless, to validate the study’s postulations, future studies should
empirically test the conceptual model proposed by the study, especially in countries
facing overwhelming obesity rates (e.g., the Czech Republic). With the growing
importance of health and lifestyle adaptation from the current COVID-19 pandemic,
such investigations can secure information required to design more targeted public
policy interventions addressing costs associated with obesity and other diet-related
health issues.
60
Acknowledgment
The authors are thankful to the project OP RDE Junior Grants of Tomas Bata
University in Zlín, Reg. No. CZ.02.2.69/0.0/0.0/19_073/0016941 for financial
support to carry out this research.
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[43] Tan, S.T., Tan, C.X. & Tan, S.S. (2021). Trajectories of food choice motives and weight
status of Malaysian youths during the COVID‐19 pandemic. Nutrients, 13(11), pp. 1-11,
https://doi.org/10.3390/nu13113752.
[44] Tribst, A.A.L., Tramontt, C.R. & Baraldi, L.G. (2021). Factors associated with diet
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[45] Vesela, K., Severova, L. & Krizek, D. (2021). Nutritional Values of Foods on a
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Behaviours among Czech Children and Adolescents from 2002 to 2014 (HBSC Study).
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64

June 16-17, 2022
Transition toward Sustainable Hydrogen Based Economy.

Scenario Analysis on Alternative Paths
Cătălin HRISTESCU1*, Elena NICULESCU2
DOI: 10.24789788367405072-007
Abstract
Hydrogen is considered an alternative energy source that can help decarbonize
industrial processes and economic sectors that use it (fertilizers, construction materials,
petrochemicals) where reducing carbon emissions is both urgent and difficult to realize. At
present, the amount of hydrogen used in the European Union remains limited and is largely
produced from fossil fuels. The aim of the European Union strategy is to decarbonize
hydrogen production and extend its use to sectors where it can replace fossil fuels. The
current production cost for hydrogen based on fossil fuels, considering the Steam Methane
Reforming (SMR) process, is highly dependent on natural gas prices and CO2 cost. However,
the cost of hydrogen from alternative sources depends on a different energy price –
electricity. This article analyzes the production cost for different technologies and the
associated CO2 emission with the aim to identify the sustainable one that can provide the
transition towards Sustainable Hydrogen based economy. A scenario-based analysis of the
main costs drivers, evaluation of the CO2 emission along the value chain and the impact on
the relevant economic sectors for the low CO2 Hydrogen production was performed. The
goal of the article is to propose a basis for selecting the most sustainable technology, the
prerequisites for an energy transition towards a hydrogen-based economy, and to investigate
the critical links between a low CO2 Hydrogen transition strategy and other energy
strategies. The findings indicates that low-cost renewable electricity is one of the most
important pre-requisite for facilitating the transition, together with a coherent long-term CO2
emission policy.
Keywords: green hydrogen, renewables, low CO2 emission hydrogen, energy

transition, sustainability, zero-emission economy.
JEL Classification: Q42 Q56.

© 2022 C, Hristescu, E. Niculescu, published by Sciendo. This work is licensed under the Creative Commons
1. Introduction
Hydrogen is used today predominantly as a raw material, mainly in the chemical
and oil industries, but if it is used as a fuel or for transport and storage of energy, it
can help achieve the 2050 climate neutrality goal of the European Green Pact, being
an important part of the solution, as long as hydrogen production takes place in a
sustainable way, without climate impact through CO 2 emissions.
Hydrogen can be produced by the process of coal gasification, a technology more
than 100 years old, relatively cheap, but very polluting with significant emissions of
CO, CO2, CH4 (also called "brown hydrogen"). The alternative of obtaining
hydrogen by catalytic reforming with water vapor of methane gas ("grey hydrogen")
has a lower impact on the environment, but even in this case CO 2 emissions are
significantly high, not to allow the transition to an economy based on Hydrogen as
an alternative to fossil fuels.
The development of "clean" technologies for hydrogen production by electrolysis
("green hydrogen") having as energy source electricity produced from renewable
sources - solar, wind, or biomass - opened the prospect of an energy transition to an
economy based on hydrogen consumption from clean sources instead of fossil fuels.
Although the product of such technology is "clean", both the cost of production and
the need for electricity from renewable sources remain the main obstacles in
achieving the energy transition. (Spiers et al., 2018)
Hydrogen is considered an alternative energy source, especially for industrial
processes that require high temperatures (IEA, 2019), it can help decarbonize
industrial processes and economic sectors where reducing carbon emissions is both
urgent and difficult to be realized. At present, the amount of hydrogen used in the
European Union remains limited and is largely produced from fossil fuels (European
Commission, 2020). The aim of the strategy is to decarbonize hydrogen production,
which is possible by rapidly reducing the cost of renewable energy and accelerating
technological developments, and to extend its use to sectors where it can replace
fossil fuels.
World primary energy consumption was 14.281 million tons of oil equivalent in
2018 (IEA, 2021). More than 81.7% of it was primary energy sources from fossil
fuels (coal, oil, and natural gas), and the electricity consumed that year was generated
in proportion of 74.5% from fossil fuels. The transition to a zero CO 2 emissions
economy requires both a change in the energy mix in the primary source and the
decarbonization of electricity as a secondary energy source, doubled by the use of a
new one, which allows both long-distance transport and high temperatures industrial
processes, generated with low CO2 emissions.
Hydrogen is not a primary source of energy but is an attractive alternative to
transporting energy when hydrogen is separated from the rest of the elements.
Hydrogen production methods are classified according to the primary energy used
and the H2 generation method (Figure 1). According to primary energy, it is
66
classified as follows: primary source of fossil fuels, nuclear energy, and renewable
energy.
Figure 1. Hydrogen production methods
Source: adapted from Rand et al., 2009.
"Hydrogen based on fossil fuels" refers to hydrogen produced by a variety of

processes that use fossil fuels as raw material, in particular natural gas reformation
or coal gasification. This type of hydrogen constitutes the bulk of the hydrogen
produced today. The challenges of generating hydrogen from fossil fuels from the
respective significant CO2 emissions were a continuous preoccupation of scholars
(Quarton et al., 2020) as they can be managed with the help of Carbon Capture and
Storage technologies (CCS). However, the economics of capturing CO2 and the
challenges of transport and storage limited the application of this technology. If the
associated CO2 emission is captured (Soltani et al., 2014) or a different process to
split H2 from CH4 – pyrolysis – is used (Dagle et al., 2017), the greenhouse gas
emissions from hydrogen production from fossil fuels with carbon capture or
pyrolysis becomes lower than those from hydrogen from fossil fuels, but the variable
efficiency of greenhouse gas capture must be considered (maximum 90%).
"Hydrogen based on electricity" refers to the hydrogen produced by the
electrolysis of water (using an electrolyzing process, where electricity is used to split
H2 out of H2O), regardless of the source of electricity. Greenhouse gas emissions
from the entire life cycle of hydrogen-based electricity production depend on how
electricity is produced (Rissman et al., 2020).
The current Levelized Cost of Hydrogen (LCOH) for hydrogen based on fossil
fuels is estimated to be around EUR 1.5 / kg for the EU, considering the Steam
Methane Reforming (SMR) process being highly dependent on natural gas prices
(Parkinson et al., 2018) and factoring the USD inflation rate and USD/EUR
exchange rate in order to adjust the 2019 USD computed price of 1.35 (Al-Qahtani
et al., 2021) and CO2 cost adjustment. The range of the SMR based Hydrogen
production cost without CO2 Carbon Capture and Utilization/Storage is presented in
several other research as being from 1.03 to 1.92 USD/kg, with natural gas price
67
considered at 3.25 to 10.32 USD/GJ. However, the cost of hydrogen from alternative
sources is depending on a different energy price – electricity.
In addition to the economic aspect of hydrogen production, the environment
impact of the alternative low CO2 Hydrogen during the entire life cycle was assessed
based on Global Warning Potential (GWP) and Acidification Potential (AP)
(Ozbilen et al., 2012). GWP is determined in equivalent gCO2 and by CO2 emissions
of the respective technology during the life cycle, while PA measures the equivalent
gSO2 and reflects the changes in environment acidity of the lifetime use of the
respective technology. The key takeaway of this research is the fact that renewable-
based hydrogen production has a different impact based on the source of electricity,
wind or solar, wind-based hydrogen production having the lowest values (Figure 2).
In case of solar based renewable electricity hydrogen production, both indicators are
higher than for the hydrogen production based on thermochemical water split using
nuclear energy (Ozbilen et al., 2013), indicating that further analysis on nuclear
based hydrogen production is necessary.
Figure 2. Potential of the Global Warming Effect and Acidification potential

for some of the H2 production methods
Source: Ozbilen et al, 2012.
Another method of analyzing hydrogen production technologies is to link the

lifecycle analysis of the impact on health, the environment, and the availability of
resources together with the standard cost of hydrogen production (Al-Qahtani et al.,
2021). This analysis compares the alternatives to hydrogen production versus the
68
most widespread method today, natural gas reforming (SMR), starting from the
analysis of the maturity of alternative technologies (Thomas et al., 2018).

As presented above, several methods of assessing the environmental impact of
hydrogen production technologies exist in the literature, most of them considering
the multiple environmental impact dimensions in their approaches. In order to be
able to assess the suitability of different low CO 2 emission Hydrogen production
technologies for transition toward a ‘zero emission’ economy, this paper proposes
the focus on one dimension for the environment impact: the life-cycle CO2 emission,
one dimension for natural resources: electricity demand, and one dimension for
social impact: production costs.
The aim of the research is to provide the basis to select the most sustainable low
CO2, to identify the prerequisites for an energy transition towards a hydrogen-based
economy, and to highlight the critical links between a Low CO2 Hydrogen transition
strategy and other energy strategies.
The research hypotheses were defined as: Green H 2 production has different
sustainability based on the source of green electricity and the transition toward low
CO2 hydrogen production requires an additional strategy for renewable energy
generation development. For the selected Hydrogen production technologies, a case
study methodology was used to model the investment and operation of Hydrogen
production units, all of them generating 1 t/h of Hydrogen, running 8400 hours
per year.
4. Research Methods
For the environmental dimension, the CO2 life-time assessment methodology was
based on Standard emissions for processing according to the International
Sustainability & Carbon Certification 205 Greenhouse gas emissions standard.
The natural resource dimension, the electricity demand, the mass balance
approach was used to determine out of each case study, the hourly electricity
demand. Furthermore, using a projected scenario for low CO 2 Hydrogen demand in
Romania for 2030, 2040 and 2050 the overall demand in renewable capacity was
determined, considering the specific green electricity of each hydrogen case. The
research highlighted the need for further analysis of the freshwater demand impact
and mitigation methods.
Regarding the social impact dimension, the discounted free cash flow analysis
was used for modelling the profitability of each selected Hydrogen production
technologies (Remer et al., 1995). This methodology was used to determine the
production cost at which the investment is becoming profitable, making the
transition from conventional hydrogen production technologies toward low CO2
emission ones. The main assumptions set was identical for each business case,
considering a start of investment in 2023, 15 years operation, commercial operation
date January 2026, 16% tax rate, and 8% discount rate. As the production cost
69
was determined to be highly dependent on the electricity price, the research

methodology extended the case study with sensitivity analyses on the power price
and capital expenditures.
5. Findings
The case study output with respect to mass balance, associated CO2 emission,
demand for green power, water or methane or bio stock based liquefied petroleum
gas (bio-LPG) overview is presented in Figure 3.
Figure 3. Relevant options to produce hydrogen with low CO2 emission and the
corresponding mass balance
Source: Authors’ own research results/contribution.
From the electricity consumption point of view, the demand for green power is
the highest in the case of Green H2, more than 3 times higher than for Turquoise H 2
(methane pyrolysis), while the ratio of power demand between Green H 2 and
conventional Steam Methane reforming with Carbon Capture and Storage or bio-
feedstock based steam reforming is more than 37 times higher in case of Green H 2.
The research considered the green power demand as a very sensitive aspect for the
assessment of the sustainability of low CO 2 Hydrogen production and further
assessed the impact at the Romanian power generation level.
Regarding the main feedstock, splitting 1 t/h of H 2 from fresh water using
electrolysis requires a 10 times higher mass of feedstock. In the case of conventional
Hydrogen production with Carbon Capture and Storage, the ratio is 4 to 1. The same
ratio is valid for Hydrogen production out of methane pyrolysis and slightly higher
in case of using bio-feedstock. It is important to mention the fact that for the latest
mentioned technology there is CO2 emission generated in the Steam Reforming
process, but as long as the source is bio-methane, the respective emissions are not
considered as additional ones.
70
The demand of 10 t/h of freshwater for green hydrogen production will require
either access to the respective volume or water treatment plant for desalinization and
treatment to meet the technical requirements for electrolysis. This finding indicates
that further analysis on freshwater impact is needed, or assessment of additional cost
impact into the business case for desalinization and water treatment capacities if
limiting the freshwater consumption will be considered.
The combined green energy demand and CO 2 emission were considered in order
to select the technologies from the environment and natural resource dimensions.
Using natural gas-based hydrogen production (grey H2), the most used today’ H2
technology as reference, the research identified Green Hydrogen as better solution
than Carbon Capture and Storage of the current H 2 production technology from
natural gas. More than this, the Solar-based Green H2 is more having more than
3 times higher impact compared with Wind-based one, making it the attractive Green
H2 production solution. Hydrogen pyrolysis (turquoise H 2) is the technology with
the lowest combined CO2 emission and power demand, even if the technology is still
in its early stage (Figure 4).
Figure 4. Overview of CO2 footprint and Power demand

for selected H2 production technologies
It is important to highlight that the same ranking is observed between solar and
wind-based hydrogen production, as per the research performed using CML 2001
methodology, developed by Institute of Environmental Sciences, Leiden University,
and The Netherlands, to assess the environmental impact of selected hydrogen
production methods. (Ozbilen et al., 2013). The Methane Pyrolysis technology has
the lowest CO2 emission from all gassed based hydrogen production ones, having
the carbon black as a by-product. (Amin et al., 2011)
Furthermore, the 56 MWh/h of green electricity necessary to produce 1 t/h H2
using electrolysis creates additional power demand compared to the baseline
scenario, the one that H2 demand and production remains as per today, and the
71
renewable capacity addition is determined by the transition of the power sector to

low CO2 emission production capacities.
The capacity factor for a renewable power plant reflects the ratio between the
electrical output of the respective renewable capacity over one year to the installed
capacity (the maximum possible generation in one hour). It is strongly correlated
with the availability of the respective renewable resource for the area where the
capacity is located. Considering the average capacity factor for wind, solar, and
hydro-based power plants in Romania, each 1 MWh/h or green electricity will
require 6.6 MW of photovoltaic installed capacity, 3.9 MW of wind installed
capacity or 2.9 MW of hydro installed capacity.
The research generated a projection which considered that all today H 2 demand
will be covered from Green H2 until 2025, while additional H2 demand will gradually
develop because of economy transition towards zero-emission. The exiting Steam
Methane Reforming Hydrogen production that covers the today demand in Romania
cannot be replaced instantly with alternative low CO 2 emission hydrogen production
technologies, therefore a 11,000 t/year of hydrogen produced from Green H 2
capacities was projected. The scenario was developed by considering transport and
industrial processes (petrochemistry and metallurgy) as the first to switch and request
more green hydrogen in order to meet their suitability targets. This is leading to
considering 55,000 t/year of H2 demand in 2030, out of which 50,000 t/year from
Green H2 and a small fraction of 5,000 t/year from low greenhouse gas technologies
such as bio-feedstock steam reforming. The scenario was considering an accelerated
transition starting with 2040, towards 600,000 t/year of H 2 out of which 14,000 t/year
from low greenhouse gas and 36,000 t/year from steam methane reforming with
carbon capture and storage. Going further in time, for a significant transition in the
most energy-intensive economic sectors of the Romanian economy, the projected
Hydrogen demand is 2,400,000 t/years out of which the gross is produced with Green
H2 technology – 2,200,000 t/year – no additional production from low greenhouse
gas or steam methane reforming with carbon capture and storage capacities, but the
maturity of Turquoise H2 technology was considered, leading to 100,000 t/year H 2
produce from natural gas pyrolysis.
Using the generated H2 demand projection and considering the capacity factor for
each renewable technology installed in Romania, the H 2 projection translates into
the needs to install 1195 MW of photovoltaic power plants just to meet the expected
182 MWh/h green power demand for producing 11,000 t/year H 2 (Figure 5). This
represents 31% of the expected additional 3700 MW of photovoltaic power plants
promoted investments in the Romanian 2021-2030 Integrated National Energy and
Climate Plan (INECP, 2022).
72
Figure 5. Renewable power demand for H2 production
The 3rd dimension analysis on the production costs comparing the same low-
CO2 hydrogen technologies using the current Steam Methane Reforming (Grey H 2)
as reference. The breakeven cost of production for this case is 2,3 EUR/kg, while for
Green H2 is 6,6 EUR/kg, 4,2 EUR/kg for Blue H 2 (Steam Methane Reforming
with Carbon Capture and Storage), 3,7 EUR/kg for Turquoise H2 (methane
pyrolysis) and ultimately, 2,6 EUR/kg for Light Blue H2 (bio-feedstock low
greenhouse gas steam reform).
The discounted cash flow analysis considered 80 EUR/MWh for the electricity
price, and the break-even costs were determined at the production facility in order to
be able to compare with reference case (steam methane reforming on consumption
point). If the loading facility is added, an additional 0,8 EUR/MWh must be
considered, in addition to the transport and delivery to the consumption points.
At the electricity price of the base scenario, there was no H2 technology ready to
be deployed today and the gap to the reference case (Grey H2) was the minimum for
the bio-feedstock technology, the one with the most limited supply. The biggest gap
was in the case of the Green H2, a technology that recorded a significant advance and
is ready to be deployed today, as long as there is green energy available.
However, the sensitivity analysis on the green power price pointed out a 34%
increase in the breakeven price in case of 50% electricity price increase. As the green
power demand is a linear parameter of the model, the sensitivity analysis is linear,
with significant deviations due to green electricity price, as it can be seen in
Figure 6. The rate-of-return sensitivity was computed for 11%, as the model is
considering in the reference case 8% rate of return, while other researchers are
considering a weighted average cost of capital of 10%.
A further analysis on capital expenditures was performed in order to identify the
necessary technology cost reductions and subsidies that will make Green H 2
competitive with Grey H2, the reference case. Starting from the base case of
the model, a 0,6 EUR/kg cost reduction can be obtained in the case of 30%
non-refundable financing. Scale-up of full supply chain and industrialization of fuel
cell, hydrogen tank manufacturing and economy of scale in hydrogen capacity
design and construction was estimated to reduce the total investment costs by another
73
50%, case that will take out another 0,55 EUR/kg cost reduction. Combining both
technology cost reduction and non-refundable funds, the breakeven production cost
for Green H2 is reduced to 4,95 EUR/kg versus 2,3 EUR/kg for the reference case of
Grey H2. Adding the loading and transportation cost it can be more than double
compared with an on-site steam methane reforming production unit. While the
technology development will reduce the investment costs, lowering the production
cost, the technical challenges of transporting the hydrogen will require for on-site,
de-centralized Green H2 production.
Figure 6. Green energy price sensitivity for Green H2 production
6. Conclusions
The hypothesis that suitability of Green H2 is not equal was demonstrated by the
fact that even if the green power demand is the same, the associated life cycle CO 2
emission of 1 MWh produced by a photovoltaic power plant is approx. 6 times higher
than 1 MWh produced from a wind power plant.
The second research hypothesis that the transition toward low CO2 hydrogen
production requires additional strategy for renewable energy generation
development was demonstrated by the expected additional renewable capacity
needed to fulfil the green electricity demand in a low CO2 emission hydrogen
demand projection. The existing Romanian Energy Strategy (INECP, 2022)
considers investments of around 2,300 MW of wind power plants and 3,700 MW of
photovoltaic power plants while at the same time 1,100 MW of gas fired power plant
compensates for the reduction of 700 MW of coal power plants. The demand for
green electricity for H2 was projected to be 2,149 MWh/h by 2040, while the
Integrated National Energy and Climate Plan increase is expected to reach
74
1,153 MWh/h by 2030. The additional 1,000 MWh/h that must be invested until
2040 is not considered under any current energy sector strategy and might render the
investments in low CO2 hydrogen production capacities useless if they cannot use
renewable generated power.
The results suggest that access to low-cost renewable electricity will be the most
important factor in driving the production cost down, a decentralized onsite
production will further reduce the losses, and wind-based renewable energy will
have the lowest CO2 emission across the entire life cycle.
References
[1] Al-Qahtani, A., Parkinson, B., Hellgardt, K., Shah, N., Guillen-Gosalbez, G. (2021).
Uncovering the true cost of hydrogen production routes using life cycle monetization,
Applied Energy, Volume 281, p. 115958.
[2] Amin, A.M., Croiset, E., Epling, W. (2011). Review of methane catalytic cracking for
hydrogen production, International Journal of Hydrogen Energy, 36(4), pp. 2904-2935.
[3] Dagle, R., Dagle, V., Bearden, M.D., Holladay, J.D., Krause, T., Ahmed, S. (2017). An
Overview of Natural Gas Conversion Technologies for Co-Production of Hydrogen and
Value-Added Solid Carbon Products.
[4] European Commission (2020). A sustainable pathway for the European Energy
Transition – Hydrogen roadmap.
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[6] International Energy Agency (2021). World Energy Statistics.
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production via thermochemical water splitting using multi-step Cu-Cl cycles, Journal
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[8] Ozbilen, A., Dincer, I., Rosen, M.A. (2013). Comparative environmental impact and
efficiency assessment of selected hydrogen production methods, Environmental Impact
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[9] Parkinson, B., Balcombe, P., Speirs, J., Hawkes, A., Hellgardt, K. (2018). Levelized
cost of CO2 mitigation from hydrogen production routes, Energy & Environmental
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[10] Quarton, C.J., Samsatli, S. (2020). The value of hydrogen and carbon capture, storage
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[12] Remer, D.S., Nieto, H., Armando, P. (1995). A compendium and comparison of 25
project evaluation techniques, Int. J of Production Economics, Volume 42, pp. 79-96.
[13] Rissman, J., Bataille, C., Masanet, E., Aden, N., Morrow, W., Zhou, N. et al. (2020).
Technologies and policies to decarbonize global industry: review and assessment of
mitigation drivers through 2070, Applied Energy, Volume 281, p. 115958.
[14] Soltani, R., Rosen, M.A., Dincer, I. (2014). Assessment of CO2 capture options from
various points in steam methane reforming for hydrogen production, International
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[15] Speirs, J., Balcombe, P., Johnson, E., Martin, J., Brandon, N., Hawkes, A. (2018). A
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Options for producing low-carbon hydrogen at scale.
76

June 16-17, 2022
The New Frontier of EU Energy: "Green Pass"

for Nuclear Energy and Natural Gas. Political Approaches
and State Dynamics
Cristian-Gabriel IANC1, Gabriela DRĂGAN2,
Bogdan-Florin MATEI3*, Giani Ionel GRĂDINARU4
DOI: 10.24789788367405072-008
Abstract
The European Union's effort to reach the targets set by the Green Deal has met with a
concrete barrier to potential energy crises fuelled by the scarcity of green energy resources.
The introduction of nuclear energy along with natural gas thus becomes a controversial
desideratum. This paper aims to analyse the issue of integrating the two new resources into
the green energy catalogue. The analysis is divided into two sections. The first will focus on
a qualitative approach by analysing the gaps and issues of labelling these resources in the
‘green’ sphere of the European Union by highlighting production disparities, pro-nuclear
lobbying and differentiated political views. The second approach will use quantitative
methods to capture possible adjustments of the ranking of the EU countries in terms of
sustainability, fulfilment of the objectives assumed through the Green Deal, and energy
production. Both sections of the analysis will help us to outline the change generated by the
new European directive on the labelling of nuclear energy and natural gas as green energy,
forming a future perspective for the European energy gear.
Keywords: green energy, nuclear energy, natural gas, sustainability, energy

efficiency.
JEL Classification: O13, P28, P48, Q4.

4 Bucharest University of Economic Studies, Bucharest, Romania; Institute of National Economy -
Romanian Academy, Bucharest, Romania, [email protected].

© 2022 C.-G. Ianc, G. Drăgan, B.-F. Matei, G.I. Grădinaru, published by Sciendo. This work is licensed under the
1. Introduction
The emerging energy crisis in the European Union needs to be addressed early,
and the Member States' machinery needs to start interacting productively and
building a future of European energy independence as quickly as possible. This
European independence has a political and security dimension, and its foundations
lie in the production of clean, non-polluting energy that complies with the European
Agenda 2030 and the Green Deal agreement.
In the current context, there are several factors pushing this much needed change.
Decades of reliance on fossil fuel energy and the high cost of fossil fuel energy are
encouraging the rapid adoption of renewable energy (Papiez et al., 2018).
In addition to the cost factor of using expensive fuels to produce energy, there are
the carbon dioxide emissions and pollution that fuel the global environmental crisis
(Marques & Fuinhas, 2011).
At this delicate juncture with environmental, political, and security implications,
the European Union's Kyoto commitment to reduce nuclear capacity had to be
reconsidered, and the commitment to phase out nuclear energy production
capacity was nullified. The commitment at that time could not foresee the fragility
that the energy grid would acquire. This fragility began to be addressed by the
European Commission and nuclear power and gas received the green label.
Taking all these factors into account, our paper will focus on two systems: an
analysis of the current energy situation that will highlight the current fragility of the
system, examine potential barriers and limitations and present the relevance of using
nuclear and natural gas energy potential on the one hand, then we will focus on a
comprehensive-quantitative analysis in the second part of the paper that will present
data and test two functional hypotheses centred on the creation of European nuclear
energy hubs and the concept of energy self-sufficiency.
The European green energy context and the clear objectives set by the European
Union in 2019 face adaptive and functional difficulties due to the deteriorating
international context caused by the Russian-Ukrainian conflict. In this context, the
targets set to reduce resource consumption in relation to economic growth and
eliminate CO2 emissions (European Commission, 2019a) undergo adaptations and
aids. The most recent adjustment being the labelling of nuclear energy and natural
gas on the list of green energy sources.
The systemic fragility of European energy production is amply presented in a
study by Kuik (2003), which highlights the energy dependence that the European
Union has in terms of imports; thus, in 2019 Europe imports according to data
provided by the European Commission represented 61% of the total energy
resources needed (European Commission, 2019b). At the time of the study, the EU's
dependence on imports stood at 42%, and according to Kuik's predictions, this
pre-recession dependence will reach 70% in 2030. The most critical issue in the
current context is that Russia is the main supplier of oil (27%) and gas (41%)
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(Eurostat, 2022), and this pressure on the existence of energy dependence must
be adjusted by identifying alternative sources of imports while increasing the
exploitation of nuclear energy and natural gas as viable and resilient energy sources
for the whole European community.
The use of nuclear energy in a safe, gradual and well-regulated environment in
terms of national safety and nuclear waste management (which does not yet have a
clear structure at European level) will be a first step towards making the stability of
the European community permanent. Ristic et al. (2019) rank the yield of energy
resources in the following order: nuclear, geothermal, wind with a high production
rate, then hydropower, oil and biomass. Based on this classification, we consider
that the application of the green label for nuclear energy is an important first step to
be taken, the next one being the creation of European nuclear energy production
centres or an increase of the production potential in each country.
In order to better substantiate the need to expand nuclear energy production to
stabilise European energy-economic security and limit dependencies, it is very
important to observe global trends, which, according to data presented by the World
Nuclear Association, nuclear energy production is on an upward trend “the nuclear
capacity growth will be around 25 % in difference of only 25 years (2015 to 2040)”
(World Nuclear Association, 2022a). An example of good practice among European
countries is France, which uses nuclear energy to cover 70% of the country's energy
needs and is currently building a new nuclear facility. Other countries such as
Hungary, Slovenia (together with Croatia), Czech Republic, and Slovakia are
planning to expand their nuclear power generators network (World Nuclear
Association, 2022b).
This expansion has several limitations that we have considered. Two of these
physical limitations are identified by Ujita et al. (2006), namely carbon control
and nuclear cost condition. The graph in Figure 1 shows these interactions and how,
over a time horizon limited to the year 2100, this production will have the upward
(Ujita et al., 2006).
Figure 1. Nuclear Generation power expansion
Source: Ujita et al., 2016.
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Another resource that can be used to complement and support the European
energy plan toward the goal of stability is natural gas. Many European countries are
energy-dependent on this resource. Romania, Poland, Germany, Austria, and Croatia
(European Network of Transmission System Operators Transparency platform,
2021) are just a few of them.
The green label has been assigned to this resource because of the low CO 2
emissions that the exploitation of this resource releases and comes as a functional
alternative for countries that are still in the process of implementing green energy
technologies. The disadvantages of this system are the limited gas reserve of the EU
and the limited external access to natural gas supply, the main pipeline being the
Russian one and passing through an area whose fragile security can no longer
guarantee the integrity of the transmission system, while the rest of the pipeline
projects are still under construction. Another vulnerability is the political and
economic link that the strategic gas supply structure may have within the European
Union (Kuzemko et al., 2019).
The problem of energy security can be addressed by a beneficial mix of
eco-friendly energy resources. As we have presented, many authors identify the
nuclear solution as viable and resilient, deserving the green label, and in combination
with other energy resources, energy imports can be gradually reduced, leading
to continental independence, and Europe can become a central player in the
production, storage, and energy export.

Given the European Union's aim of reducing external energy independence
and forming a stable and functioning internal grid, the first question to be answered
in this study is the following:
Q1: Does nuclear energy have a future in the European Union?
Some of Europe's current nuclear power plants are already ageing, reaching the
end of their operating life (The Consultative Forum for the Environment and
Sustainable Development, 2000). In this context, new facilities will have to be built,
existing ones will have to be modernised, or their lifetime will simply have to be
extended, implying in this sector the need for a European and national analysis for
each individual country regarding the prolonged use of these plants under a well-
defined safety management system.
Q2: To what extent and in what strategic direction should the European Union pursue
nuclear energy production?
There are currently 103 nuclear reactors in the European Union with a production
capacity of 100 GWe. They operate in 13 of the 27 member states (World Nuclear
Association, 2022c). In our research, we will highlight what is the production
optimum that needs to be reached to meet the strategic directions for European
energy security. Bearing in mind that using nuclear energy, the EU manages to avoid
pollution by twelve million tonnes of carbon dioxide emissions every year (European
80
Commission, 2000), the strategic approach highlighted is the most beneficial in the
production-implementation-security ratio.
Q3: Should regions with nuclear potential be developed into supply centres for the
whole community in an equal-European contribution format?
The details and answers to this question will be explored by studying and
analysing the factors of nuclear production, and then extending them within working
hypotheses centred on European production clusters.
Q4: What is the level of resilient energy sufficiency that the European Union needs
to achieve, and how does it affect production centres?
Establishing the optimal parameters that European nuclear power production
centres will have to achieve and the burden that will be placed on them will give us
a practical dimension in the implementation framework.
4. Research Methods
The study highlights the potential of nuclear energy and natural gas to ensure
energy efficiency within the European Union and reduce its dependence on imports.
As a result, several factors were considered relevant for quantitative analysis,
according to previous studies by researchers in the field:
- Gross and net production of electricity and derived heat based on nuclear power;
- Production of nuclear fuel elements;
- Number of operable reactors;
- Gross and net production of electricity and derived heat based on natural gas;
- Primary energy consumption;
- Final energy consumption;
- Energy imports dependency.
The chosen period was 2020 for all indicators presented, and the data source is
Eurostat. The observations are represented by the 27 countries of the European
Union. Data cleaning and calculation methods have been applied in the Statistical
Analysis System (SAS). The standardisation of the values was done using z scores,
the power of a factor was determined using the principal component analysis, while
the weight within the cluster with the help of relevant equations. The final
aggregation led to the creation of a score for each country, necessary to establish
their importance in achieving energy independence of the European Union, helped
by nuclear power and natural gas.
In a more detailed approach, the z scores standardisation method was considered
to ensure the comparability of data by converting them into standard units. The
formula for a population is the following:
𝑧𝑖𝑗 = (𝑋𝑖𝑗 − 𝜇)/𝜎 (1)
where 𝑋𝑖𝑗 stands for the initial value of the ith factor and the jth country, while 𝜇 and
𝜎 are the population mean and standard deviation respectively.
The principal component analysis was used to determine which variables explain
more of the variation in the analysed phenomenon. As a result, a correlation matrix
was created from the correlation coefficients calculated for each pair of indicators
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(Khatun, 2007; Sharma, 2008; James et al., 2017). For the 6 clusters considered for
the analysis, we have determined the same number of 7x7 matrixes.
The weights have been further calculated using the correlation coefficient for
each factor combination divided by the root square of the sum of all coefficients in
the correlation matrix, as stated by the formula below (Sharma, 2008):
𝑤1 = ∑ 𝑟𝑥𝑖𝑦1 /√∑ 𝑟𝑥.𝑦. (2)
A total of 7 weights were determined for the score calculation.
The last step was to aggregate the resulted values after weights have been applied
to show the final score of the nuclear and natural gas efficiency, necessary for
assessing the energy self-sufficiency of a country.
5. Findings
The summary of the factors included in the analysis is presented in Table 1. For
the year 2020 there were no missing values, while the data has been normalized to
prevent biased output. The gross production of nuclear electricity and the number of
nuclear reactors showed high values for France and null for 15 of the 27 member
states of the EU. Nuclear fuel element production, on the other hand, is available in
only five EU states. Germany, France, and Italy used energy the most, while the
smaller states such as Luxembourg, Cyprus, and Malta used 70 times less energy for
households and industry than the first ones. The latter three were the most dependent
on imports in 2020, while Estonia, Romania, and Sweden were the least dependent.
Table 1. Descriptive analysis of the factors
Variable Mean Std Dev Minimum Maximum N
Nuclear_El_Prod 24743.26 68496.30 0 353832.87 27
Nuclear_F_Prod 72.8888889 180.0803952 0 705.0000000 27
Primary_En_Cons 45.7962963 64.2214975 0.7400000 262.4900000 27
Final_En_Cons 2259.11 1007.49 1062.50 6006.80 27
Imp_Indep 41.9851111 21.1282739 2.4400000 89.4980000 27
No_Reactors 3.8518519 10.7083853 0 56.0000000 27
Gas_El_Prod 10160.93 15470.90 0 55891.04 27
Source: Authors’ calculation.
The first hypothesis is defined as the first step in our quantitative approach, as it
specifies the objective of focusing on the countries with the greatest potential to host
European energy hubs based on nuclear and natural gas resources.
The classification of the European countries will follow the six system
development regions presented in Figure 2, as stated by the European Association
for the Cooperation of Transmission System Operators in the Regional Investment
Plans for 2021, namely the Baltic Sea, North Sea, Continental Central East,
Continental South West, Continental South East, and Continental Central South
(ENTSO-E, 2020).
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Figure 2. System development regions
Source: ENTSO-E, 2020.
The first step in our approach is to clearly separate the countries within the
clusters set a priori by measuring the power of each member in the cluster. The
countries that are part of more than one cluster and need only a specific one are
represented by Germany (member of 4 groups), France and Slovenia with 3 groups,
Denmark, Croatia, Italy, Hungary, Austria, Poland, and Romania in 2 clusters each.
Table 2 highlights the calculated weights for each variable. Therefore, we can
determine the factors that have the greatest impact in each group. Specifically,
nuclear energy production influences most regions, including the Baltic Sea and the
Central East. Natural gas is highly demanded in the same areas, with more potential
in the Central East region.
Table 2. Calculated weights per variable and region

Variable BS NS CE SW SE CS
Nuclear_El_Prod 0.954637 0.949615 0.955263 0.898489 0.669172 0.975738
Nuclear_F_Prod 0.731636 0.973069 0.718726 0.983741 0.449743 0.991639
Primary_En_Cons 0.621009 0.822367 0.819522 0.990265 0.536299 0.66949
Final_En_Cons 0.553317 -0.36542 0.224034 0.943469 0.302745 -0.26589
Imp_Indep 0.083441 0.577131 -0.07836 -0.75753 0.741442 0.464344
No_Reactors 0.86895 0.905485 0.469935 0.88057 0.668632 0.941803
Gas_El_Prod 0.59371 0.456875 0.905898 0.41397 0.334748 0.065502
The results of PCA and the weighting calculation are presented in Table 3. The
resulting scores have pointed out that Austria, Germany, and Poland will join the
Central East region, the North Sea region will incorporate Denmark and France,
while in the South East we will preserve the rest of the countries included initially in
more than one cluster. The Central South region will be excluded from the analysis
due to the lack of allocated members.
83
Table 3. Calculated scores per cluster

Baltic Score North Sea Score Central Score South Score South Score
Sea East West East
Sweden 4.37 France 8.34 Germany 8.30 Spain -1.28 Romania 2.93
Finland 1.84 Netherlands -0.82 Czechia 0.89 Portugal -4.63 Hungary 2.46
Estonia -2.25 Denmark -1.59 Slovakia -1.40 Bulgaria 1.62
Latvia -2.44 Belgium -1.61 Austria -1.43 Italy 0.99
Lithuania -2.63 Ireland -2.04 Poland -1.75 Slovenia 0.53
Luxembourg -4.24 Croatia -1.25
Greece -1.78
Cyprus -2.38
Malta -3.10
The Principal Component Analysis was used to determine the factors that would
have a higher impact on the decision to locate the energy hub and assign weights in
a way that maximizes the sum of correlation squares. Therefore, Sweden was chosen
as the nuclear and natural gas energetic hub for the Baltic Sea, France for the North
Sea, Germany for the Central East, Spain for the South West, while Romania would
host the hub for the South East.
The second hypothesis acts as the second step in our analysis and will help us
determine the level of self-sufficiency for each European country and, implicitly, the
European Union. The analysis will continue with the calculation of the required level
of nuclear energy production to cover the gap that prevents the reach of the targets.
The delta between primary production and final consumption of energy from all
sources was the example that has revealed for 2020 three main exporters, Bulgaria,
Estonia, and Sweden. Using the regional classification, the Baltic Sea is the least
dependent on energy imports, followed by the South West, while the Central East
seems to have the largest dependence.
Table 4 presents the amount necessary in Gwh to reach the sufficiency level for
each group, based on data for 2020 for primary production and final consumption
of energy.
Table 4. Energy amounts to reach self-sufficiency
Amount to be produced yearly
Cluster
(Gwh)
BS 47113.06
NS 604138.90
CE 1437702.20
SW 527074.06
SE 1013181.40
As a result, the European Union had to reach in 2020 an energy sufficiency level
of 10301441 Gwh, while the actual gap was situated around 3629210 Gwh.
Following the results of the previous step, the European Union should invest in
84
Sweden, France, Germany, Spain, and Romania the equivalent of 3629210 Gwh in
nuclear and natural gas infrastructure.
6. Conclusions
The study reveals several answers to the questions that arise from the potential
risks of energy shortcomings in the European Union.
Our research scope has challenged different topics in the natural gas and nuclear
energy sectors, by presenting the current status and potential development, as well
as the hypothesis of creating energy hubs across Europe to reach a total production
capacity at least equal to the household and industrial consumption in 2020.
Starting from the decision to include the energy produced from nuclear power
and natural gas, an important step would be to decide whether the approach of having
nuclear energy production hubs may be a faster way to reach an empirical self-
sufficiency threshold at a European level. Our analysis has proven that five out of
six existing clusters would be an optimal solution, with France, Germany, Romania,
Spain, and Sweden as nuclear energy hubs, due to their existing infrastructure and
regional potential to reach efficiency goals. Furthermore, based on 2020 data, the
European Union will need to invest the equivalent of 3629210 Gwh in nuclear and
natural gas infrastructure in these countries to reach the level of self-sufficiency.
The limitations of the study were mainly caused by the lack of studies on the
hypotheses analysed, as well as a small number of data sets available for the
quantitative approach.
The topic can be further improved with comparative analysis of different natural
resources, as well as with cost and opportunity calculus.
References
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86

June 16-17, 2022
Romanian Smart Villages Conceptualization

and Bibliometric Analysis
Nicoleta ILIE (MARIN)1, Vlad-Constantin TURCEA2,
Ilinca STERIU (MARIN)3, Iulia-Alexandra OPREA4*
DOI: 10.24789788367405072-009
Abstract
In this paper, the researchers explore the Smart Village concept, which implies the social
innovation and economic growth, as both a conceptual and practical means of delivering
positive social, economic and environmental outcomes in rural areas of Romania.
Smart Villages are rural communities that use innovative solutions to build their capacity
to meet social, economic and environmental challenges, building on the strengths of the
community, including local authorities as well as opportunities in the area.
This study proposes an analysis of the main factors that can contribute to the development
of rural areas. In this context, the partnerships/cooperation between local actors,
professionalization of local actors and LEADR approach, can be the support tools for
implementing intelligent solutions in Smart rural areas. The research innovation is
determined through the multiple ways of defining and prospecting this approach in the
current paper and its applicability in the Rural Romanian.
In this sense, the authors propose to analyze and present through a SWOT analysis and
a quantitative international abstract and citation database analysis the new trends regarding
this new rural concept of Smart Villages.
The main objective of the current analysis is to highlight the key concepts resulting
from the bibliometric analysis and to determine what the scientific community is currently
focusing on.
Keywords: Smart Village, Rural Development, sustainability, digitalization,

research papers.
JEL Classification: Q01, Q19.

4
Bucharest University of Economic Studies, Bucharest, Romania, [email protected].
© 2022 N. Ilie (Marin), V.-C. Turcea, I. Steriu (Marin), I.-A. Oprea, published by Sciendo. This work is licensed
1. Introduction
Many of the policies and financial instruments offered by the European
Commission already provide valuable building blocks for the socio-economic
consolidation of the smart villages of the European Union. Smart villages is a
relatively new concept in the field of EU policy making and as such in our country.
The emerging concept of smart villages refers to rural areas and communities that
build on their existing strengths and assets, as well as the development of new
opportunities.
In smart villages, both traditional and new networks and services are being
enhanced through digital technologies, telecommunications, innovation, and better
use of knowledge for the benefit of local people and businesses.
Technologies and digital innovations can support quality of life, a higher
standard of living, public services for citizens, better use of resources, less impact
on the environment, and new opportunities for rural value chains in terms of
improved products and processes. The concept of Smart Villages does not propose
a single solution for everyone; it is based on the needs and potential of the territory,
but especially on the administrative organization capacity of the leaders of a rural
community.
According to the new EU policies and strategies, Smart village is an
autonomous structure capable of managing its own development projects and
solving the problems generated by a series of administrative and economic
disfunctions. The smart village must not ignore the social dimension, which implies
the existence of a climate of equity, by fighting poverty and eliminating
discrimination between generations, while the presentation of the rural dimension
highlights the importance of processes related to land use and urban planning. The
development of smart villages therefore implies an economic and social
development with a direct impact on the quality of life of members of the rural
community and on their expectations in relation to the actions of public authorities.
(EC, 2017).
Now, in Romania, a direct and concrete planning of smart village policies is not
yet drawn, however, smart villages cannot be implemented without the concept of
Smart Village assimilation, which cannot be applied in isolation and must be
incorporated in the existing strategies for development of rural regions and
localities. In this sense, actions are taken to define this concept, and to generate a
common policy from all the factors involved in rural development, and finally, to
identify the investments needed to achieve this concept.
The Stage of Knowing the Problem

Based on integrated strategic approaches that reflect EU priorities as well as the
needs of a territory, the Rural Development Programs 2007-2013 (MADR(a),
2021) and 2014-2020 (MADR(b), 2021) as well as the new NSS 2023-2027, have
supported, support, and will continue to support a mix of measures to contribute to
when implementing the new Smart Village Concept. These measures include rural
88
business development, including farm modernization, investment in small-scale

local infrastructure and connectivity projects, village renewal, knowledge
development, knowledge sharing, and bottom-up initiatives.
Smart & technological requirements are the key to successful implementation.
The Internet of Things (IoT) is a primary provider of information sharing and
control platforms for various decisions and smart devices. This novel technology
has proven to be one of increased efficiency, time execution reduction, and cost
reduction (Degada, Thapliyal, Mohanty, 2021).
Smart village concept is a broad perspective approach conditioned by the
localization, as well as the social and economic aspects of the community. The
vulnerabilities that the respective community cannot overcome should be
overpassed by the ability of innovation absorption and skill acquisition
(Adamowicz, Zwolińska-Ligaj, 2020).
Rural development policy also hosts LEADER, a bottom-up approach to local
development, which is a vehicle for social innovation and local capacity building,
empowering rural citizens to take ownership of their area development through
design and implementation. Local Development Strategies (SDL) and projects.
Financing smart villages remains the main problem because certain funding
flows ("measures") of rural development programs can contribute to smart
approaches to villages more than others. Applied “individually”, they will not be
enough to cover the real need for funds. In particular, the coordinated and
harmonized use of different types of EAFRD interventions would be needed to
effectively support smart villages.
An interesting solution could be to achieve integrated support by creating a
single fund to finance the creation of a Smart Village. This would be an ideal
scenario in which portions of different funds should be allocated specifically to
support smart village approaches. This could be done experimentally (through a
pilot approach), setting aside only a relatively small proportion of the relevant
funds. An important advantage for those who seek to apply for these funds is that
they do not have to act on several funds at once, each fund having a precise
destination and specific rules.
Figure 1. Factor that could improve support for smart villages
Source: Authors’ conceptualization.
89
In the above figure are presented the main factors that can contribute to
revitalization of smart rural areas in our country and the expected results.
1.1 Material and Method

In order to substantiate the methodology of this case study, the classical tools of
observation and examination were used. Procedures based on factual analysis were
used, an intensive documentation at the level of the existing literature in this new
field. The methodology of the paper has as direct tools the collection of information
from the specialized literature and from the existing practice at the level of the
relevant public institutions in our country, respectively, MADR, AFIR, as well as
aspects related to the activity of the Local Action Groups and RNDR. On the other
hand, the new provisions and guidance documents in this field were analyzed,
offered and consolidated by the new CAP post 2020, the new PNS 2023-2027 and
the European Network for Rural Development (ENRD, 2021).
In this context, the authors of this study case, developed a SWOT Analysis on
the concept of Smart Village in Romania, based on data and information collected
in the present research.
Table 1. SWOT analysis on the concept of Smart Village in Romania
in the context of the Post 2020 CAP
Source: Authors’ conceptualization.
90
1.2 Programs, Respectively Policies that Could Have a Positive Influence

on the Development of Smart Village in Romania
Combining research and innovation, the Horizon 2020 program can also make a
significant contribution to Smart Villages’ building strategies, which can ensure
technology transfer in many areas of interest to Smart Villages. Seen as a means of
stimulating growth and creating jobs, Horizon 2020 benefits from the political
support of European leaders and members of the European Parliament.
Horizon 2020 includes several elements relevant to the development of smart
villages. In Social Challenge 2, a special call for “rural renaissance” is closely related
to the development of the knowledge base for smart villages. The idea behind the
Smart Villages strategy is that, although the rural environment faces many
challenges today, rural areas offer different and very valuable things for the whole
of European society. The EU’s strategy is to ensure that people in rural areas have
access to educational training to develop their knowledge and skills, jobs and
services comparable to those in urban areas, and that the community is connected to
transport and utility networks.
The Smart Villages Action Plan finds many initiatives in the areas of rural
development, regional policy, transport, energy, digital, and research.
1.3 Cross-Cutting Issues: Cooperation, Recovery, and the Green

Agreement
The main consideration in the context of the new Post 2020 CAP is the existence
of specific support for the emerging cooperation of smart villages, and / or support
for cooperation between villages and other types of areas (cities) or other
stakeholders (e.g., research). The Strategic Plan Regulation stipulates that when
providing investment support, Member States should provide special attention to
the overall cross-cutting goal of modernizing the sector by encouraging the
adoption and exchange of knowledge, innovation, and digitalization in agriculture
and rural areas. Support for investment in the deployment of digital technologies in
agriculture, forestry, and rural areas, such as investments in precision agriculture,
Smart Villages, rural enterprises, and ICT infrastructure, should be included in the
description of the CAP Strategic Plans on its contribution to general transversal
support and consolidation of "Environmental protection, including biodiversity and
climate action, and to contribute to the achievement of the Union's environmental
and climate objectives, including the commitments made under the Paris
Agreement".
Support from Member States should make it possible to establish and implement
cooperation between at least two entities in order to achieve the objectives of the
CAP. Support can involve, among many other environmental and climate collective
actions and actions; promoting the short supply chain and local markets; pilot
projects; EIP Task Force projects for agricultural productivity and sustainable local
development projects, Smart Villages, agricultural partnerships; networks and
clusters; social agriculture; community-supported agriculture; LEADER actions;
91
and the establishment of producer groups and producer organizations, as well as

other forms of cooperation deemed necessary to achieve the specific objectives of
the CAP.
Among the cooperation proposals mentioned in Article 71 on Cooperation,
emphasis is placed on the possibility / need for cooperation in order to achieve and
implement strategies for smart villages.
"A smarter, more modern and sustainable CAP must embrace research and
innovation in order to serve the multifunctionality of the Union's agricultural,
forestry, and food systems by investing in technological development and
digitalization, as well as improving the effective adoption and implementation of
technologies, in particular digital technologies, as well as increased access and
exchange of impartial, solid, relevant, and new knowledge ''.
For the financial programming period 2023-2027, the latest form of the new
strategic plan regulation provides for the allocation of interventions set by Member
States with the objectives of the Green Agreement on achieving climate neutrality
by 2050. To this end, the Commission undertakes to assess the combined
contribution of interventions. Member States' strategic plans to meet the Union's
environmental and climate commitments, those arising from the European Green
Agreement.
Supporting and improving the protection of the environment and climate action
and contributing to the achievement of the Union's environmental and climate
objectives are a high priority in the future of the Union's agriculture and forestry.
The optimal combination of types of action to address these targets will vary from
one Member State to another, including reductions in greenhouse gas emissions
and increased carbon sequestration, which are very important in mitigating climate
change. Article 6.d of the same regulation, which refers to the Specific Objectives
of the Strategic Plans that aim to contribute to climate change mitigation and
adaptation, including by reducing greenhouse gas emissions and improving carbon
sequestration, and promoting sustainable energy.
At this moment, the National Strategic Plan for the programming period
2023-2027 related to our country, Variant 1, was sent to the European Commission
on February 28, 2022, and in the next 6 calendar months, Romania will receive
comments and then be approved (MADR(c), 2021).
The section on digitalization and computerization, in the new PNS 2023-2027
with reference to the agricultural sector and rural development, aims to establish /
adapt a system of knowledge and innovation in agriculture (AKIS), but also to
support through LEADER actions aimed at revitalizing services through digital and
social innovation, improving services in LEADER territories (smart villages) -
where these types of needs have been identified at the level of each local
community in Romania.
The new concept for Romania on innovation in agriculture introduced in PNS
2023-2027 is AKIS, a concept that together with vocational training and
counselling services, is part of the category of horizontal interventions needed for
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the development of future agriculture in the context of new challenges such as

climate change, digitalization, precision agriculture, etc.
2. The Smart Village Concept in the Research Literature & Analysis

A concept that was briefly exposed during the September 2016 European
Commission rural stakeholders ’meeting in Cork, Ireland, the“ Smart Village
”proposition was necessary in order to diminish the rural-urban digital gap; to
provide growth prospects to both villages and rural areas; none of them could be
achieved without thriving entrepreneurship environment or fully unlocking local
actors potential. Part of the Common Agricultural Policy, the European
Agricultural Fund for Rural Development, with finances of almost 100 billion EUR
across the EU 2014-2020 multiannual framework (EC, 2017). The main objective
of a smart village is to empower ecosystems and generate growth, innovation,
and sustainable development, therefore, the topic of Smart Village should
dictate the future of local rural development in the upcoming period (Profiroiu,
Radulescu, 2019).
The main objective of the current analysis is to highlight the key concepts that
result from the Smart Village term interrogation and to determine what the
scientific community is focusing on.
The current analysis has taken into consideration, up to this point, the local
aspects of the Smart Village concept, which is interlinked with the sustainable
development ability of rural communities; in the following chapter of the paper,
the applicability and research interest of this topic will be assessed using
consecrated research methods such as the one of bibliometrics. In order to perform
this query, the present paper aims to interrogate and quantitatively measure the
latest scientific database for this subject. A number of 578 research papers have
been identified as the study’s population using the “Smart Village” key for both
title and abstract, in the Web of Science Database, papers that will be scrutinized
in the following paragraphs.
Figure 2. Yearly number of papers on the topic of “Smart Village”
Source: Author’s concept using Web of Science.
93
As seen in Figure 2, the research interest has drastically increased in the last
couple of years, year 2019 marks the maximum value with more than 160 papers on
this topic, the increasing interest matches with the concept introduction in late 2016.
More than 90% of the papers have been published since 2017, but what exactly these
work papers focus on will be observed in the following figure (Figure 3), describing
the Web of Science topics; Engineering related orientations, together with
Sustainable and Technological. Technology marks the importance of innovation that
is directly linked to engineering and science. Fewer papers belong to the economic
sphere (pink and brown), marking the lack of applicability and concept preparedness.
Figure 3. Number of papers on the topic of “Smart Village” by scientific category
Source: Author’s concept using Web of Science.

Going through the 578 research titles, only one paper marks the presence of
“Romania” within the title line, strong indication that the paper relates to Romanian
smart villages, an immaterial number that clearly marks the novelty of the current
studied topic, same results can be drawn from the abstract inspection, the only one
being published in 2019. Searching for the “European Union or EU” within the title,
2 papers appear, a situation with a slight change over the abstract search, where
15 papers could be identified directly referring to the European Union as study
population or research focus. A more detailed term analysis will be conducted
in the following paragraphs, using the VOS Viewer software to draw the term
correlation maps.
Figure 4. Term map based on “Smart village” search on Web of Science engine
Source: Author’s concept using Web of Science & VOS Viewer.
94
The first picture of the correlated terms (Figure 4) points out the multitude of
interlinked word clusters by publishing year, the cloud being mostly blue, indicating
the numerous papers written before 2020. The clusters contain 140 items and 5 major
clusters have been identified, the first one containing 38 terms with parts of the
“smart” concept, integrating terms like: efficiency, energy, grid, optimization,
performance, optimization and wind; the second cluster containing 35 items
containing parts of the “village” concept with notes as: agriculture, climate change,
education, farmer, food security; the third cluster with 34 items focusing on the
health related aspects; the 4th cluster with 30 items linking the rural with the urban
concept of smart living, also enhancing the economic side of the theme; and the 5 th
cluster with only 3 terms, representing the most high-tech cloud with the Internet of
Things concept in the middle.
Figure 5. Term map based on “Smart village” link
The smart village item in the above figure (Figure 5) as the central term points
out links to both pre and post 2019 terms, such as network, power, rural area,
initiative, opportunity, policy, sustainable development, agriculture and also the
internet of things concept that is in strong relationship with. The smart village subject
that can definitely co-exist in perfect harmony with the smart city orientation and
such alignment at all levels could not be achieved without a few things that have
already been mentioned in the last chapters and also visible within the links: rural
sustainable development, social and economic growth, ways of implementation and
local communities.
Figure 6. Most relevant terms
95
In the above figure (Figure 6) the top two terms by relevance strength generated
by the used software can be seen, these two terms occur in more than 10 papers each
and refer to the climate smart village and CSA (climate smart agriculture), both
concepts being also recognized as recent research interest between, shaping the
future path that a rural community should follow in order to secure the status of a
smart village through climate neutrality within the community and climate-friendly
agricultural practices.
Figure 7. Rural area linkages
In the above figure (Figure 7) the central aspect of the new research theme has
been selected - the rural areas – the resulting parallels to other clusters and publishing
years present how the smart village concept can be applied into reality, using the
energetical breakthrough and sustainable development practices, framed properly as
a tailored policy that can be achieved through education, practice, well-defined role
of the agriculture and using efficient communication across stakeholders.
In the last paragraphs a couple of points have been addressed in order to
successfully implement the smart village concept, these research themes assessed
through the quantitative analysis do represent key points and opportunities that
should not be skipped when actions are considered to shape the future of Romanian
rural communities.
3. Conclusions
The digital era of today’s world means that the population is witnessing the dawn
of a new approach in the agricultural sector, which relies on a joint effort to meet
growing global nutrition needs and the future challenges, given the fast-growing
pace of the global population. This factor alone has led to an increasingly more
pressing demand for a vast array of agricultural products, while maintaining an eco-
friendly perspective.
Given the need to produce more and faster in a sustainable way, precision
agriculture has the remarkable potential to rapidly become an essential tool for the
sustainability of the agricultural sector and increasing competitiveness. The use of
innovative technologies generates socio-economic effects such as: increased
96
production, improved working conditions of farmers, maintaining soil structure,

preserving and improving soil characteristics, increased soil water supply, reducing
crop irrigation costs, reduced costs with the administration of plant protection
products and chemical fertilizers, the use of genetic material resistant to drought and
certain diseases and pests, etc.
Considering that the widespread adoption of cutting edge technologies and / or
new agricultural practices usually modifies the exchange of knowledge from farmer
to farmer, but also between farming communities with the support of third parties,
such as associative forms in the agricultural sector, farmers organizations, local civil
society organizations, agricultural research and development units should become
more and more useful and necessary.
The modest collaboration between farmers and entities that promote research and
innovation has led to a limited transfer of knowledge and technological solutions
from suppliers to farmers, mainly on specific issues. It is therefore necessary for
farmers, consultants, research units and other stakeholders to work together in order
to identify innovative solutions to the specific problems facing the sector, such as
the use of environmentally friendly practices, optimizing the use of resources and
factors of production.
The implementation of leading-edge technologies and processes adapted to the
needs of the farmers of today, developed and supported by research and innovation
activities, will generate positive socio-economic and environmental consequences,
which will increase the performance of farms while maintaining a low impact on the
environment.
Furthermore, in order to meet European standards, the approach needs to focus
on how digitalization supports on-farm efficiency and performance. Strategic advice
on digitalization and e-infrastructure is needed, as it is linked to knowledge
exchange, communication, dissemination, and operation.
The research focus has been demonstrated throughout the paper that is oriented
in boosting this novel concept, and also via the proposed methods, the Romanian
Rural side can think of the complete incorporation of this structure in development
individual objectives.
Within the Local Development Strategies, the concept of “Smart Villages” can
be supported, by increasing smart village development projects that aim to capitalize
on the willingness and knowledge of local communities to identify solutions using
technology and innovation. This will offer the prospects of an improved life quality
in rural areas, address depopulation and demographic challenges, remodelling the
quality of local services in the field of health and safety of citizens and laying out
the prospects of a transition to a circular, low-carbon economy, as well as the
digitalization of social, administrative and educational sectors.
References
[1] Adamowicz, M., Zwolińska-Ligaj, M. (2020). The “Smart Village” as a Way to
Achieve Sustainable Development in Rural Areas of Poland. Sustainability, 12(16),
p. 6503, https://doi.org/10.3390/su12166503.
97
[2] Agency for Rural Investment Financing, AFIR (2022). Paper available at https://
portal.afir.info/content.aspx?item=1997&lang=RO.
[3] Degada, A., Thapliyal, H., Mohanty, S.P. (2021). Smart Village: An IoT Based Digital
Transformation. arXiv:2106.03750 [cs]. [online] available at http://arxiv.org/
abs/2106.03750, accessed 27 April 2022.
[4] European Commission (EC) (2010). Brussels, 3.3.2010 COM2020, A European
strategy for smart, sustainable and inclusive growth, Europe 2010. Paper available at:
https://ec.europa.eu/eu2020/pdf/COMPLET%20EN%20BARROSO%20%20%20007
%20-%20Europe%202020%20-%20EN%20version.pdf.
[5] European Commission (EC) (2016). European Network for Rural Development,
(ENRD), CORK 2.0 Declaration “A Better Life in Rural Area, paper available at
https://enrd.ec.europa.eu/sites/default/files/cork-declaration_en.pdf.
[6] European Commission (EC) (2017). European Network for Rural Development, EU
Action for Smart Villages (ENRD), Paper available at: https://ec.europa.eu/info/sites/
default/files/food-farming-fisheries/key_policies/documents/rur-dev-small-villages_
en.pdf.
[7] European Commission (EC) (2018). European Network for Rural Development,
(ENRD), Smart Villages Revitalising Rural Services, paper available at https://enrd.
ec.europa.eu/sites/default/files/enrd_publications/publi-enrd-rr-26-2018-en.pdf.
[8] MADR(a), Ministry of Agriculture and Rural Development (2021). National Rural
Development Program 2007-2013, v. XIV, www.madr.ro, accessed on March 30, 2022.
[9] MADR(b), Ministry of Agriculture and Rural Development (2021). National Rural
Development Program 2014-2020_V12. www.madr.ro, accessed on April 10, 2022.
[10] MADR(c), Ministry of Agriculture and Rural Development (2022). PNS_2023-
2027_versiunea 1, accessed on 2, 2022 2022, paper availble at https://www.madr.ro/
planul-national-strategic-pac-post-2020/documente-de-programare.html.
[11] Profiroiu, M.C., Radulescu, C.V. (2019). Local Development Opportunities In The
Context Of Sustainable Development By Applying The Concept Of "Smart Village"
In Romania, Proceedings of the International Management Conference, 13(1),
pp. 1059-1067.
[12] Regulation (EU) (2013). No 1305/2013 and Regulation (EU) No 1307/2013, available
at https://eur-lex.europa.eu/resource.html?uri=cellar:aa85fa9a-65a0-11e8-ab9c-01aa75
ed71a1.0009.02/DOC_1&format=PDF.
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Proceedings of the 5th International Conference on Economics and Social Sciences (2022), ISSN 2704-6524, 99-113

June 16-17, 2022
Analysis of Foreign Trade with the Main Categories

of Agro-Food Products, Parallel Romania - Italy
Georgiana Raluca LĂDARU1, Mariarosaria LOMBARDI2,
Marco PLATANIA3, Ionuț Laurențiu PETRE4*
DOI: 10.24789788367405072-010
Abstract
This paper aims to study the dynamics and structure of foreign trade in agro-food
products according to the combined nomenclature of Romania and Italy. In this regard, with
the help of statistical data taken from databases: the National Institute of Statistics, for
Romania, and the International Trade Center, for Italy, the dynamics of exports, imports,
and, at the same time, the trade balance were analysed. The degree of concentration of both
imported and exported products was further analysed to determine whether or not there was
a concentration on a particular chapter of the Combined Nomenclature.
Keywords: Romania, Italy, foreign trade, trade balance.
JEL Classification: Q17, F10.
1. Introduction
The analysis of external trade is an extremely important topic, especially in
today's socio-economic-political context. This article aims to highlight a
comparative analysis of foreign trade in agro-food products from Romania and Italy.
The existence of trade was necessary because people began to communicate with
each other; initially people were content with very little and worked hard to produce
everything they needed; over time, as civilization developed, their needs increased,
only by exchange to satisfy (Pațac, 2008).
International trade is an independent branch of the economy that includes
commercial transactions or cooperative economic and technical science actions with

2 University of Foggia, Foggia, Italy, [email protected].
3 University of Catania, Catania, Italy, [email protected].
© 2022 G.R. Lădaru, M. Lombardi, M. Platania, I.L. Petre, published by Sciendo. This work is licensed under the
foreigners in goods, works, services, financial transactions, insurance, tourism and,

in general, any conduct or business (Vișan, 1999).
According to the literature, Gavrilescu (2019) finds that Romania's international
agricultural and food trade has changed significantly in terms of trade policy, as well
as the geographic focus and composition of imports and exports. Economic and
political reforms have led to major changes in the functioning of the agro-food sector
and the agro-food chain, resulting in a severe imbalance between domestic supply
and demand; as a result, imports far outnumber exports (International Trade and
Regional Integration, n.d.).
According to the conclusions reached by the authors Nica & Stoian (2018), the
trend of imports is constant while the development of exports oscillates, so the
dynamics of the trade balance is given by the trend. „Concerning the import of agro-
food products, their growth rate was higher than that of exports with agro-food
products, the trade balance of this product category being deficient.”
According to Rusali (2010), who conducted an overview of foreign trade in agro-
food products in Romania, the author concluded that the results show a decrease in
domestic performance in the face of increasing external competitiveness, with
significant implications for both the food industry and the agricultural sector,
requiring a redesign of market strategies. It also states that the competitiveness rating
of Romanian food products shows a commercial disadvantage compared to EU
products, reliance on imports of processed products and animal origin, and low
competitiveness of the processing sector is the main disadvantage for achieving
higher export earnings (Rusali, 2010; Pătărlăgeanu et al., 2020).
According to Caiazza & Volpe (2014) „agro-food industry has great relevance in
Italy”. Studying competitiveness, the authors concluded that strategic actions to
support the internationalization process of agro-food companies must be based on
innovation to improve quality and international certification. The main drivers
behind the internationalization strategy are the need for more markets and the search
for opportunities to increase profits. In the process of internationalization, the
industry faces the threat of unfair competition and counterfeiting. Other issues
depend on cultural differences that affect competition due to differences in product
quality and imagery (Caiazza, Vople, 2012).

This research aims to identify the dynamics of imports and exports of agro-food
products from Romania and Italy through a comparative analysis, as well as to
determine the balance of trade for these products.
At the same time, we want to determine the degree of concentration of imports
and exports for these categories of products, both in Italy and in Romania, and this
last part contributes to the formulation of the research question, namely, what is the
degree of concentration of imports and exports of agro-food products in Romania
and in Italy.
100
Making also a hypothesis to the research question, formulated above, we consider

that the degree of concentration of exports is higher than that of imports, both for
Romania and Italy; but also, the hypothesis that the degree of concentration of Italy's
foreign trade is lower than that of Romania.
4. Research Methods
The aim of this paper is to make a comparative analysis of foreign trade in agro-
food products in Romania and Italy. To this end, the dynamics of imports and exports
were analysed using statistical data, respectively, the National Institute of Statistics
for Romania's trade and the International Trade Centre for Italy's trade. In view of
the European Union rules, Romania and Italy also classify marketed products
according to the Combined Nomenclature, so the first 24 chapters of the
nomenclature, i.e. the first 4 sections of the same nomenclature, were considered
agro-food products.
The gap between exports and imports was used to determine and analyse the
evolution of the trade balance. At the end of the study, the aim was to carry out an
analysis in order to determine the degree of concentration of imports and exports by
product category, so for this analysis the GINI coefficient was determined, using the
following formula (Dorfman, 1979; Abounoori, McCloughan, 2003):
𝑛∗∑𝑛 2
𝑖=1 𝑝𝑖 −1
Gini Coefficient =√ , where:
𝑛−1
pi – share of each indicator observation in the total;
n – number of observable units.
5. Findings
According to the Combined Nomenclature, the first 24 chapters represent the
totality of agro-food products, so the dynamics of imports, exports and the
determination of the trade balance in these 24 chapters will be analysed.
Table 1. Dynamics of agro-food imports into Romania, thousands of euros
Imports
Group Category
2016 2017 2018 2019 2020
1 Live animals 165,129 179,025 180,031 184,781 183,945
2 Meat and edible meat offal 645,828 760,266 820,597 940,884 910,482
Fish and crustaceans, molluscs
3 174,145 195,503 207,138 207,505 196,529
and other aquatic invertebrates
Dairy produce; birds' eggs;
natural honey; edible products
4 401,736 497,252 501,506 576,786 640,640
of animal origin, not elsewhere
specified or included
Products of animal origin, not
5 53,916 56,571 64,525 69,697 64,037
elsewhere specified or included
Live trees and other plants;
6 bulbs, roots, and the like; cut 115,000 129,113 133,086 153,320 151,242
flowers and ornamental foliage
Edible vegetables and certain
7 365,037 410,293 424,054 517,167 484,696
roots and tubers
101
Imports
Group Category
2016 2017 2018 2019 2020
Edible fruit and nuts; peel of
8 563,740 638,723 639,209 653,460 704,893
citrus fruit or melons
9 Coffee, tea, maté and spices 243,096 248,235 241,740 253,426 271,060
10 Cereals 592,125 467,766 324,849 397,554 703,190
Products of the milling
11 industry; malt; starches; inulin; 105,247 102,253 100,988 113,656 112,524
wheat gluten
Oil seeds and oleaginous fruits;
miscellaneous grains, seeds
12 and fruit; industrial or 315,696 368,008 429,075 397,420 461,403
medicinal plants; straw and
fodder
Lac; gums, resins and other
13 27,859 29,646 22,486 28,293 31,255
vegetable saps and extracts
Vegetable plaiting materials;
14 vegetable products not 1,588 1,411 1,125 1,843 1,538
Animal or vegetable fats and
oils and their cleavage
15 189,372 191,964 172,245 173,686 202,038
products; prepared edible fats;
animal or vegetable waxes
Preparations of meat, of fish or
16 of crustaceans, molluscs or 149,902 189,719 212,313 249,327 272,087
other aquatic invertebrates
17 Sugars and sugar confectionery 280,959 288,299 264,659 302,793 270,065
18 Cocoa and cocoa preparations 267,062 276,621 294,578 350,116 333,604
Preparations of cereals, flour,
19 starch or milk; pastrycooks' 404,462 452,899 490,207 546,305 566,941
products
Preparations of vegetables,
20 fruit, nuts or other parts of 279,825 297,731 332,003 374,265 385,016
plants
Miscellaneous edible
21 407,387 451,983 498,020 547,390 555,812
preparations
22 Beverages, spirits and vinegar 323,234 359,616 396,827 494,456 498,385
Residues and waste from the
23 food industries; prepared 394,517 458,488 506,088 532,568 575,989
animal fodder
Tobacco and manufactured
24 322,199 371,748 377,697 364,418 355,128
tobacco substitutes
Source: National Institute of Statistics (NIS).
As can be seen in Table 1, Romania's imports of agro-food products increased

during the review period for most of the chapters analyzed in the nomenclature. The
highest import value was recorded in 2019 for the Meat and edible meat offal
category, with an import value of 940.88 million euros. On the contrary, the category
with the lowest imports was Vegetable plaiting materials with a minimum value
recorded in 2018 of €1.13 million.
On average, for the last five years, the situation is as follows: Meat and edible
meat offal ranks first with an average annual import value of 815.6 million euro,
followed by Edible fruit and nuts; peel of citrus fruit or melons with an average
annual value of 640 million euro, and dairy produce ranks third with an average
import value of 523.5 million euro.
102
Looking at the dynamics, of the 24 chapters in the nomenclature, only two show
a decreasing average annual rate, namely the categories: Vegetable plaiting materials
with an annual rate of -0.8% and Sugars and sugar confectionery with an average
annual rate of -0.98%, while the other 22 chapters record increases in imports, the
highest being for the category Preparations of meat, of fish or of crustaceans,
molluscs, or other aquatic invertebrates with an average annual increase of 16%.
Table 2. Dynamics of Romania's agro-food exports, thousand euros
Exports
Group Category
2016 2017 2018 2019 2020
1 Live animals 373,203 424,290 375,833 437,135 405,621
2 Meat and edible meat offal 238,586 281,216 263,617 238,229 195,179
3 18,799 18,870 20,923 20,438 20,733
natural honey; edible products of
4 155,824 189,041 198,846 199,789 198,859
animal origin, not elsewhere
5 27,555 32,844 36,008 32,473 24,779
Live trees and other plants; bulbs,
6 roots and the like; cut flowers and 2,821 3,230 2,847 2,445 2,416
ornamental foliage
7 86,407 139,661 97,063 95,632 93,612
roots and tubers
8 54,038 65,354 66,217 61,345 79,418
9 Coffee, tea, maté and spices 24,929 26,073 24,046 28,352 29,537
10 Cereals 2,097,250 1,980,693 2,175,910 2,585,351 2,169,442
Products of the milling industry;
11 malt; starches; inulin; wheat 26,866 17,450 12,685 16,963 18,684
gluten
miscellaneous grains, seeds and
12 1,141,696 1,267,076 1,210,098 1,083,265 955,996
fruit; industrial or medicinal
plants; straw and fodder
13 1,027 1,058 1,057 1,434 953
14 vegetable products not elsewhere 2,459 1,417 940 1,363 1,157
Animal or vegetable fats and oils
and their cleavage products;
15 194,056 211,079 224,211 224,491 194,977
prepared edible fats; animal or
vegetable waxes
Preparations of meat, of fish or of
16 crustaceans, molluscs or other 137,418 146,147 169,786 182,503 195,264
aquatic invertebrates
19 starch or milk; pastrycooks' 154,263 172,458 187,817 217,453 221,890
products
Preparations of vegetables, fruit,
20 55,072 67,062 66,444 67,603 73,142
nuts or other parts of plants
21 Miscellaneous edible preparations 167,303 181,694 172,166 183,287 196,462
22 Beverages, spirits and vinegar 118,439 133,497 152,036 164,616 156,964
103
Exports
Group Category
2016 2017 2018 2019 2020
Residues and waste from the food
23 industries; prepared animal 181,295 175,198 220,430 236,580 234,038
fodder
24 769,738 729,705 692,197 947,308 1,375,940
tobacco substitutes
Source: National Institute of Statistics (NIS).
In terms of Romania's exports over the same period of time, there is quite a big
difference compared to imports, in the sense that the value of exports is lower than
that of imports. The highest value of Romania's exports, by chapters of the
nomenclature, was recorded in 2019, for Cereals with a value of 2.585 billion euros.
In the opposite direction, the lowest value of exports for a single chapter of the
nomenclature was recorded for Vegetable plaiting materials, in 2018, being 940
thousand euros.
In terms of annual average, the highest export values in the last five years were
recorded in the following sections: Cereals, with an average annual export value of
€2.2 billion, followed by Oil seeds and oleaginous fruits; miscellaneous grains,
seeds, and fruit; industrial or medicinal plants; straw and fodder, with an average
annual export value of €1.13 billion, and in third place was Tobacco and
manufactured tobacco substitutes with an average annual export value of €902.98
million. In terms of average annual value over the last five years, the last-ranked
category is Lac; gums, resins, and other vegetable saps and extracts, with an average
annual export value of €1.1 million.
Analysing the dynamics, out of the 24 chapters of the nomenclature, for
Romania's exports, 17 register a positive dynamic and 7 register a negative
dynamics. Of the categories with the highest annual increases, the first two are
Tobacco and manufactured tobacco substitutes, with an average annual increase of
15.6%, followed by Edible fruit and nuts; peel of citrus fruit or melons with an
average annual growth rate of 10.1%. At the other end of the scale, the slowest annual
growth rates were recorded in the categories: Vegetable plaiting materials, with an
average annual rate of -17.17%, and Sugars and sugar confectionery, with an average
annual rate of -9.77%.
Table 3. Dynamics of the trade balance for agro-food products in Romania,
thousands of euros
Trade balance
Group Category
2016 2017 2018 2019 2020
1 Live animals 208,074 245,265 195,802 252,354 221,676
2 Meat and edible meat offal -407,242 -479,050 -556,980 -702,655 -715,303

3 -155,346 -176,633 -186,215 -187,067 -175,796
natural honey; edible products
4 of animal origin, not -245,912 -308,211 -302,660 -376,997 -441,781
elsewhere specified or
included
104
Trade balance
Group Category
2016 2017 2018 2019 2020
5 elsewhere specified or -26,361 -23,727 -28,517 -37,224 -39,258
included
bulbs, roots and the like; cut
6 -112,179 -125,883 -130,239 -150,875 -148,826
flowers and ornamental
foliage
7 -278,630 -270,632 -326,991 -421,535 -391,084
roots and tubers
8 -509,702 -573,369 -572,992 -592,115 -625,475
9 Coffee, tea, maté and spices -218,167 -222,162 -217,694 -225,074 -241,523
10 Cereals 1,505,125 1,512,927 1,851,061 2,187,797 1,466,252
11 industry; malt; starches; -78,381 -84,803 -88,303 -96,693 -93,840
inulin; wheat gluten
Oil seeds and oleaginous
fruits; miscellaneous grains,
12 seeds and fruit; industrial or 826,000 899,068 781,023 685,845 494,593
fodder
13 -26,832 -28,588 -21,429 -26,859 -30,302
vegetable products not
14 871 6 -185 -480 -381
included
15 4,684 19,115 51,966 50,805 -7,061
products; prepared edible fats;
animal or vegetable waxes
Preparations of meat, of fish
16 or of crustaceans, molluscs or -12,484 -43,572 -42,527 -66,824 -76,823
Sugars and sugar
17 -217,357 -231,175 -217,437 -262,183 -227,917
confectionery
18 Cocoa and cocoa preparations -190,474 -192,305 -211,504 -233,768 -226,765
19 starch or milk; pastrycooks' -250,199 -280,441 -302,390 -328,852 -345,051
products
20 fruit, nuts or other parts of -224,753 -230,669 -265,559 -306,662 -311,874
plants
21 -240,084 -270,289 -325,854 -364,103 -359,350
preparations
22 Beverages, spirits and vinegar -204,795 -226,119 -244,791 -329,840 -341,421
23 food industries; prepared -213,222 -283,290 -285,658 -295,988 -341,951
animal fodder
24 447,539 357,957 314,500 582,890 1,020,812
tobacco substitutes
TOTAL -619,827 -1,016,580 -1,133,573 -1,246,103 -1,938,449
Source: Authors' calculations based on NIS data.
105
Analyzing the trade balance, i.e., the difference between the value of exports and
imports, for Romanian agro-alimentary products, the following can be observed. In
the last five years, three chapters have been completely in surplus, namely: Cereals,
Oil seeds and oleaginous fruits and Tobacco and manufactured tobacco substitutes,
and 2 chapters out of 24 have been partially in surplus, namely Vegetable plaiting
materials and Animal or vegetable fats and oils and their cleavage products.
At the total level, it can be seen that the trade balance for agro-food products, i.e.
for the 24 chapters of the nomenclature, is in deficit in each of the last five years,
ranging from -619 million euros in 2016 to almost -2 billion euros in 2020.
The largest deficit was recorded in 2020 for the Meat and edible meat off al
category, which was € 715 million, and the largest surplus was recorded in the cereal
category in 2019 being of € 2.188 billion.
Looking at the average over the last five years, the situation changes slightly, with
five categories showing a surplus, namely Cereals with an average annual surplus of
€1.7 billion, followed by Oil seeds and oleaginous fruits with €737.3 million,
Tobacco and manufactured tobacco substitutes with €544.7 million, Live animals
with €224.6 million and Animal or vegetable fats and oils and their cleavage
products with €23.9 million. At the other end of the scale are Meat and edible meat
offal with a deficit of 572.2 million euro and Edible fruit and nuts; peel of citrus fruit
or melons with a deficit of 574.7 million euro.
In order to carry out a comparative analysis in terms of external trade in agro-
food products, a similar analysis was carried out for Italy.
Table 4. Dynamics of agro-food imports in Italy, thousands of euro
Imports
Group Category
2016 2017 2018 2019 2020
1 Live animals 1,451,539 1,563,889 1,569,384 1,205,664 1,485,933
2 Meat and edible meat offal 4,273,821 4,493,510 4,373,618 4,694,436 4,137,451
3 4,413,911 4,576,300 4,669,898 4,679,241 3,935,680
4 3,339,043 3,756,983 3,758,810 3,842,986 3,490,802
5 200,809 210,776 226,187 256,028 223,027
ornamental foliage
7 1,525,013 1,623,281 1,527,259 1,781,757 1,634,125
roots and tubers
8 3,096,890 3,143,431 3,133,745 3,415,403 3,452,442
9 Coffee, tea, maté and spices 1,702,789 1,785,471 1,645,602 1,611,272 1,476,072
10 Cereals 2,811,206 2,856,588 2,863,445 3,069,324 3,149,849
gluten
106
Imports
Group Category
2016 2017 2018 2019 2020
12 1,245,480 1,270,588 1,315,760 1,476,730 1,568,663
13 183,714 193,047 198,839 212,283 203,495
14 vegetable products not elsewhere 22,121 21,049 17,055 17,747 19,168
15 3,773,463 4,069,970 3,575,755 3,462,911 3,583,394
vegetable waxes
16 crustaceans, molluscs or other 1,418,900 1,502,215 1,550,742 1,516,140 1,553,423
17 Sugars and sugar confectionery 1,042,547 1,091,444 901,416 91,489 948,038
18 Cocoa and cocoa preparations 1,145,857 1,141,714 1,076,248 1,129,407 1,199,831
19 starch or milk; pastrycooks' 1,385,014 1,452,692 1,495,197 1,504,541 1,409,900
products
20 1,188,015 1,201,221 1,209,402 1,246,824 1,176,186
21 Miscellaneous edible preparations 1,113,801 1,123,306 1,163,195 1,191,268 1,170,580
22 Beverages, spirits and vinegar 1,623,514 1,746,210 1,914,833 1,985,148 1,811,621
23 industries; prepared animal 1,918,666 1,945,125 2,029,701 1,957,701 1,960,810
fodder
24 2,102,603 2,093,435 2,125,742 2,062,427 1,925,043
tobacco substitutes
Source: International Trade Center (ITC).
As can be seen in Table 4, Italy's imports of agro-food products have increased

over the period under review for a good part of the chapters analysed in the
nomenclature. The highest import value was recorded in 2017 for the category
Animal or vegetable fats and oils and their cleavage products, with an import value
of € 4.69 billion. Conversely, the category that recorded the lowest imports was
Vegetable plaiting materials with a minimum value recorded in 2018 of € 17 million.
On average, over the last five years, the situation is as follows: Fish and
crustaceans, molluscs and other aquatic invertebrates is in first place with an average
annual import value of EUR 4.455 billion, followed by Meat and edible meat off al
with an average annual value of EUR 4.395 billion, and Animal or vegetable fats
and oils and their cleavage products in third place with an average import value of
EUR 3.693 billion.
Analyzing from the perspective of dynamics, among the 24 chapters of the
nomenclature, nine record a decreasing average annual rate, the first categories,
according to the largest decrease being: Vegetable plaiting materials with an annual
rate of -3.52% and S Coffee, tea, maté and spices with an average annual rate of
107
-3.5%, while the other 15 chapters record increases in imports, the highest being for
the category Oil seeds and oleaginous fruits with an average annual increase of 5.9%.
Table 5. Italy's agro-food export dynamics, thousands of euros
Exports
Group Category
2016 2017 2018 2019 2020
1 Live animals 51,846 47,367 47,655 39,617 32,948
2 Meat and edible meat offal 2,121,278 2,181,284 2,098,108 2,133,082 2,063,582

3 413,012 431,002 429,398 425,921 384,041
4 2,807,681 3,138,297 3,284,829 3,698,216 3,623,999
5 115,166 138,787 158,875 159,217 159,970
ornamental foliage
7 1,528,985 1,547,699 1,525,390 1,603,105 1,582,537
roots and tubers
8 3,557,388 3,694,523 3,410,661 3,351,608 3,574,141
9 Coffee, tea, maté and spices 1,457,190 1,510,673 1,503,359 1,614,780 1,557,341
10 Cereals 703,739 757,241 626,636 644,405 723,998
gluten
12 506,876 518,501 544,764 593,948 602,731
13 231,649 196,114 225,402 267,754 301,812
14 vegetable products not elsewhere 4,652 4,789 54 6,068 7,166
15 2,148,279 2,144,417 2,061,122 1,968,933 2,103,532
vegetable waxes
16 crustaceans, molluscs or other 1,005,708 1,075,329 1,116,187 1,166,868 1,239,484
18 Cocoa and cocoa preparations 1,535,089 1,803,527 1,817,437 1,944,515 1,900,033
products
20 3,187,980 3,256,077 3,400,611 3,534,903 3,765,764
21 Miscellaneous edible preparations 1,986,236 2,267,598 2,473,281 2,642,949 2,815,827
108
Exports
Group Category
2016 2017 2018 2019 2020
22 Beverages, spirits and vinegar 7,953,662 8,544,071 9,065,224 9,709,996 9,532,706
23 industries; prepared animal 788,911 879,406 942,792 968,977 1,045,587
fodder
24 446,109 948,404 909,572 1,551,367 1,801,143
tobacco substitutes
Source: International Trade Center (ITC).
With regard to exports from Italy during the same period, there is no difference
from imports in that the value of exports is close to that of imports. The highest value
of Italy's exports, by chapters of the nomenclature, was recorded in 2019, for
Beverages, spirits and vinegar, with a value of € 9.71 billion. In the opposite
direction, the lowest value of exports for a single chapter of the nomenclature was
recorded for Vegetable plaiting materials, in 2018, being € 54 thousand.
In terms of annual average, the highest export values over the last five years were
recorded in the following categories: Beverages, spirits, and vinegar, with an average
annual export value of € 8.96 billion, followed by Preparations of cereals, flour,
starch, or milk; pastrycooks' products, with an average annual export value of
€5.05 billion, and in third place was Edible fruit and nuts; peel of citrus fruit or
melons with an average annual export value of €3.517 billion. In terms of average
annual value over the last five years, the last ranked category is Vegetable plaiting
materials, with an average annual export value of €4.55 million.
Analysing the dynamics, out of the 24 chapters of the nomenclature, for Italy's
exports, 19 show positive dynamics and 5 show negative dynamics. Of the categories
with the highest annual increases, the first two are Vegetable plaiting materials, with
an average annual increase of 11.4%, followed by Miscellaneous edible preparations
with an average annual growth rate of 9.11%. At the other end of the scale, the
slowest annual growth rates were recorded for Live animals, with an average annual
rate of -10.7%, and Sugars and sugar confectionery, with an average annual rate
of -2.5%.
Table 6. Trade balance dynamics for agro-food products in Italy
Trade balance
Group Category
2016 2017 2018 2019 2020
1 Live animals -1,399,693 -1,516,522 -1,521,729 -1,166,047 -1,452,985
2 Meat and edible meat offal -2,152,543 -2,312,226 -2,275,510 -2,561,354 -2,073,869
Fish and crustaceans,
3 molluscs and other aquatic -4,000,899 -4,145,298 -4,240,500 -4,253,320 -3,551,639
invertebrates
natural honey; edible
4 products of animal origin, not -531,362 -618,686 -473,981 -144,770 133,197
included
109
Trade balance
Group Category
2016 2017 2018 2019 2020
5 elsewhere specified or -85,643 -71,989 -67,312 -96,811 -63,057
included
bulbs, roots and the like; cut
6 214,611 777,976 833,460 502,356 435,630
flowers and ornamental
foliage
7 3,972 -75,582 -1,869 -178,652 -51,588
roots and tubers
8 460,498 551,092 276,916 -63,795 121,699
9 Coffee, tea, maté and spices -245,599 -274,798 -142,243 3,508 81,269
10 Cereals -2,107,467 -2,099,347 -2,236,809 -2,424,919 -2,425,851
11 industry; malt; starches; 34,841 -262,926 339,959 65,981 69,433
inulin; wheat gluten
Oil seeds and oleaginous
fruits; miscellaneous grains,
12 seeds and fruit; industrial or -738,604 -752,087 -770,996 -882,782 -965,932
fodder
13 47,935 3,067 26,563 55,471 98,317
vegetable products not
14 -17,469 -16,260 -17,001 -11,679 -12,002
included
15 products; prepared edible -1,625,184 -1,925,553 -1,514,633 -1,493,978 -1,479,862
fats; animal or vegetable
waxes
Preparations of meat, of fish
16 or of crustaceans, molluscs or -413,192 -426,886 -434,555 -349,272 -313,939
Sugars and sugar
17 -682,995 -725,000 -562,988 244,059 -622,745
confectionery
products
20 fruit, nuts or other parts of 1,999,965 2,054,856 2,191,209 2,288,079 2,589,578
plants
21 872,435 1,144,292 1,310,086 1,451,681 1,645,247
preparations
Beverages, spirits and
22 6,330,148 6,797,861 7,150,391 7,724,848 7,721,085
vinegar
23 food industries; prepared -1,129,755 -1,065,719 -1,086,909 -988,724 -915,223
animal fodder
24 -1,656,494 -1,145,031 -1,216,170 -511,060 -123,900
tobacco substitutes
TOTAL -3,370,045 -2,225,293 -328,212 1,948,878 3,984,765
Source: Authors' calculations based on ITC data.
110
An analysis of the trade balance, i.e. the difference between the value of exports
and imports, for agro-food products from Italy shows the following. In the last five
years, 7 chapters have been completely in surplus and 6 other chapters out of 24 have
been partially in surplus.
At the total level, it can be observed that the trade balance for agro-food products,
i.e. for the 24 chapters of the nomenclature, is in deficit in the first three years
analysed (2016-2018) with values ranging from - 328.2 million euros to - 3.37 billion
euros. In the last two years, the balance became in surplus, reaching a value of
3.985 billion euros in the last year analysed. Averaged over the five years analysed,
there is a surplus of 2 million euros per year.
The largest deficit was recorded in 2019 for the category Fish and crustaceans,
molluscs and other aquatic invertebrates at €4.25 billion and the largest surplus was
recorded in the category Beverages, spirits and vinegar in 2019 at €7.725 billion.
Averaged over the last five years, the situation changes slightly, with five
categories showing a surplus, namely Beverages, spirits and vinegar with an average
annual surplus of €7.15 billion, followed by Preparations of cereals, flour, starch or
milk; pastrycooks' products with €3.6 billion, Preparations of vegetables, fruit, nuts
or other parts of plants with €2.225 billion, Miscellaneous edible preparations with
€1.285 billion and Cocoa and cocoa preparations with €661.5 million. At the other
end of the scale are Fish and crustaceans, molluscs and other aquatic invertebrates
with a deficit of 4.038 billion euro and Meat and edible meat offal with a deficit of
2.275 billion euro.
Following this analysis of foreign trade, for the two main forms of trade, i.e.
imports and exports, it is possible to determine, with the help of the Gini coefficient,
the degree of concentration of imports and exports for both Romania and Italy. A
high value of the coefficient implies a high degree of concentration, which would
mean that either imports or exports orbit around certain main chapters, while the rest
of the chapters in the nomenclature would have a low weight, and conversely, a low
value would imply a low or non-existent degree of concentration, which would imply
that imports or exports are evenly distributed for each chapter, with somewhat
similar weights.
Table 7. Determination of Gini coefficients for the value of imports and exports
of Romania and Italy and their average over the last 5 years
GINI
2016 2017 2018 2019 2020 Average
coefficient
Romania
Imports 0.124 0.125 0.129 0.130 0.132 0.128
Exports 0.374 0.352 0.366 0.381 0.358 0.366
Italy
Imports 0.148 0.155 0.156 0.159 0.143 0.152
Exports 0.231 0.231 0.235 0.235 0.230 0.233
Source: Authors' calculations.
111
As it can be seen from Table 7, for Romania's imports, the Gini coefficients for
each year from 2016-2020 tend more towards zero, ranging from 0.124 to 0.132,
with an annual average of 0.128. These values imply a low degree of concentration,
to non-existent, which is not necessarily a good thing. The lack of a degree of
concentration actually means that the weight of each chapter of the nomenclature in
terms of imports by Romania is similar to that of another chapter, which leads to the
idea that Romania imports a similar level of each group of agro-food products, which
is not sustainable.
Analysing the degree of concentration of the value of Romania's exports, by
chapters of the nomenclature, one can observe Gini coefficient values ranging
from 0.352 to 0.381, with an annual average of 0.366, which is close to the middle
of the range (of 0.5), i.e., there is some concentration in terms of Romania's export
of agro-food products, again a less favourable situation, in the sense that Romania
excels at exporting only in certain chapters of the nomenclature.
The situation is similar in Italy, but at a slightly different level, the average
concentration ratio for imports recorded by Italy being 0.152 (with annual variations
ranging from 0.143 to 0.159), which is higher than in the case of Romania, thus with
a slightly higher degree of concentration, a slightly better situation in the sense that
agro-food imports are higher for certain categories, but not by much.
Italy is in a much better position when it comes to agro-food exports, with an
average annual concentration ratio of 0.233 (ranging from 0.23 to 0.235), which
shows that the weights of each chapter in the nomenclature are similar when it comes
to exports, representing a sustainable development in this respect.
6. Conclusions
As regards Romania's imports of agro-food products, they are increasing for most
of the chapters analysed in the Combined Nomenclature, except for two categories.
Therefore, Romania records significant increases in imports, which is less
sustainable. On the other hand, in terms of exports of agro-food products, there are
quite a number of chapters (seven) for which there are decreases in the value of
exports, while the level between exports and imports is much higher. Therefore, this
situation leads to a deficit trade balance in Romania, which is increasingly
unbalanced, reaching a deficit of almost €2 billion last year.
As far as Italy's foreign trade is concerned, it can be seen that, in terms of
dynamics, imports have decreased for nine of the 24 chapters, thus Italy is trying to
decrease its dependence on imports, while, on the other hand, export dynamics show
increases for 19 of the 24 chapters analysed, as Italy is increasing its competitiveness
in this area. This situation is also observed in the analysis of the trade balance, while
in the first three years of the period analysed there was a trade deficit, in the last two
years analysed (2019 and 2020) Italy's trade in agro-food products recorded a
surplus, reaching a trade balance value of almost 4 billion euros.
Although it is natural for a country to import every product needed for
consumption by its population, and at the same time, given culture, tradition, climate,
customs and other exogenous and endogenous factors, exports are directed towards
112
certain categories/chapters of the nomenclature, and therefore the degree of

concentration of exports is higher than that of imports, the situation in Romania is
far too lagged, with very low Gini coefficients for imports, which leads to a lack of
concentration (in other words, Romania imports almost every agro-food product in
a similar way), and the degree of concentration for exports is quite high (in other
words, Romania relies on exporting a few categories/chapters of agro-food
products).
References
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USA Business, Review, 11(7), pp. 919-929.
[2] Caiazza, R., Volpe, T. (2014). Agro-food firms' competitiveness: made in Italy in the
world. International Review of Management and Business Research, 3(3), p. 1790.
[3] Dorfman, R. (1979). A Formula for the Gini Coefficient. The Review of Economics and
Statistics, 61(1), pp. 146-149, https://doi.org/10.2307/1924845.
[4] Abounoori, E., McCloughan, P. (2003). A simple way to calculate the Gini Coefficient
for grouped as well as ungrouped data. Applied Economics Letters, 10(8), pp. 505-509,
DOI: 10.1080/1350485032000100279.
[5] Gavrilescu, C. (2019). An analysis of the trade balance for the main agri-food products.
Agrarian Economy and Rural Development - Realities and Perspectives for Romania, 10,
pp. 26-34.
[6] International Trade and Regional Integration, Analysis of the competitiveness of
agricultural trade in the Americas, Inter-American Institute for Cooperation on
Agriculture, www.iica.int.
[7] International Trade Centre (ITE), www.intracen.org.
[8] National Institute of Statistics (NIS), www.insse.ro.
[9] Nica, M., Stoian, M. (2018). Foreign Trade in Agri-food Products – Current Approaches.
“Ovidius” University Annals, Economic Sciences Series, XVIII(1), pp. 211-216.
[10] Pațac, F. (2008). Istoria comerţului şi turismului, Editura Eurostampa, Timişoara, p. 16.
[The history of trade and tourism, Eurostampa Publishing House, Timişoara].
[11] Rusali, M. (2010). Post-Accession Trends Of Romania’s Agri-Food Trade. Agricultural
Economics and Rural Development, New Series, VII(2), p. 267-276.
[12] Pătărlăgeanu, S.R., Miclea, A., Sacală, M.D., Teodor, C., Dinu, M., Piştalu, M.,
Constantin, M., Lazăr, V. (2020). Studiu privind balanţa comercială cu produse
agroalimentare a României în perioada 2015-2020 [Study on the Romanian Trade
Balance with Agri-food Products during 2015-2020], Bucharest ASE Publishouse,
https://www.ceeol.com/search/book-detail?id=917212.
[13] Vişan, D. (1999). Contabilitatea în comerţul exterior, Ediţia a II-a, Editura Economică,
Bucureşti, [Accounting in foreign trade, Second Edition, Economic Publishing House,
Bucharest], p. 13.
113

June 16-17, 2022
Key Barriers that Prevent the Development

and Implementation of Power Purchase Agreement
in the Transition Process to a Zero Carbon Economy
Elena NICULESCU1*, Cătălin HRISTESCU2, Adrian TANȚĂU3
DOI: 10.24789788367405072-011
Abstract
To comply with the promotion of green energy and to enable the transition to a zero
carbon economy requires the development of increasingly easier tools which can help the
achievement of new climate targets. A facile way to do this is to participate in bilateral power
purchase agreements (PPAs) with renewable producers (REP).
Although a PPA can be drafted in a very flexible way, its main purpose is to offer the
possibility to buy future green renewable energy from a seller at an agreed price. This is the
reason why PPAs are financially attractive for the seller due to their price certainty, but they
can also offer uncertainty for the buyer due to the uncertainty of the future green energy
production. This situation complicates things when it comes to concluding such contracts,
the above-mentioned uncertainty jeopardizing the objectives considered at the time of signing
PPA, on one hand and, on the other hand, complicating the efficiency of the demand. To this
are added legislative changes that may not always have a beneficial effect on the
sustainability of PPAs.
For this research questionnaires and interviews with experts in the energy field are used,
both carried out at the level of the Romanian energy market.
This article aims to investigate the main barriers that prevent the development of PPAs
and make these contract more difficult or less attractive to be accessed, especially for buyers.
The results suggest that there is an interest shown by both buyers and sellers, even if the
level of knowledge on such contracts is at an average level. It is also clear that the more
people are familiar with the benefits of PPAs, the more their intention to conclude such
contracts is higher, especially when we are talking about industrial consumers, where the
benefits of using green energy have a higher impact on their expenditures.
Keywords: Power Purchase Agreement, Barriers, Renewable Energy, Green

Energy, Zero Carbon Economy, Climate Neutrality.

© 2022 E. Niculescu, C. Hristescu, A. Tanțău, published by Sciendo. This work is licensed under the Creative
Commons Attribution 4.0 License.
JEL Classification: P18, Q42.
1. Introduction
Everywhere in the world, there is a huge need to reduce CO 2 emissions, this being
the reason why beginning from a certain point is crucial (Sklepovič, 2022). From
what we can see, more and more countries and institutions show an increasingly
interest in the acceleration of their decarbonisation system by reducing the
greenhouse gases (Iancu, 2021). At this moment, we can see that there is a huge need
to make global, national, and local policy changes, as long as we all know that the
global warming or climate change are very dangerous, this aspect being shown in
many reports from World Wide Organisation and from the intensity of this
phenomenon we can convince us alone.
Due to this fact, green and clean energy are very seriously taken into
consideration, their development making the subject of many debates, and climate
neutrality could easily be gained through renewables. The achievement of the
European Union’s goals and the reduction of CO2 emissions by 2050 are the
objectives that must be fulfilled as quickly as possible (Soeiro, 2020).
Despite the high initial costs, technology and user, the benefits brought by
renewables are many more and their results are far from encouraging, the creation of
a green global economy that could fight against air pollution and climate change
being primordial (Taghizadeh-Hesary, 2021). The legislative part is playing a huge
role in the development and in the encouragement of the use of renewable energy,
as well as in the transition to green energy acceleration, PPAs being one of the many
aspects that we are talking about when it comes to legal aspects in the renewable
energy field development.
PPAs are contracts concluded between an energy buyer and an energy seller, who
buy and sell a certain amount of energy, energy that is or will be generated by a
renewable asset. What is very important to understand is that both the investors and
creditors from non-subsidized markets are able to invest in renewable energy
projects.
Therefore, the possibility of creating energy from renewable sources, as well
as the purpose of these PPAs to create a fair agreement and with as few risks as
possible between the parties, are two aspects that need to be given more attention
(Mendicino, 2019).
The purpose of this article is to study and examine the key barriers that prevent
the development and implementation of a Power Purchase Agreement in the
transition process to a zero-carbon economy.
So, while PPAs can help the transition to green energy in many ways, they face
several barriers that prevent their implementation and development, and although the
benefits and advantages brought by PPAs are very high, these barriers make people
reluctant in getting involved in such a project. Among these barriers we mention
level of knowledge, the attitude, state’s implications, and the level of development
of the market, the level of promotion, risks, and legal consequences.
115
This article has the following structure: The introduction presents Power
Purchase Agreement Concept, the advantages and the disadvantages they assume. In
Section 2, PPAs are defined with an analysis of the main scientific sources. In
Section 3, the research methodology is presented, which consists of a workshop with
energy experts and a questionnaire. Section 4 presents the main research results, and
last but not least the final section shows the main conclusion. Bibliographic
references complete this article.
2. Power Purchase Agreement in the Scientific Literature

When we talk about renewable energy, we talk about PPAs, which are one of the
most important ways that help achieve climate neutrality, when it comes to legal
proceedings. Their complexity is very well known, and many aspects should be taken
into consideration when signing a PPA. The aforementioned complexity is given
primarily by the long-term negotiations, this being the reason why the clauses should
be accurate and very clear.
We have heard many times the question – When is the usage of Power Purchase
Agreement necessary? – The answer is very simple: PPAs are useful when:
• The financing of the project can be unsecure, and there is a need to secure the
amount of energy bought and the price offered;
• There is likely to exist an event that can provide energy at a lower price – in this
case, PPAs provide the security to be safeguarded from such a situation;
• It might be that one or some of your most important buyers want to get most of
the production. For example, when a government public service wants to buy the
entire amount of energy produced by a power plant – in this moment the
government must know the price that must be paid for that energy, as well as that
it is the first that can buy that energy;
• The society will want the security of the income, and the buyer wants to have the
certainty of the required quantity of energy.
Also, PPAs are highly attractive to renewable energy producers, especially
because they offer a security of price for a forthcoming unsecure energy amount.
Buyers are attended to sign PPAs due to the durability they offer. Anyway, for
buyers, the insecurity of energy quantity produced by renewable energy producers
can bring both economic and technological difficulty. (PWC, 2016; Yashar, 2021)
At the same time, we have to mention that both decreasing the risks for developers
and fiscal parties and encouraging the use of renewables make from PPA a very
profitable and attractive mechanism. Due to the simple fact that the mechanism is
purchased directly from the seller, this contract appears to be more and more reliable.
It seems that according to inverstors, banks are the most accurate when it comes to
invest in green energy, being closely followed by financial instruments such as
European Funds, state aid, and so on.
In the analysis of PPAs, we should take into consideration all types of renewable
sources (solar, wind, hydro or maritime), because all these types offer these contracts
special characteristics, this being the reason why geographical distribution is an
116
important aspect that should be taken into account when we want to get involved in
such a project (Soeiro, 2020).
The investment in green energy also means a step forward in the development of
green energy, and it draws the attention that many more societies can get involved
in this project as long as the private system is not very interested in this aspect,
according to Doval & Negulescu (2014) (Doval, 2014).
From the point of view of Taghizadeh-Hesary et al. (Taghizadeh-Hesary, 2021),
one of the best ways to get funding for green energy development are PPAs,
considering, at the same time, that the evolution of this field will increase
significantly if the private sector will get more involved. Also, they consider that
PPAs are the most competent instrument in the development of renewable energy as
well as in the improvement of the relationship that exists between the seller and the
buyer of green energy.
It happens also that the purchased energy limit is obtained, the offtake has the
possibility not to pay anymore the required contractual price, and the excess of
energy could be bought at a reduced price or not at all. This is the moment when the
seller has the possibility (according to some PPAs) to sell the energy that is in excess
into the spot market, where he can obtain lower or higher prices (Bruck, 2021).
PPAs have many advantages as well as disadvantages that we should talk about.
Regarding those in the first category, we mention the security of the price for a long
period, the chance to invest in electrical energy plants, the decrease of potential risk
that may come together with the transaction of electrical power, and last, but not
least, the price, which can be established in several forms, for example contracts for
difference, fixed, or variable.
Regarding the disadvantages, we have to mention the complexity of the contracts
due to the fact that they require a longer time to be completed, the variation of the
price, which could result in negative prices for the contracting parties, the quantity
of the produced energy may fluctuate, principally when we speak about wind/solar
energy (Pexapark, 2021). In the event that the contracted amount of energy cannot
be offered, then financial or physical compensations will be offered, being possible
even to reach the situation of contracting a third person, an electricity trader, who
can supply this energy instead of the producer.
So signing PPAs jeopardized the durability of buyers’ goals for a long time due
to the insecurity of the energy and made their energy request harder in the near future.
This is the reason why buyers want a prospective energy security from producers in
order to make a viable plan that can offer a trustworthy and financial backup
purchase, for example trading in day-ahead electricity markets (Delmarva Power &
Light Company, 2008).
3. Research Questions
We begin the presentation by talking about the attitude of the survey participants
toward PPAs (Figure 1) and, as far as we can see, only one person opposes, 2 persons
are indifferent, 6 respondents prefer another type of contract through which to
117
purchase electricity, but not necessarily from renewable energy sources, while the
remaining 53 respondents show a positive attitude and are in favor of signing PPAs.
Figure 1. The attitude towards PPAs
Other
opinions
15%
In favour
85%
Source: Questionnaire Analysis.
The distribution is interesting and shows us, on one hand, that PPA is needed and,
on the other hand, that PPA is an important element for the energy transition for the
development of the projects.
The starting point is that there is a positive attitude towards such a contract, which
is seen as necessary for the development of new production capacity.
But now a question arises: why do people who completed the questionnaire have
such a positive attitude towards PPAs?
The answer to this question should be linked to the answers to the question "Why
do you consider it necessary to promote these PPAs?" (Figure 2).
Figure 2. The reasons why the promotion of PPA is required
40
35 38
30
25
20 25
23
15
10
5 9 8
0
Compliance Achieving Achieving Stopping Promoting
with new climate climate climate renewable
European targets neutrality change energy
regulations sources
The variants to this question were as follows:

a. Compliance with regulations established at the European level;
b. Achieving new climate targets;
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c. Achieving climate neutrality;

d. Stopping climate change;
e. Promoting renewable energy sources.
Analyzing the received answers, we can see that there were persons who chose
answer a) - compliance with European regulations, from which we can conclude that
the meaning and role of PPAs are not known, due to the fact that PPA is not a
European Regulation, but a commercial agreement between parties.
This situation gives rise to the following discussion: although there is a positive
attitude towards PPA, the mechanism is not fully understood, at least for those who
responded, which shows that there is no understanding of the true role of PPA.
Because this type of contract is considered necessary to achieve climate
neutrality, it shows that there is a misunderstanding of its true role, as well as the fact
that PPA is a risk management tool for a developer.
If we proceed to a correlation of the answers from the question regarding the
reason why PPAs promotion is necessary with the 4 answer options, it results that
the positive attitude is built on a lack of understanding of the market mechanism.
Therefore, PPAs are necessary, and despite the fact that not many people have
understood their real meaning, namely the promotion of renewable energy
sources, coupled with the high degree of acceptance, we can say that the level of
understanding of PPA mechanism is relatively low.
Another aspect that caught the attention of the panel of experts is the answers to
the question regarding the involvement of the state in the development of PPAs
(Figure 3).
Figure 3. State involvement
35
30 33
25
20
15 20
10
5 9
0
No, state involvement Yes, state involvement There may be some
is not an active one is active tryings on its part, but
a sustained effort is
needed to see
improvements.
The answer to this question should be correlated with the results given to the
attitude question, from which we can observe that although there is a great
acceptance of PPAs and the respondents are in their favor and consider them
necessary, the state is still not considered active in PPAs’ development.
119
Other questions that the focus group answered are “If this statistical answer is
correct?” and “Why would the role of the state be relevant?"
The answer would be affirmative, the statistics are correct, and the role of the
state is understood by experts as the role of the regulator. For example, regarding the
Romanian market, unfortunately, in the period 2012-2020 such contracts were not
allowed, the wholesale electricity transactions being limited only on centralized
platforms and only on standard products. This situation forced the appearance of
liquidity on the market, but at the same time, this measure, although beneficial for
the formation of a market at the beginning, had a boomerang effect, as it destroyed
the ability of market participants to negotiate non-standard contracts.
Another analysis is given by comparing the answers of the persons who consider
that the state is involved / not involved in the development of the PPAs in relation to
the general questions about the respondent. The results are also interesting and prove
that the more connected people are in the energy market and the better they know
these regulations, the more they appreciate that the involvement of the state is very
small. Proof of this is the fact that only 9 respondents consider that the state is
involved, respondents whose monthly consumption is between 0-50 MW, which
proves that the state is an active element only for people with low energy
consumption, the others, as we have shown before, not having such a good opinion
of the involvement of the state.
From what we can see, those who consider that the state, in the person of the
regulator, does not do enough, so as to create favourable conditions for signing such
contracts are those who in a way or another work in the energy field. There was no
desire from the part of the authorized institutions to regulate such contracts, the
change being made by the issuance and entry into force of Regulation no. 943/2019
of the European Union.
However, no matter what the regulator does, signing a PPA means the will of the
parties and, respectively, the producer to be willing to sell electricity at the price that
the buyer is willing to buy. Or a PPA by definition is a long-term nonstandard
product contract. The state cannot intervene and force / set the price, in case the
parties cannot find a price to accept together. Therefore, yes, it is necessary for the
regulator to allow PPAs and to have an institutional framework that guarantees their
functioning as a legal element, respectively, as a contract. Apart from that, regarding
the operation of PPAs, there must be people who take risks, no matter whether we
talk about the seller or the buyer.
In conclusion, the regulator should get involved, make PPAs known, and allow
them, respectively, to create the institutional framework to run such contracts.
Another aspect discussed was based on the correlation between the attitude of the
participants and the types of renewable sources energy considered at the signing of
the PPAs (Figure 4).
120
Figure 4. Type of renewable resources used in signing the PPAs

Hidro Waves
energy energy
13% 4%
Solar energy
51%
Wind energy
32%
.
The answers prove that the most used form of energy would be solar energy,
which leads us to see that although the technology behind PPA is not relevant, the
production profile, the imbalances and risks associated with such a contract are
highly dependent on technology. Therefore, they will be reflected in the price of
the PPA type contract. It is understood from this graphic that those who participated
in the study are willing to purchase energy from solar production, because they
feel that they can more easily determine the risks associated with production,
in comparison to wind, which is less predictable, with larger deviations. Practically,
in this way it is easier to understand solar production and to determine the risk
assumed when contracting.
From the analysis of the questionnaire from the point of view of the period for
which such a contract would be concluded, we can see that buyers are willing to
close the contract and assume the price risk only for 1-5 years (Figure 5), while the
sellers, in their majority, only discuss in the long run period (Figure 6).
Figure 5. Contractual period from the buyers’ point of view
buyer / period
>15 years
22%
1-5 years
5-15 years 58%
20%
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Figure 6. Contractual period from the sellers’ point of view
seller / period
1-5 years
18%
>15 years
55%
5-15 years
27%
Asked what would be the reason for these results, the experts answered that this
is normal, precisely because PPAs involve assuming a long-term price risk and
analyzing the difference in terms of time considered by the producer, who is the
seller, and the buyer, who is the supplier, we identify another major problem in the
sense that there is no payback in any renewable project between 1 and 5 years. The
need of the energy seller, who is the producer, is to insure the price during the
financing period, which is usually equal to the payback, what means that a contract
should be concluded for 10 years or more.
Regarding the price, from what we can see, the buyers preferences are equally
divided between fix and CfD price (43% - Figure 7), while sellers prefer CfD (64%)
and variable (27%) – Figure 8.
Figure 7. The price from the buyers’ point of view
buyer / price
Variable
14%
Fixed
43%
CfD
43%
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Figure 8. The price from the sellers’ point of view

seller / price
Fixed
Variable 9%
27%
CfD
64%

About CfD, we have to mention that they are named “contracts for difference”
and refer to a contract that enables two parties to enter into an agreement to trade on
financial instruments based on the price difference between the entry prices and
closing prices. If the closing trade price is higher than the opening price, then the
seller will pay the buyer the difference, which is the buyer’s profit. The opposite is
also true, meaning that if the current asset price is lower at the exit price than the
value at the contract’s opening, then the seller, rather than the buyer, will benefit
from the difference.
This chart shows the different understanding that sellers have now - they are not
looking for PPA signings to finance projects, but are looking for PPA signatures to
limit their exposure to price variations, as such they want to capture PPA prices as
high as possible, reason for which they resort to prices set in the form of CfD or
variable prices, so that they can maximize their profit.
The buyers, however, know that they are taking the risks (Figure 7) and therefore
they want a fixed price, so that they can limit the cost of the purchase, given that the
risks are subsequent, once they have been assumed in the contract (Figure 8).
The second thesis would be that at the moment the sellers expect an ascending
price trend and they are not willing to set the price, having the feeling that there is a
high potential given by the energy transition, the replacement of capacities in
Romania, and so on.
4. Research Methods
The main objective of this research is to study and examine the key barriers that
prevent the development and implementation of the Power Purchase Agreement in
the transition process to a zero carbon economy.
The research methodology used in this paper is based on two steps: in step 1 a
panel of experts from energy field was invited to a workshop in order to formulate
the first hypothesis regarding the key barriers that prevent the development and
123
implementation of Power Purchase Agreement as they appear to be from the

questionnaire.
The participants were: energy trader, responsible for purchasing for a portfolio of
the top 10 universal customer suppliers in Romania, developer of renewable projects,
renewable electricity producer, average industrial consumer (category C3).
These experts were randomly selected from the list of respondents from the
questionnaire, without knowing their answers, their role being to expose their
opinion on PPAs’ barriers based on the questionnaire results.
The formulation of questionnaires realised in step 2 had the main purpose to
determine the role of PPAs for the achievement of new climate targets. It has to be
mentioned that the respondents fall into several categories representing different
fields of activity, such as energy experts and financial accounting experts, energy
producers and industrial and small consumers, this research being made at the
level of the Romanian energy market, namely Bucharest county. The survey
involved 62 respondents (Table 1).
Table 1. Respondent Profile
Category Level Procentage
Industrial consumer 45.2%
Small consumer 19.4%
Respondent type Producer 9.7%
Energy Experts 12.9%
Financial Expert 12.9%
None 19.4%
Beginner 21.0%
Level of knowledge Medium 27.4%
Advanced 17.7%
Proficiency 3.2%
< 60 000 € 24.2%
60 000 € - 500 000 € 4.8%
Fiscal Value 500 000 €- 1000 000 € 1.6%
> 1000 000 € 3.2%
Preferred not to answer 41.9%
0-50MWh 40.3%
50 – 100 MWh 16.1%
Annual Energy Consumption
100 – 500 MWh 19.4%
> 500 MWh 6.5%
The idea of this questionnaire was to find out and to analyse the level of PPAs in
the Romanian energy market. So, in this questionnaire, the level of knowledge about
124
PPAs was analysed by different stakeholders: industrial and small energy

consumers, energy producers, and last but not least energy, financial and accounting
experts. In addition, were examined the attitude towards this contract and the point
of view regarding the legally implementation of the PPAs, for example price, risks,
parties or contractual period.
The profile of the people who answered the questionnaire is detailed in Table 1.
5. Findings
Results
Referring to Figure 1 regarding the attitude towards PPAs, we can see that 85%
of the participants are in favour of these contracts while 15% have other opinion.
This means that the respondents have a very positive attitude towards PPAs and they
are in favour of signing them.
Figure 2 talks about the type of renewable resources used in signing PPAs. From
what we can see, 51% of the interweed prefer solar energy, because it is easier to
purchase this energy from solar production and the risks are easily to be determined,
while the other half is split between wind energy (32%), hidro energy (13%) and
waves energy (4,5%), which proves that people still show a slight reluctance to these
energy sources.
The third figure is entitled – The reasons why the promotion of PPA is required
- and shows that most of the respondents (38%) will choose to sign a PPA in order
to promote renewable energy sources. Although the majority will choose a PPA due
to the above mentioned reason, we can see that there is a missunderstanding of the
true role of PPA as long as the next reason among the respondent’s preferences is
compliance with European regulations (23%) and stopping climate change (25%) –
which do not represent the true role of PPA. From this point we can say that the
level of understanding PPA mechanism is relatively low.
The next two figures speak about the contractual period from the point of view
of the buyer and from the point of view of the seller. From what we can see, while
the buyer prefer short term period 1-5 years (58%), the seller will definitely agree
to sign a PPA for a long term period, this meaning more than 15 years (55%), the
following variants of the periods being equaly split in the contractual parties
preferences (buyer period: 5-15 years – 20%, more than 15years - 22%; seller
period: 1-5 - 18% and 5-15 - 27%).
Figures 7 and 8 are about the price from both the buyer’s and the seller’s point
of view. From what we can see, both sides are in favor of having the price
established under the form of contracts for difference, even if in the case of the buyer
the preferences regarding the establishment of the price in the form of CfDs are
equal to the preferences regarding the fixed price. But from the perspective of
creating new capacity, the only type of contract that banks or financiers would be
willing to accept is a fixed-price PPA or a CfD that is built from a strike price
(reference price) to cover the investment and accepted profit.
125
The last figure speaks about the state’s involvement and shows that most of the
respondents believe that there may be some trying on its part, but a sustained effort
is needed to see improvements. So, although, many persons have a positive attitude
towards PPAs, only 9% from them believe that the state is active in PPA’s
development. Therefore, urgent measures should be taken by the state in order to
make PPAs count on increasing the use of energy from renewable energy sources.
6. Conclusions
This study has investigated the key barriers that prevent the development and
implementation of the Power Purchase Agreement in the transition process to a zero
carbon economy.
A first conclusion that can be drawn from these answers would be that the present
situation very well outlined by statistics shows that in fact although the existence of
PPA is desired, its role and need are not well explained and therefore misunderstood
by market participants.
Another conclusion would be that this type of contract is necessary both for the
producer of renewable energy, but also for any producer who wants to make an
investment in a new production capacity and wants to limit his exposure to market
risk, in the time that he gets finance, but this type of exposure will not be accepted
by his financer. This is why banks or credit institutions that finance such investments,
respectively, investment funds or even private investors will always want to have
a mechanism for managing this risk.
Anyway, another proved aspect is that although the attitude and acceptance are
not perceived in unison, the results are encouraging, but we must understand that a
better communication is needed so that market participants, from regulator to
beneficiary, understand the need, the utility and the mechanism behind them.
Another conclusion of our survey would be that although PPAs are open to
regulation and no longer banned, unfortunately, the parties are not able to find a
common point of risk assessment in the long-run period, taking into consideration
that the sellers want more than 15 years, while the buyers prefer a short-term period
from 1 to 5 years.
From the point of view of the price, we can see that while buyers agree to sign
this contract at a fixed price, the sellers prefer CfD or variable prices, which is
understandable. But from the perspective of creating new capacity, the only type of
contract that banks or financiers would be willing to accept is a fixed-price PPA or
a CfD that is built from a strike price (reference price) to cover the investment and
accepted profit.
As a general conclusion, what the panel of experts concluded based on the results
of the questionnaire analysis is that the barriers do not necessarily come from the
lack of regulation, but also from the lack of fair pricing experience and the
respondents’ desire to participate, being necessary for the state to take several
measures that will lead to the development and popularization of PPAs in Romania.
Furthermore, in terms of the barriers considered in this analysis, we can conclude
that these are: lack of knowledge about what it really means to sign a PPA (although
126
there is a positive attitude, the lack of knowledge will make if not impossible, at least
very difficult to implement this type of contract), the involvement of the state, which,
unfortunately, is not an active one, the period for which this contract should be
signed, since potential buyers prefer a short period (1-5 years) and the producers
want a longer period (more than 15 years), the price in question, which can be either
fixed or set in the form of a contract for difference, and last but not least, the type of
renewable energy used, most of the respondents preferring solar energy because,
they believe, it would be easier to insure the risks in relation to the amount of
energy produced.
References
[1] Bruck, M., Sandborn, P. (2021). Pricing bundled renewable energy credits using a
modified LCOE for power purchase agreements, Renewable Energy, 170, pp. 224-235.
[2] Delmarva Power & Light Company (2008). Renewable Wind Energy Power Purchase
Agreement. http://www.delmarva.com/uploadedFiles/wwwdelmarvacom/A ESPPA.pdf.
[3] Doval, E., Negulescu, O. (2014). A model of green investments approach, Procedia
Economics and Finance, 15, pp. 847-852.
[4] Iancu, L. (2021). Hoping for a better future, Energy Industry Review, 4.
[5] Mendicino L., Menniti D., Pinnarelli A., Sorrentino N. (2019). Corporate power purchase
agreement: Formulation of the related levelized cost of energy and its application to a real
life case study, Applied Energy, 253, pp.1-15, p. 113577.
[6] Pexapark (2021). What is a PPA? The guide to Power Purchase Agreement, https://
pexapark.com/solar-power-purchase-agreement-ppa/, accessed at 16.02.2022.
[7] PWC (2016). Corporate Renewable Energy Procurement Survey Insights. https://www.
een ews.net/assets/2017/05/11/document_ew_02.pdf.
[8] Sklepovič, R. (2022). Green Genius to invest over 450 mln in photovoltaic parks in
Romania, Energy Industry Review, p. 70-71.
[9] Soeiro, S., Ferreira Dias, M. (2020). Renewable energy community and the European
energy market: main motivations, Science Direct, Heliyon 6, pp. 1-6.
[10] Taghizadeh-Hesary, F. Yoshino, N., Rasoulinezhad, E. (2021). Power purchase
agreements with incremental tariffs in local currency: An innovative green finance tool,
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[11] Yashar Ghiassi-Farrokhfal, Ketter, W., Collins, J. (2021). Making green power purchase
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pp. 1-16.
127

June 16-17, 2022
Concerns about Food Safety among Polish Consumers

Magdalena NIEWCZAS-DOBROWOLSKA1
DOI: 10.24789788367405072-012
Abstract
Food safety is very important for all of us because we are all food consumers. Food safety
influences our health. Consumers are becoming more and more aware of the impact of
various factors on their health. They are also increasingly selective and demanding of food
because they can choose from a wide range of food products. The paper presents the result
of the survey made with CAWI method in Poland in 2020 among 2,000 consumers. The aim
of this research was to characterize consumers’ perception, attitudes toward various aspects
of food safety. Consumers were asked to evaluate the influence of the selected
factors/ingredients on their health, such as: residues of antibiotics, residues of pesticides,
trans fats, food colorings, food preservatives, environmental pollution, sweeteners, and
GMO. The highest level of concerns was expressed for residual antibiotics and hormones
80.4% (harmful and very harmful), pollution from the environment 78.7% (harmful and very
harmful), pesticides residues 78.2% (harmful and very harmful), trans fats 69.4% (harmful
and very harmful).
The results show that there are many food concerns among consumers. This identification
helps to formulate the main fields of information about the various aspects of food safety
that should be offered to consumers. The results also provide information to food authorities
and food producers about the factors/ingredients that are not accepted by consumers to
encourage them to take action to minimize the concerns that arise.
Keywords: food safety, consumer, food concern, food.
JEL Classification: L66, Q02, Q19.
1. Introduction
Food safety is the most important characteristic of food because the lack of food
safety influences our health (Badrie et al., 2006; Grunert, 2005; Rohr A. et al., 2005;
Bukachi et al., 2021; New Food Magazine, 2021; Bolek, 2020, Franc-Dąbrowska et
al., 2021, Jenkins et al., 2021). Food safety is regulated by national and international
laws. Consumers are becoming more and more aware of food safety. They know the
relationship between the quality and safety of the food consumed and health. Many
1 Cracow University of Economics, Krakow, Poland, [email protected].
© 2022 M. Niewczas-Dobrowolska, published by Sciendo. This work is licensed under the Creative Commons
factors influence the quality and safety of food, i.e. the environment, the way of food
production, and new technologies. According to many studies, among the main food
safety concerns by consumers the following can be mentioned: GMO, food
preservatives, various additives, pollution from the environment, residues of
pesticides, antibiotics, and hormones. For example, the residues of pesticides in
vegetables, cereals, fruits, and nuts were the most reported alarm notification in the
RASFF system in 2020 (Report RASFF 2020). RASSF stands for Rapid Alert
System for Food and Feed. It was created in 1979. RASFF enables information to be
shared efficiently between its members (EU Member State national food safety
authorities, Commission, EFSA, ESA, Norway, Liechtenstein, Iceland, and
Switzerland). RASFF is a key tool to ensure the flow of information to allow for a
swift reaction when risks to public health are detected in the food chain. Consumers
do not want to consume ingredients that are harmful, not natural, or unknown.
Nowadays in the food market there is a wide variety of food products, so consumers
have higher requirements and can choose the products that meet these requirements.
Consumers do not have as much knowledge about food safety as scientists do and
perceive some aspects of food safety and quality in a different way. It is worth
knowing the main consumers concerns of food to provide them with products they
accept, as well as to educate consumers. Food safety is one of many factors that
influence their food choice - 50 percent of respondents ranked it in the top three
criteria they use in their food-purchase decisions (Eurobarometer survey, 2019).
Research on food safety concerns is conducted quite often, which shows the
importance of this subject. For example - the consumers participating in the survey
Eurobarometer 2019 (Food safety in the EU) were asked how much they are focused
on food safety. The results show that consumers are interested in food safety. The
majority of the respondents (71%) said either that food safety is among their
concerns (43%) or that they take it for granted that the food sold is safe (23%). 63%
of Polish consumers admitted that either that food safety is among their concerns
(33%) or that they take it for granted that the food sold is safe (30%), 59% of
consumers in Romania agreed that either that food safety is among their concerns
(39%) or that they take it for granted that the food sold is safe (18%). Based on the
2019 FDA’s Food Safety and Nutrition Survey, the major food safety concerns can
be identified. Among them are: pesticides in food (1475 answers for “extremely
concerned”), antibiotics in food (872 answers for “extremely concerned”).

The aim of the research is to identify the main consumers concerns about the food
safety. The research questions are the following:
1) Do consumers differentiate the perception of the food concerns? Are they all
perceived as harmful or very harmful?
2) Which factors/characteristics/ingredients are consumers afraid of most?
129
3) Can we identify some differences in perception of these factors/ingredients, i.e.

because of the gender of the age of consumers?
4. Research Methods
The research process consisted of the following stages:
– developing research methodology;
– consultation of the research tool;
– sample selection, implementation of the measuring phase of the survey;
– developing a statistical report;
– developing a final report.
The study was carried out using the CAWI (Computer-Assisted Web
Interviewing) technique based on conducting a computer-supervised Internet survey
in Poland in 2020. The questionnaire consisted of 23 closed-typed questions. The
sample consisted of 2000 people selected taking into account the place of residence
(voivodship), gender, and age. Respondents were also characterized in terms of
education and material status. The exact distribution of the sample taking into
account gender, age, and place of residence is presented below. It reflects the
structure of the population of adult Poles residing in the country.
Numeric variables were characterized using basic descriptive statistics:
cardinality (N), arithmetic mean (mean), standard deviation (SD), median, lower and
upper quartile (IQR), minimum and maximum values (range). Group comparisons
were made using Chi-square test. The value of significance (p) was set at 0.05.
Calculations were made in the R program (ver. 3.5).
The sample was representative for the whole country. 1049 women and 951 men
were interviewed. Among the respondents, 42.4% were the sole decision-makers in
the purchase of food products. About 49.7% of the respondents said they make the
majority of purchasing decisions for the household. The smallest group (7.9%) were
people for whom someone else makes the majority of purchasing decisions. In the
survey, respondents also specified their education, size of place of residence, and net
income per family member. Most respondents had secondary education (32.2%) and
basic vocational education (30.7%). Persons with higher education constituted
26.9%, and the remaining 10.3% of respondents had primary / lower secondary
education. Persons with a net income not exceeding PLN 1200 (about 300 €) per
person constituted about 19.1% of the total number of respondents. One fifth of the
survey participants (20.0%) indicated an income of PLN 1201 to 1600(301 to
400 €), and respondents declaring income per person within PLN 1601-2000 (401 to
500€) net constituted 20.7% of all respondents. Income in the amount of 2001-2400
(501 to 600 €) was indicated by 19.5% of respondents, and 20.9% of respondents
had income per one person exceeding PLN 2400 (+600 €) net. People living in the
village accounted for 19.9% of the total, while about 23.0% of the respondents were
city dwellers up to 50,000 inhabitants. Approximately 29.0% of the respondents
were residents of cities with 50 to 250 thousand inhabitants and 14.7% lived in cities
with 250 to 500 thousand inhabitants. The least 13.5% of the respondents lived in
cities with more than 500,000 inhabitants (Table 1).
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Table 1. Characteristics of the respondents

Woman (age) Man (age) Total
Voivodship 18- 30- 40- 50- 60- 18- 30- 40- 50- 60-
+70 +70
29 39 49 59 69 29 39 49 59 69
Dolnośląskie 12 16 13 11 15 13 12 16 13 11 13 8 153
Kujawsko-
10 10 9 9 10 9 10 11 9 8 8 5 108
pomorskie
Lubelskie 10 10 9 9 10 10 10 11 9 8 8 6 110
Lubuskie 4 5 5 4 5 4 5 5 5 4 4 2 52
Łódzkie 11 12 11 10 13 13 11 12 11 9 10 7 130
Małopolskie 16 18 15 13 14 15 16 18 15 13 12 9 174
Mazowieckie 23 29 25 20 25 25 23 28 25 19 20 14 276
Opolskie 4 5 5 4 5 5 4 5 5 4 4 3 53
Podkarpackie 10 11 9 9 9 9 11 11 10 9 8 5 111
Podlaskie 6 6 5 5 5 6 6 6 5 5 4 3 62
Pomorskie 11 12 10 9 10 9 11 12 11 9 9 6 119
Śląskie 19 23 21 20 22 21 20 23 21 19 19 13 241
Świętokrzyskie 6 6 5 5 6 6 6 6 6 5 5 4 66
Warmińsko-
7 7 6 6 7 6 7 8 6 6 6 3 75
mazurskie
Wielkopolskie 16 18 16 14 16 14 16 19 16 13 13 8 179
Zachodniopomors
7 9 8 7 9 7 8 9 8 7 8 4 91
kie
Total 172 197 172 155 181 172 176 200 175 149 151 100 2000
Source: Own elaboration.
5. Findings
Consumers were asked to assess the impact of the following food safety
factors on health, to express their concerns about food safety toward: antibiotics
and hormones residues, pesticides residues, environmental pollution, trans fats,
sweeteners, GMO, food preservatives, colourings. They indicated the impact by
choosing the strength of the negative impact: lack of the impact, little harmful,
middle harmful, harmful, very harmful, no opinion. Major consumers concerns
regard:
– residual antibiotics and hormones 80.4% (harmful and very harmful);
– pollution from the environment 78.7% (harmful and very harmful);
– pesticides residues 78.2% (harmful and very harmful);
– trans fats 69.4% (harmful and very harmful).
The Polish society is largely homogeneous in its opinions. On the basis of chi2
test, it was stated that the answers varied only on two characteristics of the
respondents: the age of the respondents and their gender. Young people (18 to 29
years of age) believed more often than other respondents that the above-mentioned
factors had little or no harmful effect on health. This was the case of: GMO (22.1%
of indications), sweeteners (15.5% of indications), colourings (24.4% of
131
indications), food preservatives (14.4% of indications), trans fats (9.2% of

indications) and residual antibiotics and hormones (8.9% of indications). The
answers varied significantly also based on the gender of the respondents. Women
more often than men assessed these characteristics as more harmful. The percentage
of the indications harmful and very harmful were higher by women than by men.
Food safety concerns may appear at each stage of the food chain, at production
stages (unregulated use of pesticides, poor post-harvest handling), during food
processing (unregulated use of additives, contaminated water), during transport and
sedition, as well as during food preparation (in the local food environment
(unhygienic food outlets) or at the consumer level (unhygienic food preparation and
storage practices home (Kang’ethe et al., 2020; Iguori et al., 2022). As the results of
the Eurobarometer 2019 survey on food safety show that the three main concerns of
food safety are: the misuse of antibiotics, hormones and steroids in farm animals
(44%), pesticide residues in food (39%), and food additives (36%). These were also
among the main concerns reported in the 2010 Eurobarometer on food safety. The
FDA’s Food Safety and Nutrition Survey 2019 gave some key finding on food
safety: Consumers think that people are more likely to get a foodborne illness from
food prepared in a restaurant than from food prepared at home – Few respondents
(15%) thought it was “very common” for people to get food poisoning because of
the way food is prepared at home, compared to 29% who thought it was “very
common” to get food poisoning because of the way food is prepared in restaurants.
Consumers are more concerned about raw chicken and raw beef than raw vegetables
or fruit being contaminated – More respondents thought that raw chicken (93%) and
raw beef (66%) were “likely or highly likely” to have germs than raw vegetables
(9%) or fruit (6%).
The residues of pesticides are one of the biggest concerns about food safety
among consumers according to, for example, the FDA’s Food Safety and Nutrition
Survey 2019. Glyphosate that is of common use in agriculture and in cities to
control weeds, and is a main carcinogenic agent (Araújo et al. 2016; Benbrook
2016). As Carvalho (2017) says, the maximum tolerated limits of residues in foods
have been decreasing over the years, although exposure has not decreased
sufficiently. Antibiotics are used in food production prophylactically, as well as to
treat infections. It is important to control the amount of the antibiotics used to prevent
their residues in food. The presence of antibiotics in the food supply has raised
concerns about their possible role in increasing antibiotic resistance and
hypersensitivity reactions (Landers et al., 2012; Solensky, 2003; Singer et al., 2003;
Welsh et al., 2019). Brewer & Rojas (2008) emphasize that concerns about the
residues of hormones, antibiotics, or GMO food result in purchase decisions. In their
research, they showed that about one-third of consumers would not purchase food
because of the abovementioned concerns, and more than 20% have reduced their
consumption of some foods because they think they contain genetically modified
organisms or are derived from animals treated with hormones or antibiotics.
Although three decades have passed since genetically modified organisms were
used in food production, this issue is still one of the major consumers concerns
132
(Palmieri et al., 2020). However, when comparing the results of the Eurobarometer
survey in 2019 and in 2010 it can be seen that these concerns decreased (from 66%
in 2010 to 27% in 2019). In general, consumers disapprove of the use of GM food.
However, American consumers are more accepting of genetically modified foods
than European consumers (Le Marrea et al., 2007). In fact, the European consumers
are extremely interested in traditional and local food products (Dekhili et al., 2011;
Perito et al., 2019). The main concerns about the GMO food are the effects on
personal health and environmental impacts (Zilberman et al., 2013; Tas et al., 2015).
Perito et al. (2020) say that in recent years considerable attention has been
observed toward natural alternatives to synthetic preservatives. Consumers prefer
food with no additives, but if not available, consumers will choose foods containing
natural additives over synthetic analogues. They prefer natural products (Devcich et
al., 2007; Carocho et al., 2014; Bearth et al., 2014; Coderoni & Perito, 2020).
Oplatowska-Stachowiak & Elliott (2016) characterized consumers’ concerns
about colourings in food. On the basis of their research, it can be concluded that the
most important food safety concerns in the field of food colors are the lack of
uniform regulation concerning legal food colors worldwide and the possible link of
artificial colors to hyperactive behavior.
Figure 1. Food safety concerns among Polish consumers
1,0%
Anitibiotics, hormones
3,7% 11,4% 31,1% 49,3% 3,6%
residues
1,1%
Pesticides residues 4,3% 12,9% 30,8% 47,4% 3,8%
0,6%
Environmental pollution 4,0% 12,9% 36,9% 41,8% 3,9%
1,3%
Trans fats 6,1% 17,5% 35,0% 34,4% 5,8%
1,5%
Sweeteners 7,3% 19,5% 39,8% 27,8% 4,2%
1,2%
Food preservatives 6,8% 24,2% 36,8% 27,4% 3,8%
4,5%
GMO 9,5% 20,4% 32,6% 26,9% 6,3%
Colourings0,0% 11,6%
0,0% 36,9% 18,5% 4,1%
0,0% 20,0% 40,0% 60,0% 80,0% 100,0%
Lack of the impact Little harmful Middle harmful Harmful Very harmful No opinion
Source: Own elaboration.
133
6. Conclusions
The results of the survey show that consumers differentiate the perception of food
concerns – some of them are perceived to be more harmful (i.e. the residues of
hormones, antibiotics, pesticides, pollution from the environment) and some less
harmful i.e. food colourings. The highest level of concerns was observed with regard
to the residues of antibiotics and hormones 80.4% (harmful and very harmful),
pollution from the environment 78.7% (harmful and very harmful), and residues of
pesticides 78.2% (harmful and very harmful). The answers varied on two socio-
economic characteristics – the age and the gender. Young people have the tendency
to perceive the risk as lower than others. In this research, young consumers evaluate
the negative impact lower than others. On the other hand, women more often
expressed higher harmfulness than men. It was shown that food safety has many
factors. It is the most important characteristics of food for both consumers and
regulatory institutions. Many surveys and reports show that the biggest consumers
concerns are residues of substances such as hormones, antibiotics, and pollution from
the environment. It shows that a holistic view of the food chain is needed.
Consumers are also afraid of food preservatives as a kind of chemical substances in
food. Consumers concerns are the subject of various reports what shows the
importance of food safety and is the sign of consumers’ interest in food safety. The
engagement of all food chain actors should remain at least at the same level as it is
now. The Food 2030 strategy emphasize the need to look at the food system by three
main goals: food safety, food security, and food sustainability.
Acknowledgements
This paper and research were financed from the subsidy granted to Cracow
University of Economics from the Ministry of Science and Education
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136

June 16-17, 2022
Local Development Initiatives on the Black Sea Coast

in Romania
Alecsandra PARNUS (RUSU)1*, Eliza GHEORGHE2,
Raluca MITULESCU (AVRAM)3, Nicoleta ILIE (MARIN)4
DOI: 10.24789788367405072-013
Abstract
The analysis of the specialized literature reveals the fact that the policies adopted and
implemented at European level are based on the common and unitary approach of the
development directions of agriculture and of the rural environment. If initially the attention
was directed strictly to agriculture, later, the policies gave a special importance to the
development of the rural environment in its integrity. Thus, actions were supported that
address the most pressing issues of the rural area in the economic, social, and cultural field,
with the use of local resources and potential. The most appropriate tool for carrying out
these actions is the LEADER instrument, which is based on a bottom-up approach to both
problems and solutions, with the involvement of local actors in decision-making.
The article presents an analysis of the financing for agriculture and rural space at the
European and Romanian level, focusing on the impact of the LEADER instrument on the
Romanian communities in the Black Sea area, from an economic and social point of view.
The analysis covers the period between 2012 and 2021 and is carried out using the specific
bibliography, establishing the relevant indicators, collecting the necessary data, and
processing them to determine the result of the working hypothesis. The results of the study
show that LEADER registers an increasing coverage of the rural area, with a special impact
for a sustainable and sustainable development. The LAGs representing the communities on
the Romanian shores of the Black Sea are a catalyst meant to accelerate the trends of
integrated development of areas that have common characteristics, by enhancing local
resources and developing cooperation with other communities. Increasing the quality of life
of their own residents.
Keywords: LEADER, local development, Local Action Group, common

agricultural policy, rural development.
JEL Classification: Q01, Q14, Q18.
© 2022 A. Parnus (Rusu), E. Gheorghe, R. Mitulescu (Avram), N. Ilie (Marin), published by Sciendo. This work is
licensed under the Creative Commons Attribution 4.0 License.
1. Introduction
In the context of the implementation of the Common Agricultural Policy, at the
European level, a common approach has been pursued to the development directions
of both agriculture and the rural area in general, with all its problems. The European
Union (EU) has embraced the LEADER method and supported it from the beginning,
the main source of funding being the European Fund for Agriculture and Rural
Development (EAFRD), along the way, it has been taken over by three other EU
funds: European Regional Development Fund, European Social and European
Maritime Fund by scaling to urban areas, coastal areas, and social issues. LEADER
initiatives are also present in non-EU countries, such as Moldova, Turkey, Georgia,
Africa, Latin America, and China.
Over five programming periods, the EU has allocated and monitored the use of
funds for rural development through the LEADER instrument, and for the future
period, 2023-2027, the specific regulation also provides for at least 5% of the value
of Member States' Strategic Programs to be used for LEADER (EU, 2021).
LEADER concept was first implemented in France in 1991 by Local Action Groups
(LAGs), under the title: "Liaison Entre Actions de Développement de l'Economie
Rurale", being taken the acronyms of the words and used as a brand for everything
that has developed so far around this idea. The phenomenon has grown and
been taken over by many states, so we are currently talking about 3134 LAGs,
of which 2786 LAGs act in the field of rural development and cover 61% of the
rural population in the European Union (ENRD, 2022). With Romania's accession
to the European Union in 2007, funding for local development through LEADER
has been provided in the National Rural Development Programs. This bottom-up
approach has begun and is on the rise - with 163 LAGs set up in 2007-2013, in
2014-2020 239 LAGs operate (Ex-post evaluation study of the 2007-2013 NRDP,
2017, Rusu, 2021).
The article aims to present LEADER evolution in Romania, with a specific
analysis for the LAGs in the Black Sea area, Constanța, and Tulcea counties. The
article looks at the impact that the bottom-up approach has had in this region, from
a social and economic point of view.
Scientific research has focused on the rural environment over time, it being an
intensely debated topic. The rural environment must be perceived as a multisectoral,
vibrant space, in which, in addition to agriculture - which remains the most common
activity, the economic, social, and cultural levels develop and find here important
resources on which to base themselves. In the context of rural development, the same
trend is found in European Union funds: at the beginning, the funds were directed to
support agricultural practices, following the inclusion in financing policies and
socio-economic and cultural aspects, and for the future a considerable amount will
be directed to environmental issues. Part of the literature shows that the impact of
Common Agricultural Policy (CAP) on rural development is not significant, but has
138
a positive influence on the population, with insignificant effects in terms of economic

production, takeover of farms by young people, gender equality and positive effects
on the jobs created. However, because the studies only cover certain periods of
implementation of the CAP and follow a limited set of indicators collected from
restricted areas, this conclusion does not seem to have the desired accuracy, the
effects of the applied policies cannot be precisely determined (Lillemets, Fertő,
Viira, 2022). The European Union has always paid special attention to supporting
agriculture and developing and revitalizing rural areas. The CAP applies to all
Member States and is funded by the EU budget (Garzon, 2006).
In 1980, the EU allocation dedicated to agriculture represents 65.5% of the total
budget, and in 2020 it reaches 35% (Figure 1). The decreasing trend of the allocated
budget was balanced with the introduction in the other funds of some objectives
aimed at the development of the rural environment (COM, 2021).
Figure 1. Evolution of agricultural expenditure within the total EU budget

The level of expenditure on agriculture
in the total EU budget
65%
48% 45%
40%
35%
EU 12 EU 15 EU 25 EU 27 EU 28
1980 - 1993 1994 - 2002 2004 - 2006 2007 - 2014 2015 - 2020
Source: Authors' analysis with information from https://ec.europa.eu.
To set annual commitment ceilings for each sector supported at Member State
level, the European Commission is proposing to the European Parliament for
approval Multiannual Financial Frameworks, which cover a period of at least 5
years. Each multiannual financial framework is regulated by legislation which
contains the general and specific objectives for the respective stage, rules for
granting and managing funds, verification, and control of the beneficiaries of
financing, monitoring, and reporting of results (Table 1). Six multiannual financial
frameworks are established, with specific European regulations, including the future
period 2023-2027. Given the problems raised by the COVID-19 pandemic crisis, the
2014-2020 cycle was extended until 2022.
139
Table 1. European legislation on programming periods

Financing period Specific European legislation
1988 - 1994 Decision 88/377/ECC
1995 - 1999 Decision 94/729/EC
2000 - 2006 Regulation EC 1258/1999
2007 - 2013 Regulation 1698/2005
2014 - 2020 - 2022 Regulation 1305/2013
2023 - 2027 Regulation 2115/2021
Source: Authors' analysis with information from https://eur-lex.europa.eu/.
Each Member State is the beneficiary of funding for transposition into the
national program for the implementation of the regulations of the Agriculture and
Rural Development Fund, to be available to the EU budget. The approach to
agricultural policies has been divided into two main directions: Pillar I – direct
payments and market support payments and Pillar II – Rural development, farm
modernization and agri-environmental measures. The new CAP will be implemented
from 1th January 2023 and aims to simplify and streamline interventions for
agriculture and rural development that encompass environmental ambitions -
established by the European Green Deal (COM, 2021).
Romania's Situation
The urban population is the majority in Romania, but compared to other EU
countries, Romania has a share of the rural population of 45.1% according to
National Institute of Statistics data, while the European average reaches 29.1%
(Eurostat, 2021). In the post-war period, the rural population represented almost 80%
of the total population (Pascaru, 2012; Rotariu, 2017). The causes of the migration
of the population from the village to the city are based on the forced industrialization
closely related to the need for labour, educational and sanitary facilities, the high
standard of living in the urban environment compared to the rural one, ready-built
houses. It is necessary to support Romanian rural communities so that the rural
family is encouraged and supported to develop in the environment of which it is part.
The three great poles of power of rural life are: family, property, and production in
direct connection with a fourth, the market, according to the publication "Old
problems, new relationships in agriculture" (Popescu, 2013). The way in which the
rural area developed after the fall of communism and the structure of activities
carried out locally are related to multiple factors such as alienation of land to non-
residents, shortcomings in the functionality of the land market related to property
rights, lack of agricultural land valuation and forestry as a basis for setting trading
prices, low incomes from agriculture, advanced age of farmers (Popescu, 2017).
Romania benefited from 1.5 billion euros in 2000-2006 - the pre-accession funds
SAPARD, together with the candidate states from Central and Eastern Europe,
destined to prepare the participation in the Community Agricultural Policy. In 2007,
with Romania's accession to the EU, it benefited from a total public value of
9.2 billion euros, through the National Rural Development Program 2007-2013,
140
to participate in achieving the common European objectives. In the period

2014-2020, Romania made available to rural areas 10.9 billion Euros, to which were
added 2.1 billion EUR 0.6 billion of future funds for the transition period and EUR
0.6 billion - additional funds from the European Union Recovery Instrument - EURI
following the COVID-19 pandemic crisis (NRDP, 2022). Experimental partnerships
have been created as initiatives of local actors who have realized that the real
problems of small communities in rural areas, they also find their solution locally,
using existing resources and attracting funding from various sources. From the very
beginning, for the LEADER method to work, 7 basic principles have been
established, which must be activated simultaneously to obtain the expected results
(ENRD, 2022). These principles aim at the bottom-up approach to problems and
solutions from a homogeneous territory from a socio-economic point of view, the
establishment of a partnership formed by the representatives of the sectors from the
community, and the establishment of interconnected relations between partners,
community, and decision makers, elaboration of a territorial strategy, identification
of innovative solutions, and cooperation with other similar structures (Figure 2).
Figure 2. LEADER Principles
Source: Authors’ processing with information from https://enrd.ec.europa.eu/leader-

clld/leader-toolkit.
Over time, LEADER has been funded by structural funds, funds for agriculture
and rural development, regional development funds, social funds, funds for
aquaculture and fisheries, and has proven to be the longest-running instrument that
has spread both as a cover territorial as well as directions of action, being in a
continuous development. If in 1991, with 217 LAGs, it started from simple tools to
support farmers, now, through the LEADER method, the 3134 LAGs support various
issues: agriculture, rural development, tourism, digitalization, social issues, mobility
issues, cultural heritage, fishing, and aquaculture, etc. (Ballesterosa, Hernández,
2016). In Romania, LEADER was included in the National Rural Development
Program 2007-2013 as the 4th axis of financing with an allocation of 386 million
euros, representing 4.1% of the total public allocation of NRDP (NRDP, 2015).
Being a completely new approach for the Romanian rural area, 163 LAGs were
started to operate only in 2012. Although this was a delay, the LAGs took shape and
141
the results of the implementation of local development strategies were above

expectations. The success of the first programming period has made things
considerably better in the second financial year (2014-2020), with 239 LAGs being
set up covering almost 92% of the territory consisting of communes and small towns,
less than 20,000 inhabitants, benefiting from an allocation of approximately 7% of
the total value of NRDP (NRDP, 2022).

The article aims to review the development interventions used by the EU for
agriculture and rural areas in general, by establishing development directions within
the common agricultural policy and the financing instruments made available to the
Member States. Research focuses on analysing the impact of LEADER in the
counties on the Black Sea coast of Romania, analysing all available information
related to the achievements of LAGs operating in this area.
4. Research Methods
The methodology used for this study is a combination of the literature with an
analysis of data from the monitoring system, as well as the LEADER tool through
NRDP 2007-2013, respectively, NRDP 2014-2020, and internal databases, as well
as the databases provided by the EU, were used to achieve the purpose of the study
and to reach relevant conclusions. The phrase @program LEADER @ generates
over 7,280 million results on the Google’s search engine in Romania, which creates
a special interest in approaching this topic. The word group @Local action group @
returned more than 282,000 results, @Leader @ returned 208,000 results, which
narrowed the search. Several scientific articles, papers, and publications have been
studied for a detailed and well-structured document. Statistical data were used
mainly on the website of the Agency for Financing Rural Investments, the Ministry
of Agriculture and Rural Development, and on the website of the National Institute
of Statistics.
5. Findings
The analysis of the implementation of LEADER in the period 2012-2021 in the
counties of Constanța and Tulcea, counties located in the extreme SE of Romania,
which borders the Black Sea coast, was the subject of a useful case study for
research.
With an area of 7,071 km2, Constanta County represents 3% of Romania's
territory. Constanta County includes 3 municipalities, 8 cities, and 59 communes.
According to the information available on the database of the National Institute of
Statistics on July 1, 2021 (NIS, 2021), statistical data on the population residing in
the county show that 67.82% is urban population and 32.18.% is rural population out
of the total population of 758,186. The natural potential of the region and the climatic
conditions are favourable for the development of agricultural activities. The
economy of Constanta County is diversified, mainly agricultural, but, by going
142
to the Black Sea, Constanta county has a very developed tourist base (Integrated
Sustainable Development Strategy of Constanta County, 2019).
The surface of Tulcea county is 8499 Km2 and represents 3.6% of the country's
surface, a percentage that places it in the first places in the country in size. A large
part of the territory of Tulcea County is occupied by the Danube Delta Biosphere
Reserve. Of the total agricultural land, approximately 17% are in the Danube Delta
area (NIS, 2021). There are 3 municipalities, 4 cities, and 46 communes in Tulcea
County. The population of Tulcea County according to NIS on July 1, 2021 (NIS,
2021) was 229,953 inhabitants, of which 112,983 urban population and 116,970 rural
population. Tulcea county has a special potential for the realization of those
agricultural productions that would support the development of a representative
zootechnical sector through the number and structure of the livestock (Integrated
Sustainable Development Strategy of Tulcea County, 2014).
In the financial year 2007-2013, 163 LAGs were supported, of which in
Constanta and Tulcea counties a no. of 5 LAGs, representing 3.06%. In Constanta,
3 LAGs were financed: Constanta Centre LAG, Constanta South LAG, Central
Dobrogea LAG with a total value of Local Development Strategies of 8.5 million
euros. At the level of the LAGs from Constanta County, 73 projects with a total
value of 5,489,604 Euros were supported. The competitiveness of the agricultural
sector was supported, young farmers, small farms, and the development of
agricultural holdings being financed with more than 3 million euros. Also,
22 local public administration projects were supported, aimed at increasing
the quality of life through services dedicated to the community, with a value of
almost 2.5 million euros.
Figure 3. Number and value of agriculture projects depending

on the beneficiary category
No&value of projects/type of beneficiaries
Authorized person
37 projects;
803.119 Euro
Trading Company
13 projects;
1.373.420 Euro
Source: Authors’ analysis with information from https://www.afir.info/opendata.
From the analysis of the categories of financing beneficiaries, among the projects
to support agricultural activities, most were implemented by beneficiaries with a
simple form of organization, family type, these projects have but a lower value than
the value of projects implemented by companies (Figure 3). In Tulcea, 2 LAGs were
financed: The Danube Delta LAG and Valea Telitei LAG with a total value of Local
Development Strategies of 5.7 million euros. Through the 2 LAGs, 72 projects with
143
a total value of more than 4 million euros were financed, of which 50 projects were
for the support of agricultural activities with a value of more than 1.8 million euros,
implemented by beneficiaries with the form simple to organize, and 22 projects with
a value of more than 2 million euros for serving communities and for the
development of tourism.
In the 2014-2020 programming period, LEADER funded projects with a focus
on solving specific problems at the local level. The implementation of the Local
Development Strategies is still ongoing, with completion in 2025. During this period,
12 LAGs are supported in Constanta and Tulcea counties, representing 5.02% of the
total of 239 LAGs from all over the country. In Constanta County, in the period
2014-2020, there are 7 LAGs: Constanta Centre LAG, Canal Danube-Black Sea
LAG 2016, Constanta South LAG, Dobrogea Verde LAG, Dobrogea Centrala LAG,
Histria-Razim-Hamangia LAG, Dobrogea Sud LAG- West, which covers the entire
area of the county, except for cities with more than 20,000 inhabitants. Through the
7 LAGs in Constanta County, 15.9 million euros were made available to local
communities. At the end of 2021, the LAGs selected and funded 127 local initiatives
worth more than 10.2 million euros, of which 57 agricultural projects with a value
of more than 4.2 million euros, 35 non-agricultural projects with a value of more
than 2.7 million euros and 35 investments of local public administrations with a
value of 3.2 million euros.
Figure 4. Number and value of agricultural and non-agricultural projects

by the type of beneficiary
Non- No of projects
agriculture Agriculture
No of projects No of projects
12; Authorized 18; Trading
person Company
Non-
agriculture
No of projects
23; Trading
Company Agriculture
No of projects
39; Authorized
person
Source: Authors’ processing with information from https://www.afir.info/opendata.
LEADER beneficiaries from Constanta County fall into the following categories:
18 companies that benefited from 1.7 million euros for agricultural measures, and
39 authorized individuals (Figure 4), family businesses, and individual companies
benefiting from 2.4 million euros. For non-agricultural investments, 23 companies
received support of 1.9 million euros, and 12 authorized individuals received
0.8 million euros.
144
In Tulcea County, in the period 2014-2020, 5 LAGs were financed, with the full
coverage of the LEADER eligible territory in the county: Macinului Mountains-Old
Danube LAG, Razim LAG, Danube Delta LAG, North Dobrogea LAG, People of
the Delta LAG with a total value of 14.3 million euros for local communities. At the
end of 2021, the LAGs supported 177 local projects with a value of more than
10.2 million euros, of which 46 agricultural projects with a value of 2.3 million
euros, 66 non-agricultural projects with a value of over 3 million euros and
61 investments of local public administrations with a value of 4.7 million euros.
Figure 5. Number and value of agricultural and non-agricultural projects
by the type of beneficiary
No of projects
Non-agriculture
No of projects 28; Agriculture
Authorized person No of projects 8;
Trading Company
Non-agriculture
No of projects 38; Agriculture
Trading Company No of projects 38;
Authorized person
Source: Authors’ processing with information from https://www.afir.info/opendata.
LEADER beneficiaries from Tulcea County are 8 companies with a value of

285,000 euros and 38 authorized natural persons with a value of 2,042,142 for
agricultural type measures: 38 companies with a value of 1,717,257 euros and
28 authorized individuals with a value of 1,373,176 euros (Figure 5). If in the first
funding period 2007-2013 163 LAGs were set up, in the 2014-2020 stage they
received funding for 239 LAGs, replacing the existing model.
6. Conclusions
The research results clearly shows an increasing trend of beneficiaries in the
period 2014-2020 compared to the first period. The analysis of the data showed the
use of considerably higher funding for the development of agricultural holdings, to
support the initiatives of local entrepreneurs and community services. Even if the
analysis did not include values of economic indicators, such as the variation of the
gross domestic product, those presented in the article demonstrate that the LEADER
tool has made an important contribution to rural development in Constanta and
Tulcea Counties in the local economy, aligning agricultural activities with European
requirements, creating opportunities for entrepreneurs to diversify their incomes,
with the support of the authorities by developing small-scale infrastructure and
services for the community. This paper can be the starting point for a more in-depth
analysis of the LEADER impact at the sectoral level for the studied area. Also, the
same working methodology can be applied for other areas in Romania.
145
Acknowledgment
during the PhD. program.
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147

June 16-17, 2022
The Evolution of the Total Waste Generated and Recycled

in Romania
Bianca-Eugenia SOARE1*, Mahmoud TARHINI2
DOI: 10.24789788367405072-014
Abstract
The change in consumption patterns in the sense of growth and the evolution of
technology can have side effects on the environment and thus on the health of citizens if it is
not properly supported by a waste management process. Waste management includes all
activities of collection, transport, treatment, recovery, and disposal of waste. Improper waste
management can have negative effects on the environment, affecting the soil, animals, the
atmosphere, etc. One of the major problems facing Romania is waste management. This
paper analyzes the evolution of the main types of waste generated and recycled, but also
those generated by economic activities in the period 2014-2018 in Romania. Thus, in 2018,
were generated 203017193 tons, among which 200027786 tons were treated. The amount of
waste recycled in 2014 has a proportion of 3.71% of the total, while in 2018, the degree of
recovery decreased to 3.12%. Regarding the recycling by category, in 2018 from the amount
of waste generated were recycled 26.18% metal wastes, 91.35% glass, 82.18% paper and
cardboard and 72.85% plastic, the recycling rates being lower than in 2014. In order to
achieve the objectives set out in the national and European waste legislation, Romania must
make considerable efforts in the coming years.
Keywords: recycling rate, hazardous waste, primary waste, plastic.
JEL Classification: Q53.
1. Introduction
Current issues affecting the population include climate change, urbanization, and
the scarcity of natural resources. To meet their effects, the emphasis is on stimulating
waste recycling. Given the growing world population, the need for materials is also
growing, and recycling must be a necessary condition. Raw materials are essential
for ensuring the transition to green energy technologies, growth, and sustainable

2 BucharestUniversity of Economic Studies, Bucharest, Romania, [email protected].
© 2022 B.-E. Soare, M. Tarhini, published by Sciendo. This work is licensed under the Creative Commons
consumption. Waste recycling reduces the need for raw materials, having direct
effects on natural resource reserves.
Improper waste management is a major cause of environmental pollution
and threats to human health, and at the same time reflects the inefficient use
of natural resources (Olaru, Zecheru, 2016). Mankind is urged to contribute to
reducing the impact caused by its activities on nature, by promoting sustainable
development, which takes into account: economic development, social welfare, and
environmental protection.
In recent decades, the economic growth of the European Union countries has led
to an increase in living standards and consumption (Nastase et al., 2019). According
to Eurostat, Europeans’ waste generation is constantly rising, in 2018 the amount of
waste reached 2.3 billion tons, which means 5.2 tons of waste per EU inhabitant
(Waste statistics, 2021).
Waste treatment methods vary as well as is their source. In principle, waste can
be taken out of the economic circuit (disposed of), stored or incinerated, or
reintroduced into the circuit (recovered). In Europe, but also in Romania, the
sorting and selective collection of waste is practiced, waste management being
an objective to be achieved according to the 2030 Agenda. In Romania, as in other
parts of the world, waste, the result of human activity, is a very topical issue, being
a result of both the diversification and the increase of the generated quantities
(Oroian et al., 2009).
Currently, environmental protection is a global priority, the green economy
being the result of a process that can reduce inequality, resource scarcity, and
environmental risks (UNEP, 2011). However, a significant share of the total amount
of waste is non-biodegradable materials (plastic, glass, metal, etc.) which are
considered by European legislation as agents of soil pollution and contamination.
The current concept of waste is based on the adoption of new technologies that
produce as little waste as possible, in a form that is as easy to treat. Waste
management technologies such as storage and incineration are not a complete
solution to existing problems (Olaru, Zecheru, 2016). In addition, institutions should
continuously improve the use of waste by turning it into useful products. Successful
implementation of a sustainable waste management system involves major changes
in current practices, requiring the participation of all segments of society: individuals
as consumers, businesses, social and economic institutions, and public authorities
(Oroian et al., 2009).
Recycling is a key element of waste reduction. Researchers state that “waste
recycling helps to extend the life and usefulness of products that have achieved their
original purpose by producing many items that are usable (Baud et al., 2004). In
order to achieve an optimal level of recycling for all products, new technological
solutions are needed to improve both the quantity and quality of raw materials
recovered from new sources, i.e., optimal recycling, such as recycling metals from
complex final products (Sustainable supply of raw materials, 2016).
149
Recycled materials can be capitalized on by reintroducing them into the economy

as new substances or products. The reconsideration of the human-environment-
science equation in an intense period of modernization, rapid evolution, and
technologicalization is mandatory, taking into account the extremely current and
pronounced economic dimension of contemporary society (Vermesan et al., 2020).
Although waste management continues to improve in the EU, the European economy
is losing a significant amount of potential "secondary raw materials" (metals, wood,
glass, paper, plastics) (Olaru, Zecheru, 2016).
For a good management of the generated waste, Romania must have a good
collection infrastructure, to have well-defined environmental policies, and to
integrate the environmental concerns in the economic and social decisions. Thus,
a first step towards solving it is the increasing involvement of people for the
correct collection of waste and the awareness that it can be a real resource if it is
managed correctly.
Although Romania is not completely fulfilling its goal of recycling materials, it
still has efforts to make to reach the required target. This may be due to the fact that
Romania probably does not have the necessary capacity for processing or fails to
export some of the waste to other countries for recycling. It can also capitalize on
these recycled materials by making smart use of materials and increasing the use of
recycled materials. In this sense, the purpose of the study is to assess the situation of
waste generated and recycled in Romania in the period 2014-2018.

The research aimed to evaluate the waste generated and recycled in Romania in
the period 2014-2018.
4. Research Methods
In order to achieve the aim of the research, official statistics from international
databases (Eurostat) were used until the last available date regarding the waste
generated and recycled in Romania in the period 2014-2018. The research is also
based on studies from the literature. The data were extracted and processed in
dynamics, as average and percentage, by graphical representations in order to
highlight the situation in the mentioned period. The indicators taken into account
were: the amount of total waste generated, both by component and by category, the
amount of waste treated, the waste generated by main activities, the amount of waste
recycled, and by category, the recycling rate of waste.
5. Findings
Waste generated
The total amount of hazardous and non-hazardous waste generated in Romania
during 2014-2018 has steadily increased (Figure 1) despite legislative efforts
to reduce it. In 2014, the total amount of waste generated by Romania was
150
176,607,415 tons, of which 99.48% were primary waste and 0.53% secondary. The
situation will be similar for the following years.
Figure 1. The evolution of hazardous and non-hazardous waste generated

and treated in the period 2014-2018 (t)
203017193
210000000 200027786
176607415 177562905
190000000 172452079 175698723
170000000
150000000
2014 2016 2018
Waste generated Waste treated
Source: own representation based on data available at https://ec.europa.eu/eurostat.
As other other authors have identified, the amount of waste people generate has
increased with the evolution of technology and the increase in the number of daily
activities (Jigani et al., 2020). According to other authors (Iacoboaea et al., 2013),
some of the reasons for this increase may be economic growth and intense
urbanization. Additionally, the amount of treated waste increased at the same time,
but the quantities differ, from 172,452,079 t in 2014 to 200,027,786 t in 2018. This
fact is also due to the need to treat this waste and increase the attention paid to
environmental protection.
Regarding the amount of total waste, they include primary waste and secondary
waste.
Figure 2. Total waste generated by source in the period 2014-2016 (t)

210000000
735477
200000000
190000000
202281716
919571 820484
180000000
175687844 176742421
170000000
2014 2016 2018
Primary waste Secondary waste
151
In the period 2014-2018, the amount of primary waste increased from

175,687,844 t to 202,281,716 t, while the secondary one decreased from 919,571 t
to 735,477 t (Figure 2). Thus, if at the beginning of the analyzed period of the total
waste generated in 2014 and 2016 the proportion was 99.6% primary waste and
secondary waste being only 0.5%. This is mainly due to the materials and means
used in production.
During the analyzed period, there is an increase in both the total amount of waste
generated and in waste by category.
Regarding the waste of ferrous and non-ferrous metals, the quantity generated in
2014 was 91,168 t (representing 0.5% of the total waste generated), while the
recycled one was smaller, namely 34,624 (Fig. 3). In 2018, the situation was similar,
the waste generated being 183,203 t (representing 0.9% of the total waste generated),
and recycled only 47,969 t. Thus, the amount of metal waste generated in 2018
doubled compared to 2014, representing a 100% increase. In 2016, the amount of
recycled waste was closer to that generated. These differences may be due to the fact
that the metals are difficult to process and require certain special treatments in order
to be reused.
Figure 3. The evolution of ferrous and non-ferrous metal waste in period 2014-2018 (t)
183203
200000
150000 121641
105717
91168
100000 47969
34624
50000
0
2014 2016 2018
Waste generated Waste recycled
Regarding the glass waste, it was found that in the period 2014-2018, the
quantities of waste generated gradually increased from 197,787t to 283,511 t,
meaning an increase of approximately 43%. Compared to the total amount of waste
generated in Romania, it is found that glass waste represents very low values of
0.11% and 0.14%, respectively, in this period. Also, comparing the quantity of waste
generated with the recycled one, it is found that almost all the quantity generated
during this period was recycled, this having an ascending trend from 160,380 t in
2014 to 258,991 t in 2018.
152
Figure 4. The evolution of glass waste in the period 2014-2018 (t)
244643 283511
300000 258991
236055
250000 197787
200000 160380
150000
100000
50000
2014 2016 2018
Regarding paper and cardboard waste, the amount generated in 2014 was
506,379 t, gradually increasing until 2018 to 653,446 t, representing an increase of
approximately 30%. Taking into account the quantity generated, it is found to be
higher both in 2014 and in 2018, compared to the quantity recycled. The biggest
difference is in 2014 when only 70% of the generated quantity was recycled (out of
506,370 t, only 355,804t were recycled). The exception is the year 2016, when
almost all the amount generated was recycled using different methods. This may be
due to the fluctuations in the consumption patterns of the citizens, but also to the
applied national legislation.
Figure 5. The evolution of paper and cardboard waste in the period 2014-2018 (t)
653446
700000
547071
600000 538274 537029
506379
500000
355804
400000
300000
200000
2014 2016 2018
Source: Own representation based on data available at https://ec.europa.eu/eurostat.
If we refer to plastic waste in the period 2014-2018, it is found that in 2014 the
amount generated was 345617 t, and in the following years it decreased, reaching in
2018 to 301379 t (being a decrease of approximately 12%). This fact demonstrates
153
that Romania is trying to align itself with the regulations imposed by the European
Union, being at the same time a global concern to reduce the plastic and replace it
with less environmentally harmful materials. Also, out of the amount of plastic
generated in 2016 of 280235 t, almost all was recycled, approximately 10%
remaining unrecycled.
Figure 6. The evolution of plastic waste in the period 2014-2018 (t)
400000 345617
301379
280235
260074 250148
300000 219563
200000
100000
2014 2016 2018
Waste generated on the main activities

In the period 2014-2018, in the mining industry, the largest amount of hazardous
industrial waste is generated, representing approximately 90% of the total amount
of waste generated from the activities of the economy. Furthermore, the activities
with important shares are those of production (manufacturing of approximately 4%
in 2018) and those of electricity of approximately 3.5% in 2018.
Regarding the amount of waste generated by the main activities of the economy,
it is found that the largest share in the period 2014-2018 has the activities in the
mining industry. Waste from agriculture, forestry, fishing, and construction waste
have the lowest shares below 1% of the total amount of waste generated by all
activities.
Figure 7. Waste generated by main activities in the period 2014-2018 (t)
100%
90%
80%
2014 2016 2018
Mining and quering Agriculture, forestry and fishing
Manufacturing Water supply
Electricity, gas Construction
154
These weights can be attributed to the low recovery of waste, and as stated by
some authors (Oroian et al., 2009), over 90% of industrial waste generated in
Romania is eliminated by storage.
Recycled waste
The amount of waste recycled in 2014 is 6,554,814 tons, the highest recovery /
recycling rates being obtained from the activities of waste recovery and recycling of
paper and cardboard waste (5.43%), followed by plastic (3.97%), glass (2.45%) and
metals (0.53%). In 2018, the recycled quantities increased for the studied categories,
so the recycled amount of paper and cardboard increased by about 3 percent,
reaching 8.49%, in the case of recycled quantities of glass it reached 4.09%,
and ferrous metals and non-ferrous at 0.76%. The exception is the amount of
recycled plastics which has decreased to 3.47%. This situation may also be due
to the promotion of the use of landfills in Romania and also in other countries
with low recycling rates (Bulgaria, Greece, Poalnd and Finland) compared to
other countries (Italy and Germany) that have had very high recycling rates
(https://www.europarl.europa.eu/news/ro/headlines/society/2018).
The increases for certain categories may be due to national and international
legislation, but also to Romania's concern for environmental protection. Achieving
European targets requires further efforts in this area. In order to achieve an optimal
level of recycling for all products, new technological solutions are needed to improve
both the quantity and quality of raw materials recovered from new sources, i.e.
optimal recycling, such as recycling of metals from complex products (Sustainable
supply of raw materials, 2016).
Figure 8. Quantity of recycled waste by category (tons)
100%
80%
60%
40%
2014 2016 2018
Other Metal Glass Paper and cardboard Plastic
The analyzed period shows a low waste recycling rate, but also an oscillating one,
possibly being a consequence of the current legislation in the field of environment.
Also, the amount of waste recycled at the beginning of the analyzed period, 2014,
occupies a proportion of 3.71% of the total, following a slight increase in 2016
of 3.98%, while at the end of 2018, the degree of recovery decreased to 3.12%
155
(Table 1). In Romania, waste disposal is the main option for waste management, so
that, in the analyzed period, less than 4% of the total hazardous and non-hazardous
waste generated is recycled.
Table 1. Recycling rate for total hazardous and non-hazardous waste

Generated Recycled Recycling rate
Year
(T) (T) (%)
2014 176607415 6554814 3,71
2016 177562905 7070019 3,98
2018 203017193 6326465 3,12
Average 185729171 6650432 3,6
Source: Own calculation based on data available at https://ec.europa.eu/eurostat.
Regarding waste by categories, in 2018 waste was recycled from the amount
generated 26.18% of ferrous and non-ferrous metals, 91.35% of glass, 82.18% of
paper and cardboard, and 72.85% of plastic (Table 2). The proposed recycling targets
are 55% of the amount of plastic waste, 75% metal, 75% glass, 75% paper and
cardboard by 2025 (PNGD, 2014-2020).
Table 2. Recycling rate by waste category in 2018

Generated Recycled Recycling rate
Year
(T) (T) (%)
Ferrous and non-ferrous
183203 47969 26,18
metals
Glass 283511 258991 91,35
Paper and cardboard 653446 537029 82,18
Plastic 301379 219563 72,85
Source: Own calculation based on data available at https://ec.europa.eu/eurostat.
These low recycling rates in Romania, during the analyzed period, may be due to
the selective waste collection systems that may not work at their optimum potential
to provide wider access to recyclable products.
6. Conclusions
In the period 2014-2018, the total amount of waste generated in Romania
increased from 176607415 t to 203017193 t, respectively, by 14.95%, of which on
average 99.6% were primary waste and 0.4% secondary.
Regarding the amount of waste recycled at the beginning of the period, in 2014,
it occupies a proportion of 3.71% of the total. Although progress has been made in
this sector, in 2018 the rate decreased to 3.12%.
Implementing effective waste reduction programs can reduce the negative impact
of waste on human quality of life and the environment. It can be appreciated that
waste can be taken out of the economic circuit by obtaining higher recycling rates
as a method of recovery. Good waste management in Romania needs the application
156
and observance of the legislation in force and of innovative technologies that will
reduce the use of the raw material or to include the capitalization of the waste.
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partnerships and policies in Hyderabad, India and Nairobi, Kenya. London: Springer.
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Romania. A Case Study: WMS Implementation, 2009, ProEnvironment, 2, pp. 145-151.
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157

June 16-17, 2022
Research on the Agro-Food Trade Balance of Romania

Gabriela-Dalila STOICA1*, Mirela STOIAN2,
Ionuț-Cătălin NICA3, Marko JELOCNIK4
DOI: 10.24789788367405072-015
Abstract
One of the founding principles of the European Union was free trade between all member
states. In Romania, an EU member since 2007, the trade deficit for agro-food products has
grown rapidly in recent years, reaching €8.3 billion in 2020, €1.08 billion higher than in the
previous year. The aim of the paper is to highlight the evolution of trade and trade balance
with the main categories of agro-food products in Romania. In order to achieve this aim,
indicators contributing to the trade balance were analysed. The analysed indicators are
import, export and trade balance for cereals, vegetables, and meat, at the Romanian level,
in the period 2010-2020. In addition, the SPSS software was used to estimate the trade
balance for the next decade. Cereals show a positive medium-term outlook driven by strong
demand, thus in 2020 Romania's trade balance with cereals recorded a surplus of 7.8 million
tons, equivalent to 1.4 billion euros, while the trade balance with vegetables and meat
recorded a trade deficit of 625 thousand tons, and 381 thousand tons respectively.
Keywords: import, export, trade balance, Romania, forecasting, SPSS.
JEL Classification: Q10, Q17.
1. Introduction
Trade is an economic concept involving the buying and selling of products,
goods, or services, which includes a payment made by a buyer to a seller or involves
the exchange of products, goods, or services between two parties (Sanghoon, 2002).
The exchange of goods, services, or even the exchange of capital across the borders
of a country or across international territories represents the foreign trade. In most
1
Bucharest University of Economic Studies, Bucharest, Romania, [email protected], Research
Institute of Agriculture and Rural Development, Romania, [email protected].
4 Institute of Agricultural Economics, Belgrade, Serbia, [email protected].
© 2022 G.-D. Stoica, M. Stoian, I.-C. Nica, M. Jelocnik, published by Sciendo. This work is licensed under the
countries, foreign trade accounts for a significant share of the gross domestic product
(GDP). Industrialisation, the advanced development of transport, globalisation, the
emergence of multinational corporations, etc. have a major impact on trade. Foreign
trade includes: imports - the purchase of goods (goods or services) from another
country, e.g. the import of exotic fruit (bananas, oranges, etc.) from Greece, Turkey,
etc. for sale in Romania and exports - the sale of goods or services to another country:
for example, the export of cereals (wheat, maize, sunflower) from Romania to other
countries such as Egypt, Turkey, Spain, etc. In 2020, Romania was the world's
largest exporter of sunflower (€622 million) and sheep and goats (€264 million) at
the European Union level (Guvernul României, 2021).
The difference between the value of exported goods or services and the value of
imported goods or services represents the trade balance. The trade balance can be
positive when exports exceed imports or negative when imports exceed exports
(AmosWEB LLC, 2000-2022). Although the trade balance represents the net level
of trade over a given period, it reflects past actions or expectations and future actions
in the presence of adjustment costs. To better understand the concept of the trade
balance, Victor A. Canto and Andy Wiese, in their study "Trade Balance - A
deteriorating trade balance means that the future looks brighter", explained that a
simple way to understand this, is to correlate a country, a household, or a public trade
company, noting that for each case there are ongoing concerns that focus not only
on the present situation but also on estimates. Also, in the same study, it is argued
that excessive consumption, reflected by the trade deficit for goods or services, is
financed by households through borrowing; more specifically, it is supported by the
flow of capital that finances investment in human capital (Canto, Weise, 2018).
Overall, Romania's agro-food trade balance has the potential to be a systemic risk.
One reason for triggering this risk is related to the relationship between the current
account deficit and financial crises. The account deficit is the central element that
contributed to the unfavourable evolution of the trade balance, and the deterioration
of the current account deficit is also an element that led to the outbreak of financial
crises. Other reasons that contributed to the triggering of systemic risk are related to
food security and low productivity in agriculture (CNSM, 2020). In terms of
importance for economic growth, deterioration of the trade balance has been found
to have a negative impact on economic growth and vice versa (Abbas et al., 2013;
Cetintas 2008; Matthias, Jens, 2012). The results of a multivariate regression were
obtained in the paper "Trade Balance Effects on Economic Growth: Evidence from
European Union Countries", confirms the statistically significant negative impact of
trade balance on economic growth (Deimante et al., 2020).
Since 1990, when imports resumed, and until now, Romania's trade in agro-food
products has always been in deficit, except for two years, 2013 and 2014. The main
factors contributing to the dismantling of agro-food chains have been the change in
the agricultural land regime and land ownership. Additionally, the return of
159
agricultural land to its former owners had serious effects on the productivity and
efficiency of agricultural production (Gavrilescu, 2018; Albert, 2018).
According to a study conducted in 2018 by Flanders Investment & Trade, based
on European Commission data, a forecast of the Romanian economy for the next
period was made, and at that time, it was expected that the main growth engine of
the Romanian economy would be private consumption. In the same study, it was
mentioned that "imports will continue to grow at a higher rate than exports in the
period 2019-2020", which has happened, with exports making a negative
contribution to real GDP growth (Flanders Investment & Trade (2018).
The literature in Romania on national competitiveness, crop production, trade
balance, and the links between the three indicators is not so extensive. Romania has
the potential to be competitive in the global agro-food chain by processing raw
materials and exporting processed food, but the economic reality shows the opposite
(Constantin et al. 2022). In another study, Andrei et al. argue that in order for
agriculture to be efficient and have a high level of competitiveness, there is a need
for a polyvalence of both intra- and extra-EU trade. In agriculture, as in any other
economic sector or area, trade should make a significant contribution to the creation
of real added value for stakeholders (Andrei et al., 2020). The export of agricultural
products is a key element for a viable and sustainable agriculture, as well as for the
development of rural areas in Romania (Ciutacu et al., 2015). Starting from the
assumption that agriculture is the main activity carried out in rural areas in Romania,
stimulating and activating the export of agricultural products and activating trade
links within this sector can be an important tool in the development of agricultural
productivity and rural space (Ciupagea, 2004).
At the European level, the sharp rise in prices for agricultural products, a
consequence of events and trade disruptions closely linked to the rise in energy and
input prices, has led to the stimulation and activation of trade. Thus, agro-food trade
at the EU level reached €32801 billion, representing an annual increase of 7.2%,
while agro-food exports increased by €198 billion, representing an annual increase
of 7.3% (European Commission, 2022).

The research hypothesis starts with the premise that Romania's agro-food trade
faces a number of problems and focuses on answering the question of how viable it
is. The objectives of the research are to identify the results reflecting the situation of
Romania's agro-food trade balance, to analyse the trade in cereals, vegetables, and
animal products (meat), and to forecast the trade balance, looking forward to 2030.
To achieve these objectives, a qualitative and quantitative research of data on the
import and export of the aforementioned agricultural products is carried out.
4. Research Methods
The paper is based on statistical data provided by the International Trade Centre
on Romania's imports, exports, and trade balance for cereals, vegetables, and meat
160
for the period 2010-2020. The research method used consisted of a quantitative and
qualitative analysis of the statistical data in order to highlight the evolution of trade
and trade balance with the main categories of agro-food products in Romania. Also,
by means of SPSS software, the trade balance was forecast for the next period, to
2030, using the Forecasting method.
5. Findings
At the national level, agriculture is the most important branch of the economy in
relation to the size of the rural population and employment. In Romania, 46.2% of
the population lives in rural areas (Romania in figures, NSI, 2019). Approximately
30% of the country's population is employed in agriculture, so the social role of
agriculture must also be taken into account, which, according to the provisions of the
Common Agricultural Policy, is at the same time the space where most farmers live,
the natural environment under their care, and the cultural heritage inherited from one
generation to the next. Compared to other EU countries, the agricultural sector in
Romania accounts for a high percentage of gross value added (Figure 1).
Figure 1. Agriculture, forestry and fishing, value added (% of GDP)

5
3 Agriculture, forestry, and fishing, value added (% of…
0
EUU
SVN
ROU
DNK
LVA
DEU
HRV
LTU
MLT
PRT
FRA
BEL
LUX
CYP
SWE
FIN
BGR
GRC
IRL
AUT
CZE
POL
HUN
EST
ESP
ITA
Source: World Bank.
Due to the emergence of new global challenges with long-term implications, the
world is undergoing a process of structural transformation, which requires the
development of a strategic vision and the implementation of concrete actions by
national authorities. Demand for food is expected to increase by 70% by 2050 due
to population and income growth, and for the agro-food sector this represents both
an opportunity and a challenge. These trends have a strong impact on the demand
for agricultural products, as the European market is expected to offer limited
opportunities for expansion (Strategy for the Development of the Agrifood Sector in
the Medium and Long Term Horizon 2020-2030, 2015).
Cereal exports show an upward trend, so in 2020 the total amount of cereals
exported was 11.4 million tons, equivalent to €2.14 billion, approximately 13.6%
less compared to 2019. In terms of value, the highest exports were recorded in 2019,
161
approximately € 2.15 billion, 20.7% more than in 2020 (Figure 2). Romania, in the
period 2010-2020, exported an average of 9.5 million tons of cereals to EU countries
and third countries, with the largest quantity exported to Egypt, Spain, and Jordan.
Figure 2. Evolution of cereals exports and imports, 2010-2020
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Import Val (thousant euros) 239851 322888 365100 314800 283987 525364 576489 424112 322269 397813 704940
Import Cant(Tons) 12956611242683141549612397921310097287460832831872235002147229617550903369650
Export Val (thousant euros) 8825721053547131232619617421963869197132120561431966822215805325881092143535
Export Cant(Tons) 5373279471979853453509199089
10126521
10491217
11798520
11115485
11956812
13005494
11417523
Source: www.intracen.org.
At the same time, there were also cereal imports, which in 2020 were of around
3.3 million tons, or €704 million, 92% more than in 2019. It can be noted that the
value of cereal imports in 2020 is approximately 3 times higher than in 2010
(Figure 2). Romania is a transit country; imports do not remain in the country but
exit as exports, through the Constanța terminal (MADR, 2020).
Figure 3. Evolution of the trade balance for cereals in Romania, 2010-2020 (tons)
3500000
3000000
2500000
2000000
1500000
1000000
500000
Quantity (tons)
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Processing based on ITC data.
The main sales markets for cereals in 2020 were Bulgaria and Hungary for wheat,
France and Bulgaria for maize, Hungary and France for barley, etc. The value of
cereal exports far exceeds the value of imports, resulting in a trade surplus. In 2020,
Romania's trade balance recorded a surplus of 7.8 million tons, equivalent to
€1.4 billion. Among the EU-27 countries, Romania ranks 3rd in terms of the amount
162
of cereals exported, with a value of €2.14 million (Figure 3). Based on the estimate
of a decrease in domestic cereal production coupled with an increase in imported
quantities, it is possible to forecast Romania's cereal trade balance for the next
10 years. Therefore, the presence of factors with a positive impact, such as:
favourable weather and climate conditions for a good development of the cereals
sector, the presence of soils of a high quality for the normal development of cereals,
the production in favorable conditions of raw materials for processing, the level
of subsidies under the Common Agricultural Policy of the European Union, as well
as the existence of possibilities for the development of innovative technologies,
are elements that can contribute to a further increase in domestic production implicit
in exports.
Figure 4. Forecasting the trade balance for cereals, horizon 2030 (tons)
In 2001 the trade balance for cereals was negative (-178 thousand tons).
Therefore, by observing the upward trend of the trade balance, a model was created
in which the evolution of the trade balance in the following period, until 2030, was
forecast. According to the model, in 2030, Romania could have a surplus of
18.1 million tons (Figure 4).
Figure 5. Vegetable export and import trends, 2010-2020
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Import Val (thousant
144257
145163
151328
176265
214447
258750
345639
381717
427701
517883
480165
euros)
Import Cant(Tons) 330404
373069
431493
409397
415120
447251
568677
584502
677759
740238
675666
Export Cant(Tons) 88759654956314985147829459300495638324074
116756
11550250269
163
Imports of vegetables show an overall upward trend, with a slight decrease in

2020 when the value of imports was €480 million, 7.2% less than 2019. It can be
seen that the value of vegetable imports in 2020 is 3 times higher than in 2010 (Figure
5). The import values are higher compared to the values recorded for vegetable
exports, therefore strategies need to be developed for each vegetable group, to
identify solutions to balance the trade balance. From a quantitative point of view,
the highest value of vegetable imports was recorded in 2019, around
740 thousand tons, 9.6% higher than in 2020. The decrease in imported quantities
imported in 2020 could be attributed to export COVID-19 pandemic and the
limitations by some countries. Due to restrictions in terms of shop, market, or
restaurant closures, producers have not been able to make use of the production
obtained (Figure 5). Therefore, there has been a decrease in demand throughout the
period of the emergency and beyond, leading farmers to reduce areas or switch to
other crops. It is noted that for the whole period analyzed, 2010-2020, Romania's
trade balance for vegetables shows a deficit, reaching 625 thousand tons in 2020,
equivalent to 423 million euro (Figure 6). In the vegetable category, tomatoes,
cucumbers, potatoes, beans, and garlic are in the top positions in terms of deficit.
The main EU countries from which Romania imports vegetables are Greece,
Germany, the Netherlands, Poland, and Spain.
Figure 6. Evolution of Romania's vegetable trade balance, 2010-2020 (tons)

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
-100000
-200000
-300000
-400000
-500000
-600000
-700000
Due to massive imports, the vegetable sector is the most affected. One way to
correct the trade balance may be to improve yields per hectare, which could help
solve the problems of vegetable availability. At the same time, it should be noted
that there are a number of public policies that are aimed at vegetable producers. For
example, since 2017, support programs have been approved for vegetable producers
who grow tomatoes in protected areas, in order to obtain off-season crops. Another
program is dedicated to garlic production, as this vegetable accounts for a large share
of the trade deficit due to its high marketing price per unit volume. In addition to
these national measures, there are also European subsidies for the vegetable sector.
However, the beneficial effects, i.e. an increase in the area under cultivation, the
development of vegetable growing in protected areas, and, consequently, a reduction
in imports, are slow to materialize. The primary aim must be to maintain the quality
164
of food, taking into account people's health, and taking measures to maintain and
improve the sustainability of soil and energy resources.
Furthermore, in order to correct and improve the trade deficit in the vegetable
sector and beyond, measures should also be taken to inventory agricultural areas, to
consolidate land and holdings, and to provide vocational training and education for
the existing workforce, with a view to ensuring that agricultural activities are carried
out properly, thereby helping to increase the competitiveness of agricultural sectors.
Another factor influencing the trade balance deficit in the vegetable sector is an
indirect one, i.e. the market share held by the large agro-food retail chains, which in
2021 exceeded the 70% threshold, with the trend continuing upward. The lack of
organization in the production area leads vegetable buyers to ensure the continuity
of the flow of fresh vegetables with the help of imports. The evolution of the
vegetable trade balance shows that in Romania there is a need to develop associative
forms of cooperation on product supply chains, leading to the concentration of
vegetable supply, the establishment of warehouses with modern technologies to
ensure the conditioning and preservation of products for periods that allow constant
deliveries regardless of the season. At the same time, since the supply of vegetables
is seasonal and the demand for vegetables is continuous, it is recommended that they
be produced throughout the year.
The perishability of vegetables also plays a very important role in their
valorization, as the supply on the market must meet certain standards and meet
existing requirements, with the introduction of commercially valuable varieties
playing an important role. Often the vegetable varieties grown in Romania have very
good organoleptic properties but are deficient in terms of commercial quality.
In terms of geographical location and climate, Romania is at a great disadvantage
in terms of winter vegetable production compared to southern countries such as
Spain, Greece, and Italy. Due to the lack of modern technologies and, more recently,
to the increase in the price of energy and fuels, the cultivation of vegetables in
protected areas, whether in solariums or greenhouses, is carried out in small areas,
which leads to the import of significant quantities of vegetables.
Figure 7. Forecasting the vegetable trade balance, horizon 2030 (tons)
165
Observing the downward trend of the trade balance of vegetables, a model was
created to forecast its evolution in the following period, until 2030. According to the
model, in 2030 Romania would have a deficit of 750 thousand tons, which means
that the trade deficit increases 9 times compared to 2001. The value of meat exports
to Romania showed an oscillating trend in the period 2010-2020; therefore, in 2020
the export value reached 195 million euros, an increase of more than 55% compared
to 2010, when a value of 125 million euros was recorded. Romania exports mainly
poultry meat, and in 2020 it exported to countries such as England and Hungary
(29182 tons and 27585 tons, respectively) and pork to Belgium, Italy, Sweden, etc.
Meat imports show an overall upward trend registering a slight decrease in 2020,
when the value of imports was €912 million, 2.96% less than in 2019. It can be seen
that the value of meat imports in 2020 is about 2 times higher than in 2010. The total
quantity of meat that Romania imported in 2020 was 468.5 thousand tons, 30.12%
more than 2010 (Figure 8). Romania imports mostly pork, the main countries of
origin being Spain (272630 tons) and Germany (60371 tons). In addition to pork,
significant quantities of poultry meat (Poland and Hungary), beef (Germany and
Poland), and sheep and goat meat are also imported.
Figure 8. Evolution of meat exports and imports, 2010-2020
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Import Val (thousant euros)496584440069464728469187522517547186614139740277817588940316912400
Import Cant(Tons) 360061294258316912297357344136377706389754419301494117475596468527
Export Cant(Tons) 77191992821147531015559435711025512178413184912871111451993617
It should be noted that meat imports were also influenced by other factors such
as the embargo imposed on Russia after the annexation of Crimea in 2014, but
especially by the spread of African Swine Fever (ASF) since the same year, which
decimated the pig farming sector in Romania. Under these conditions, the level of
pork imports has reached a very high level of more than 70% of the Romanian
market's consumption needs.
166
Figure 9. Meat trade balance forecast, horizon 2030 (tons)
Source: processing based on ITC data.
Observing the downward trend of the trade balance for meat, the model
developed in SPSS shows its evolution in the next period, until 2030. According to
the model, in 2030 Romania would have a deficit of 785 thousand tons, which means
that the trade deficit increases by about 3 times compared to 2001. The ageing
population and demographic decline will limit the development of the domestic
agro-food market. With a similar trend expected for the whole European continent,
it is expected that Romania will have to increasingly expand its influence on markets
outside the EU. The growth in food consumption currently exceeds production,
leading to massive food imports. Pork and poultry consumption is growing the most
while beef and dairy production hold the majority of agricultural resources (Kolleen
et al., 2011).
Now, Romania needs to effectively manage the existing constraints and how best
to address them. In Romania's Development Strategy for the next 20 years, a
document drawn up in 2015, it was mentioned that by 2020 Romania should have
ensured its food security, but according to the current data it can be seen that the
forecasts mentioned in the Strategy will not be confirmed, which leads to the need
for the authorities to intervene in order to correct the existing deficiencies. The
intervention of the authorities, together with the associations of the sector, is focused
on the development and implementation of strategies for the agro-food sector. This
strategy considers it necessary to develop a development policy focused on the
production sector, the main aim being to recover domestic markets and increase
external markets based on competitiveness.
Following the high degree of fragmentation of holdings, the proposed measures
relate to amending and improving the legislation on land consolidation and
completing the land registration process. Other measures proposed to alleviate the
shortcomings that have accumulated in recent years concern the theoretical training
and education of agricultural workers and research institutions. According to an
NBR report, Romania ranks last in Europe in terms of the graduation of specialized
167
schools by employees working in the field (CNSM, 2021). In addition, a set of

recommendations is proposed on: stimulating exports of products, increasing
added value (for cereals and large crops, vegetables, fruit, and for the livestock
sector), proposals on innovation, quality, and financing. The recommendations
for stimulating and increasing exports provide measures to finance the program
to enhance the value of organic food products, including for export, financing of
trade fairs and foreign economic missions for the agro-food sector, as well as
measures to increase the number of exporting agro-food SMEs, the development
of clusters and regional agro-food export networks to manage geographical
indications, development of the e-commerce system, etc. (Dăianu, 2001).
To increase added value, the aim is to implement measures, in particular, to
encourage associations within agricultural cooperatives in order to benefit from
high-performance and intelligent technologies that can ensure a high level of
competitiveness for agricultural products. In addition, measures have been proposed
to define the value chain for all agro-food products.
6. Conclusions
Romania has an overall trade deficit for all sectors except cereals, where there
is a trade surplus of 7.8 million tons, equivalent to €1.4 billion, in 2020. The
development of the processing sector for raw materials obtained from the processing
of cereals such as flour, corn flour and vegetable fats could, through their export,
reduce the trade deficit. The processing of raw materials from primary crop
production into higher value-added products such as bakery products, pasta, biscuits,
frozen doughs, puff pastries, confectionery, and pastry products could be other
solutions to make better use of Romania's cereal production.
Regarding foreign trade, the balance of trade in vegetables shows a deficit of
625 thousand tons, equivalent to €423 million, one of the most affected sectors. One
way of correcting the trade balance may be to improve yields per hectare, which
could help to solve problems related to the availability of vegetables, such as the
current problems of low access to food. The trade balance in animal products is in
deficit. In the context of ensuring animal production that meets current consumption
requirements and availability for export, livestock farming in Romania also requires
the existence of adequate livestock numbers and a breed structure with high genetic
value. This situation of continually shrinking livestock numbers and the excessive
fragmentation of livestock farms is having an impact on farmers' investment capacity
and therefore on the yields obtained, with sectoral production also being affected by
insufficient collection, storage, and transport facilities. Thus, the inability to deliver
goods to the upper links of the production chain in accordance with their quantitative
and qualitative requirements characterizes not only the plant sector but also the
livestock sector. Following on from the previous statements on exports of cereals,
especially wheat, maize, and sunflowers, a link should be made with the
development of the livestock sector, especially pig farming, but also poultry farming,
which could influence the level of imports of high value-added products such as
meat, meat products, dairy products, and eggs.
168
According to forecasts, using the SPSS software, Romania is expected to have

a surplus of 181 million tons of cereals by 2030, while the trade deficit for
vegetables and meat could reach 750 thousand tons and 785 thousand tons,
respectively. The continuation and deepening of current trends is undesirable for the
agro-food sector in Romania, as the economic consequences could be negative,
jeopardizing the existence of crops in the case of the vegetable sector, generating
excessive specialization of large cereal farms, which could have social
consequences, but especially on the environment and biodiversity.
Acknowledgment
during the PhD program, as well as by the MESTD RS agreed in decision
no. 451-03-68/2022-14 from 17.01.2022.
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170

June 16-17, 2022
Theoretical Perspective on the Impact of Globalization

and the Development of the World Economy System
Mohamad ABOU EL HASSAN1
DOI: 10.24789788367405072-016
Abstract
Globalization is a complex process determined by multiple causes, given the diversity of
the contemporary world and the international relations developed between modern societies,
the spatial or temporal distance no longer being an obstacle to the expansion of transnational
relations. Globalization can be approached both conceptually and phenomenologically. This
is a challenge for modern society, which must assimilate and control the information and
content circulated by establishing links between various economies and societies, but we will
see that this also depends on the degree of initial development and the mentality of that
society. Globalization, by its dimensions, acts not coercively and perhaps not fully
consciously on the contemporary world, becoming an immanent factor of any relations
between states. Freedom of movement of capital, labour, technology is a channel for action
of globalization. This paper analyses the phenomenon of globalization from a theoretical
perspective, investigating various theories on its impact on the development of the world
economic system.
Keywords: economic system, financial globalization, world economy.
JEL Classification: B26, F36, P34.
1. Introduction
Globalization is a complex phenomenon, outlined as a fairly recent concept, but
manifested in the history of states since individuals began to interact in order to
obtain the necessary resources, when their own ones were not enough. These simple
exchange relations have expanded through the migration of people; thus,
globalization nowadays aims at integrating national economies on various levels,
economic, social, cultural, political, a phenomenon that can diminish the autonomy
of governments, but the reconfiguration of social relations has as final goal the
increase of the development potential of a country and, implicitly, of the living
standards of the population.
© 2022 M. Abou El Hassan, published by Sciendo. This work is licensed under the Creative Commons Attribution
4.0 License.
The economic facet of globalization highlights the fact that the advantage arising
from the global manifestation of this phenomenon related to the more efficient
allocation of resources also affects the perpetuation of these resources. The scarcity
of resources thus becomes the result of the struggle to maximize profits, to expand
power, and to seize markets. The aspects that shape the identity of a nation, such as
local culture, traditions, mentality, cultural values, are annihilated under the auspices
of globalization. Beyond the benefits of the phenomenon, globalization can actually
lead to the suppression of borders and the sovereignty of the preferences and interests
of developed states, which leads to the unfair allocation of resources, the unfair
redistribution of the national product, to the deepening of the differences and
differences between the social strata, thus to the domination of the few and the big
over the small and many.
Politically, however, globalisation poses a threat to emerging economies, which
the major economies are exploiting. The intensification of global economic
exchanges is increasing the dependence of countries on the periphery of the pyramid
of economic development on developed economies such as the US, in which a large
part of the capital and expertise is found in many areas. There is also a transfer of
power from the state to multinational corporations, which concentrates financial
power at present. This has led to the strengthening of the 'brand' and its globalisation,
as the production and marketing of a multitude of products is carried out on a large
scale today.
2. Research Questions and Methods

This theoretical research aims to investigate the impact of globalization on the
development of the world economy system. The main research questions proposed
in this paper are the following:
- What are the economic implications of the phenomenon of globalization, from a
theoretical perspective?
- What concepts underlie financial globalization?
- What is the relationship of the globalization phenomenon with the system of the
world economy?
The methodology of the paper consists in the theoretical analysis of the main
books and articles that approach the phenomenon of globalization on the
development of the world economy system and the comparative presentation of the
main issues underlined.
3. The Phenomenon of Globalization and its Economic Implications

Globalization has become a known term since the 1990s and is appreciated due
to the contribution of economic growth potential it offers to interconnected states,
leading to higher living standards. Economic integration leads to a better division
of labour between integrated states, a mechanism that allows economies that pay
labour at a low level to specialise in diverse and competitive areas, while developed
countries with a wage policy geared towards high pay to increase labour
172
productivity, allowing companies to exploit economies of scale. Globalisation also

allows capital flows to be migrated to the highest-return investment opportunities,
without being constrained to be placed in the country of origin at lower returns.
Although globalization is a multifaceted concept with numerous dimensions,
some specialists approach it as an eminently economic phenomenon, determined by
the unprecedented increase in the volume of international commercial transactions,
by the liberalization of the movement of capital and labour, having as purpose the
maximization of the gain at the expense of these facilities, respectively, the increase
of investments in order to consolidate the development in the already developed
countries and to stimulate the economic growth in developing or emerging ones.
Against the background of increasing capital and investment flows, certain capital
markets will develop even more strongly, thus favouring the domination of large
corporations over national economies.
At the same time, globalization involves the conveyance of ideas, national
practices, and technologies and constitutes something more than internationalization
or modernization, universalization. This involves the intensification of social
relationships spread globally, which connect places at almost immeasurable
distances, but which are influenced by events that take place at great physical
distance, which would otherwise be impossible to annihilate. Eliminating
geographical distances and barriers is one of the undeniable advantages of this
phenomenon. They are produced as follows:
- relocation and over territoriality;
- the transmission of technological innovations is done at a speed that also affects a
certain risk;
- the domination of multinational corporations;
- liberalisation and the development of financial markets lead to a corresponding
increase in the risk exposures of national economies.
Friedman complains that globalization is not a trend, but a legitimate
manifestation of global interdependence, which has its own rules, its own logic, and
exerts specific pressures on all states, companies, people, to a greater or lesser extent.
In his vision, globalization refers to the integration of markets, technologies,
information systems, telecommunications systems in a manner that exceeds
national borders, decreases distances, and increases the speed and scope of
accessibility of all to products and services that originate at a greater or lesser
distance. Globalization is also perceived as a process or set of processes that include
the transformation into a spatial organization of social relationships and transactions,
expressed through transcontinental flows and networks of activities, interactions,
and power (Friedman, 2000).
Waters points out that globalization is also a paradox, due to the fact that it
reduces the world to a compressed whole, due to the compression of temporal and
spatial barriers, but also an intensification of the awareness that the world is also
becoming a much more complex set of forces, due to the interdependencies that are
formed. Although the definitions given to globalization highlight its dialectical
nature, Waters counts on the advantages brought by globalization to the national
173
economies integrated into this undefined superstructure, which allows for the
diversity but also the homogeneity of local practices and cultures. He believes that
there will be only one culture on the planet, but which will not, of course, be
harmoniously integrated, due to diversity and local specificity. Space barriers will
disappear, with territoriality no longer being an organizing principle of social and
cultural life. Also, in a globalized world, we will be unable to predict the preferences
of society through the prism of the geographical location of a state (Waters, 1995).
We believe that the elimination of geographical barriers will not eliminate
unquenchable customs, especially in the case of peoples with a solid and ancient
history of traditions, but also the fact that underdeveloped third-world countries will
not reduce the gap between degrees of development in order to integrate into a
globalised world.
The relocation is also manifested in the banking system, where financial
innovations and financial infrastructure have led to the carrying out of part of the
banking activity without physical interaction between the bank and the customer.
However, not everything is globalized. Employment is largely local or regional, but
it is certainly affected by strategic activities and economic factors carried out in a
globalized system of inputs and outputs.
In the view of many specialists, but also in the collective consciousness,
globalization is an ideologically suspected premise, since it is meant to justify the
spread of Western culture and capitalist society, which is largely real (Goodhart,
2003; Alami, Dixon, 2020; Pizzolo, 2020). However, this does not imply that every
state must submit to this ideology, but must relativise this ideology in order to adapt
to its needs. The relocation or deterritorialization of social and political arrangements
occurred mainly in Western Europe.
4. Financial Globalization
Financial globalization is the most important dimension of globalisation,
especially in the context of a fragile global financial system, but also exposed to
external vulnerabilities. Globalisation must be seen as a process rather than as a
condition of a system. This implies the quantitative and qualitative intensification of
exchange relations (transactions) outside national borders, i.e., on international
financial and banking markets. Financial globalisation also makes a significant
contribution to increasing consumption and investment in space-distant financial
markets, but also contributes to the diversification of risks through the
decompartmentalization of markets.
The dynamics of financial globalisation should also be analysed in the light
of the risk component of interbank exposures in a market or of international
exposures generating systemic risk. Many theorists, but also practitioners in the
economic field, appreciate the fact that the most recent global financial crisis was
determined only on the surface by the fall of the real estate market, due to the moral
hazard of the clients, who took risks without hedging, because they did not have
enough information (asymmetry of information) on the market and could not
predict the evolution of real estate prices amid excessive demand for mortgage
174
loans (Alqaisi, 2018; Gennaioli, Shleifer, 2018; Kvalnes, Nordal, 2019). In essence,
however, the bursting of speculative bubbles was due to a longer process
of accumulation of imbalances, which were "decompensated", affecting the
entire economy. The causes of the onset of this crisis were such micro and
macroeconomic order.
Financial globalization, regarded as one of the other dimensions of the
phenomenon, designates the interdependence relationships that are formed between
banking systems and financial markets at a global level. An important role in the
process of globalization is played by financial deregulation, which involves the
relaxation of regulations in the financial and banking field, which does not imply
their elimination, but the allowing of banking institutions to pursue the maximization
of profit with greater leeway, especially in terms of interest rates on deposits and
loans granted. With regard to deregulation, two main issues are significant:
- the amplitude of the intervention on the financial and banking market;
- the intervention instruments permitted or chosen.
The first aspect related to the discretionary character of public action reveals that
in certain states, such as Romania, the central bank has a higher degree of freedom
of action than other public policies, which is a benefit, given the success of monetary
policy in recent years, the credibility enjoyed by monetary authority, and the
transparency of its policy.
Currently, as we note from the history of systemic economic and financial crises,
the central bank also performs an interventionist function, the regulations being
necessary both to diminish the post-factum effects and to increase the ex-ante
predictive capacity. The stages of financial regulation capture two important
historical moments: the period of the Great Moderation, characterized by a strict
regulation on financial and banking activity; this moderation proved to be artificial,
not imposing major interventions on the part of the central bank, whose duties were
executive (it established the overnight interest rate). The second landmark historical
moment concerns the 1970s, with the abandonment of the Bretton Woods system
and the transition to the floating of the exchange rate. In this context, the
convertibility of the dollar into gold was abandoned, gold ceasing to be a means of
exchange, and that period was that of the Great Deregulation.
After the global financial crisis that broke out in 2008, international financial
bodies and supervisory committees have strengthened the regulations of banking
prudence, so that now the banking activity is regulated by the provisions of the Basel
III Agreement, considered the best means of prudential intervention in the banking
market and with the best results in anticipating an episode of turbulence that would
generate systemic risk.
In the specialized literature we find three ideological trends specific to the 1990s:
the hyperglobalist perspective, the sceptical perspective and the transformative
perspective (Held et al., 2000). The hyperglobalist perspective amplifies, as
expected, the role of globalization in building a new age of mankind, dominated by
the lack of borders between national economies, all of which are part of a global
market. The national authority is repealed, and economies are 'denationalised'. The
175
sceptical perspective classifies the current phenomenon of globalization as being

more of a process of regionalization and fragmentation, exemplifying this ideology
with the third world, which is marginalized rather than integrated into a global
market. The authors also point out that the development of multinational
corporations brings benefits to their host countries by not being outsourced as a
committed workforce. The transformative perspective does not identify any real
reasoning underlying globalization, nor any outcome, being at the opposite pole of
the other two currents of thought.
Scholte also tried to define globalization, which he approaches as a
transformation of social geography, driven by the expansion of supraterritoriality
(Scholte, 2004). The author notes the inconsistency of the definitions related to
liberalization, universalization, westernization, etc. and emphasizes a sociological
factor, that of cross-border communication between people. Scholte's perspective
approaches the transformative one in that he argues that globalization is transforming
the nature of social space.
Lomborg addresses the impact of globalization on the world, and his work on the
actions we can take both as individuals and as a nation can increase the return on
investments made, especially to improve the situation of human capital. Lomborg
analyses the costs and benefits of the best solutions to twelve global problems, with
the financial resources to spend $ 75 billion, over a time horizon of 4 years. His
analysis shows that the best solution, the one generating the most benefits in relation
to the effort made, is the allocation of 3 billion dollars in the health and education
system, with the purpose of reducing malnutrition in children and improving
education in pre-schoolers. The cost-benefit analysis reveals that a dollar spent to
reduce malnutrition in children will generate a benefit of $30 (Lomborg, 2014).
Addressing pressing issues that affect both present and future generations shows
that public policies should reconsider their priorities in terms of objectives. The
operations intensified by the process of financial globalization refer to the integration
of both the public and private sectors within a developed, complex global financial
market, thus to the involvement of public and private institutions in cross-border
financial transactions. State loans and foreign direct investment are becoming
international financial flows, along with acquisitions and mergers between certain
financial institutions. Looser regulations or financial deregulation have favoured an
increase in the processes of capital inflows and outflows between the countries of
the world.
At the global level, banking activity has had an evolution marked by three factors
or vectors: deregulation, disintermediation, and opening or decompartment of
markets. As deregulation has been the subject of previous detail, it is also necessary
to point out certain aspects about disintermediation and the opening up of markets.
Disintermediation is a phenomenon derived from deregulation. Although
increasing financial intermediation is currently an intermediate monetary policy
objective, as this process increases the role of financial intermediary of the banking
sector, disintermediation implies the freedom of economic agents to act directly on
176
the financial market, without resorting to banking institutions to place their resources
or attract resources.
The opening of the markets can be carried out towards the foreign market, by
eliminating the borders between the national and foreign market, but also inward, by
decomparting the external market. The most striking example of the opening process
is the introduction of the euro, with all the implications arising from it, implications
of competitiveness, regulation, and pressure. The globalisation of banking activity
also refers to technological progress and financial innovations, which have fostered
the emergence of new, marketable financial assets, increasing the volume of
transactions on the financial markets.
The fundamental objective of central banks is to ensure price stability, a necessary
but not sufficient condition for maintaining financial stability. In a globalised
economy, financial stability is becoming an even more delicate desideratum because
national banking systems must rigorously comply with the bank prudence provisions
in their commitments and exposures, especially in those that create
interdependencies within the financial system. Bernanke considers the objective of
stability not only an objective, but also an instrument of monetary policy, as its
effective 'use' contributes to sustainable economic growth, to increasing employment
with an impact on social welfare (Bernanke, 2007). The implications of achieving
such an objective for the real economy are related to the transparency of monetary
policy, which supports confidence in the central bank and practically controls
inflation expectations, the fall in interest rates, the preservation of the value of
incomes, and, therefore, of the purchasing power of households, which has access to
changes in relative prices, the orientation of resources towards the productive sphere,
and the avoidance of an increase in the money supply in circulation, accompanied
by a similar increase in prices and not in output, according to the quantitative
equation. Thus, achieving the objective of financial stability becomes difficult in the
context of globalization and liberalisation of financial and banking markets.
5. The Relationship of the Globalization Phenomenon with the System

of the World Economy
The belief that poor countries feel the benefits of globalisation more strongly than
developed countries is based primarily on increasing the economic openness of third
countries, so that they can make use of their resources more easily and investors can
look for investment opportunities in underdeveloped economies. We believe that the
benefit of opening up to the global economy is a double-edged knife, because the
resources available in poor countries and the labour force are paid much less than
the same resources would be in industrialised countries. Thus, just because living is
much cheaper in these countries, and living standards much lower, investors get
higher earnings than they would get in other regions. The exploitation of human
capital thus becomes a delicate issue today. It should be noted that a pro-global
argument would be to increase the competitiveness of local producers (Dima, 2018),
who can thus develop their business (Trifu et al., 2014); globalisation also allows for
the free movement of labour (Girneata, 2015), and employment opportunities are
177
more numerous. From the point of view of large corporations, globalization

contributes to the reduction of bureaucracy and leaves them with a certain flexibility
to expand into new markets and to search for new commercial fords that will increase
the value of their business. Arestis and Basu believe that it must be moderated by a
global institution that has a role of coordinating the process due to the acceleration
of the globalization process (Arestis, Basu, 2003).
On the other hand, antiglobalists have a different perspective for two reasons.
Countries with a rich history, such as the US and some European countries, blame
the rise in unemployment, especially among the workforce specialising in
competitive fields; on the other hand, developing countries, most of the time with
emerging economies, demanding the loss of national identity, autonomy, and local
culture. Also, antiglobalists regard the phenomenon of globalization as a premise of
the concentration of power also in the hands of the powerful, society being divided
into no more than three social strata, of which the poor blanket will be dominant in
density, but the dominance of the rich will be felt at the structural level. In a
globalized society, the reversal of values in the collective consciousness has
almost become a cliché, a peculiarity of the "new modernity", in which the binder
between places and peoples also determines their dependence on all other. Thus, if
during the first modernity sovereignty still had intrinsic value, nowadays the national
identity struggles not to be annihilated by the composite, aggregated identity of all
other nations, characterized rather by elements common to all societies and less by
their specificity.
The arguments in favour of globalisation are, of course, manifold. First of all, the
evolution of technology constitutes a major gain accessible to a wide range of
individuals, companies, and societies. Technological progress, thanks to
globalization, brings together a workforce from all over the world to work on the
same innovative product, without barriers, benefiting at the highest levels from
everyone's specialization, and the transfer of know-how being indispensable for
evolution. Globalization also allows the standardization of certain technical
parameters that can be widely used for the same purpose by everyone, and this
uniformization of the means of work eliminates the disadvantages that would arise
from the situation in which each company had its own means of storing data or
transferring it.
Another advantage stems from the globalisation of politics, which allows
international to decide on events of systemic importance, such as EU sanctions on
Russia during the war in Ukraine.
At the same time, globalization contributes to the reduction of bureaucracy, due
to the elimination of barriers, so that all beneficiaries relate to global standards that
they must achieve. The decrease in the prices of goods and services against the
background of production and marketing opportunities in different countries of the
world in different regions with varying degrees of development and, implicitly,
against the background of lower production costs.
Among the advantages of globalization, we also mention international security
(large corporations are involved in social responsibility actions, in the fight against
178
terrorism), increasing employment opportunities, using resources more efficiently

in order to reduce their waste (however, the intense consumption of resources leads
to their rarity).
The increase in foreign direct investment is a consequence of globalization that
produces its effects with a bigger or smaller gap, also taking into account the external
competitiveness of a national market, which can be increased only by leading
credible public policies, with results and connected to the real needs of society. The
increase in foreign capital materialized in the increase in the quality of management
at the level of the companies in which it is invested determines, in essence, the
productivity momentum. However, it should be remembered that globalization also
means relocation, which implies that foreign investors, depending on economic and
political stability, fiscal policy that must encourage investment and production
(Girneata, Dobrin, 2015), but also depending on new investment opportunities on
other markets, can lead to capital outflows, with negative effects on the economy, by
increasing the unemployment rate, damaging the country's image externally, etc.
Financial globalization, regarded as one of the other dimensions of the
phenomenon, designates the interdependence relationships that are formed between
banking systems and financial markets at a global level. An important role in the
process of globalization is played by financial deregulation, which involves the
relaxation of regulations in the financial and banking field, which does not imply
their elimination, but the allowing of banking institutions to pursue the maximization
of profit with greater leeway, especially in terms of interest rates on deposits and
loans granted. As far as deregulation is concerned, two main aspects are significant:
the magnitude of the intervention in the financial and banking market and the
intervention instruments allowed or chosen. Currently, as we note from the history
of systemic economic and financial crises, the central bank also performs an
interventionist function, the regulations being necessary both to diminish the post-
factum effects and to increase the ex-ante predictive capacity.
Due to the increasing interdependencies between the world's economies, the
phenomenon of financial globalization also favours the risk of contagion, which
triggers the propagation of shocks at a rate that annihilates time and space barriers.
That is why the prudential regulations currently in place are precisely aimed at
limiting the effects of contagion risk, which remains inherent in cross-border
financial activities. Mitigating this risk would highlight the benefits that
globalisation brings to the parties involved. Other researchers emphasize the
conditions that interdependent nations must meet in order to feel the advantages of
globalization more strongly than its costs (Witt, 2019; Drezner, Farrell, Newman,
2021; Luo, 2021). Among these conditions, we mention the observance of market
discipline, the increase of the depth of the financial systems, thus their development,
the diversification of risks, the efficient allocation of financial resources by placing
them at the best yields or their redistribution to the demand for money, efforts to
increase the quality of management. Compliance with these conditions is possible in
the case of states with a developed economy, developed financial markets, and
governed by effective macrostabilisation policies.
179
The liberalisation of capital movements generates risks for states that carry out a
massive volume of international trade, in which foreign capital flows are numerous
or those of capital outflows, if exports are stimulated, so that the attention paid to
certain intermediate or operational monetary policy objectives must be increased.
The complete liberalization of the capital account is conditioned by: inflation
targeting, so the failure of the inflation target threatens financial stability; the floating
of the exchange rate is to a certain extent controlled, in order for the monetary
authority to intervene in the event of a steep appreciation or depreciation of the
national currency, with an impact on capital movements; external competitiveness
to be supported by credibility in the public policies of the state; the budget deficit is
kept within prudent limits; the degree of external indebtedness does not endanger
public solvency; stimulating competition through fiscal, monetary incentives, in
order to produce results in domestic production and, implicitly, in GDP; the
existence of developed, up-to-date information systems that meet the present needs
to assess the state of the economy in general and to monitor and establish correlations
between certain problems in the economy, in order to provide technical support for
the substantiation of solutions.
6. Conclusions
Globalization in general, and financialization in particular, makes the economies
of the states of the world become interdependent through numerous channels of
transmission of globalization. In these circumstances, international financial
institutions have a special role to play in strengthening the prudential supervision
framework and in correcting financial imbalances. The concept of financial stability
is also very broad, making it difficult to identify a widely accepted definition.
Globalisation can be approached both conceptually and phenomenologically.
This is a challenge for modern society, which must assimilate and control the
information and content circulated by establishing links between various economies
and societies, but we will see that this also depends on the degree of initial
development and the mentality of that society. Globalization, by its dimensions, acts
not coercively and perhaps not fully consciously on the contemporary world,
becoming an immanent factor of any relations between states. Freedom of movement
of capital, labour, technology is a channel for action of globalisation. financial
globalisation is the 'binder' between economies affected by the crisis, given that
globalisation is by definition interdependence, system and contagion, when relations
between states deteriorate due to the difficulties of one or more 'partners' of these
relations. Thus, there is a polarization between proglobalists and antiglobalists
regarding the potential benefits of globalization: proglobalists believe that
globalization has eminently positive effects on the living standards of the population,
on their incomes through diversification, but also through the liberalization of the
movement of labour, capital, and technology. While proglobalists argue that the
main beneficiaries of globalization are poor countries, antiglobalists have
antagonistic beliefs that globalization has devastating effects on poor countries
because it affects local culture, the environment, and quality of life.
180
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181

June 16-17, 2022
Does the Profitability Have an Influence

on the Financing Decision?
Rodica BACIU1*, Petre BREZEANU2, Adrian SIMION3
DOI: 10.24789788367405072-017
Abstract
This paper investigates the relationship between profitability, cost of debt, liquidity, cash
conversion cycle, and leverage over time, for companies that mainly operate in wholesale
trade of motor vehicle parts and accessories. The bigger a company is, the higher the
proportion of bank loans into the total liabilities, and this might be due to banks assessing
the larger firms as being more eligible for a loan. Due to the large volumes, they purchase,
the bigger companies have also bargain power and can negotiate better payment terms and
prices with the trade creditors, which enables them to better manage their cash.
Keywords: capital structure, cost of debt, debt ratio, financing decision, ROA, ROE.
JEL Classification: G31.
1. Introduction
As long as the cost of debt is one of the multiple factors that have an impact both
on the finance structure of the enterprises and the investment decisions (if there are
more competing investment project, which one should be undertaken, and the way
the potential mix of the funds is used to purchase of various types of assets leading
to new asset structure and size), while different investment projects carry different
risks thus having an impact on the cost of debt, it is expected that not only these
indicators are inter-related, but they also have a direct relationship with the return of
equity which shows the efficiency in using the company’s own funds.
The literature in this area explains how the cost of debt can impact the financing
decision; for example, if, due to factors that do not directly depend on the financial
situation of the company, but are rather general economic environment related, the

3
University of Medicine, Pharmacy, Science and Technology, Târgu-Mureș, Romania,
[email protected].
© 2022 R. Baciu, P. Brezeanu, A. Simion, published by Sciendo. This work is licensed under the Creative Commons
cost of debt increases, the company might decide to issue equity if available or even
to postpone the investment plans.
At the same time, a company with an already high gearing ratio might not be
assessed as eligible for additional loans by the banks, thus having to turn to its
shareholders to get its investment projects funded, even if potentially at an increased
expected return (as dividends required by the owners); alternatively, the bank might
take the risk of lending money to the company but at an increased interest rate and
under certain restrictions on using the funds.
Also, the quality and quantity of the company’s assets directly impact the
revenues that can be generated by them, the inflows that will result in increases in
equity and, as such, in the available funds that can be re-invested.
Therefore, the return on equity, the return on assets, and current ratios will be
used as control variables to see how they relate to the debt ratio.
During the last few decades, a lot of literature has been produced to address the
relationship between the capital structure and firm performance, both theoretically
and empirically. Initially, it was F. Modigliani and M. Miller (1958), whose theory
demonstrated the irrelevance of capital structure in a company’s value. A few years
later, in 1963, they revised their own theory and factored the deductibility of interest
expense in, leading to the conclusion that the higher the debt ratio is, the higher the
company value, too. They were followed by other researchers who found many other
variables that influence both the making of decision on the mix of financing
resources and the financial performance, which make it very difficult if not
impossible to formulate a general theory of optimal capital structure.
Chang (2015), contradicts, through three arguments, the Modigliani and
Miller’s theory.
Later on, Baker and Wurgler (2002), suggest that companies issue new shares
when they perceive that they are overvalued and that firms redeem their own shares
when they consider that they are undervalued; this behavior impacts the capital
structure, and also the authors Dragotă and Semenescu (2008) sustain that the capital
structure depend of the sector of activity of the companies.
Jensen and Meckling (1976), introduced the agent theory, based on different
interest of shareholders, managers, and creditors of the company, they identify two
types of conflicts: conflict between managers and shareholders, and the conflict
between shareholders and creditors. The agent theory proposes the way to reduce the
cost by accessing the credit, in this case the creditors are the unpaid and strict
monitoring agent. Borrowed capital has a constraint and motivating effect upon
managers of the company, they have to be very carefully that company to produce
results to can pay the interest and the capital rates, otherwise the company will face
the risk of bankruptcy, and the managers lose their jobs (Vernimmen, 2017).
Connelly, Certo, Duane, and Reutzel (2011) declare, that signal theory is based
on the different behavior between two parties that have access to the different
information, in our case the shareholders and creditors.
183
In a study based on data from 1.380 European companies for the period
1993-2013, Rauramo (2016) identified that median value of the industry represents
an determinant to estimate the capital structure of the companies.
An recent article published in The Journal of Finance (2019) signed from the
President of American Finance Association, Peter De Marzo, - Presidential Address:
Collateral and Commitment – sustain that choosing the optimum capital structure is
a problem of engagement. In the context with the agency conflicts between the
shareholders and creditors, the complete engagement means that the company will
be almost exclusively on borrowed capital.
The Authors Charness and Neugebauer (2019) after a study that test the
invariance of the theorem in the market, during the Modigliani and Miller
demonstrated mathematically that market value of a company is independent of
return on assets economic and the or the equity and debt ratio, if prices are not
arbitrage, but the theorem was not sufficient tested on the real markets.
Shemetov (2020) shows that the propositions of Modigliani and Miller are
available only short time periods, discrepant with the predication of Modigliani and
Miller, structure of assets affects the value of the company.
A more recent study performed by Stanica, Ilie and Taga (2018) on a sample of
Romanian listed companies and published identified a positive relationship between
the cost of debt of the non-financial companies and the capital structure, while a
negative one exists between the cost of debt and the growth opportunities, size, and
age of the company; the industry effect was also confirmed as being a factor of
influence on the cost of debt.
A study by Botoc and Anton (2017) used the financial information available for
the period 2006-2015 for a sample of 937 companies in Central and South Eastern
Europe, having a fast economic growth. It showed a U-shaped relationship between
the working capital management and the profitability. The optimum of working
capital at which the profitability is maximized was calculated at 79% of the turnover.
The profitability ratios used in this study were the following: ROA, EBIT, ROIC and
WKRC (Working capital ratio = Net current assets / Sales). Working capital ratio
carries the contrast between the managers’ interest in aggressive commercial policies
regarding early payment discounts, and the shareholders’ concerns regarding the
increase in profitability.
The results of the 2017 study were in contrast to the conclusions of previous
research that showed a negative relationship between working capital management
and profitability. Ebben and Johnson’s findings (2011) are that the US small firms
with shorter cash conversion cycles need lower levels of invested capital (long-term
debt plus shareholders’ equity) and have a positive impact on the financial
performance assessed by the asset turnover and return on invested capital and on the
levels of liquidity. The study published by Aregbeyen (2013) contributes to the view
that the efficiency of working capital should be improved and the cash conversion
cycle shortened in order to increase the profitability of the manufacturing firms.
Aktas, Croci and Petmezas (2015) argued that there is an optimal level of working
capital and that by converging to it, the companies improve their performance.
184
Another study was conducted in Romania for the manufacturing companies listed
on the Bucharest Stock Exchange in 2003-2010. It used a cross-sectional regression
that highlighted the relation between the capital structure and the financial
performance. The analysis on the capital structure considered: short-term debts vs.
long-term debts, total liabilities vs. equity, while the assets performance (ROA) and
the equity performance (ROE) are the profitability ratios. The results suggest that for
the sample companies, the financial performance is enhanced when they avoid the
debts and only use their own financial resources.
Setiyono, and Ernawati (2017) published a study conducted in Indonesia, which
included 14 listed companies in Food & Beverage sector and their financial data
available for 2013-2015. It outlined that the internal audit and the current ratio do
not have any significant impact on the financial performance, while the working
capital turnover (Turnover / Net current assets) does.
Going a little farther, in Asia, we find another empirical study that used the Panel
data model for IT companies in Bangladesh, listed at the Dhaka Stock Exchange in
2013-2017; the dependent variables selected were ROE, ROA and EPS and the
independent variables were debt ratio, equity ratio, long term debt ratio and short-
term ratio. Its results show that the capital structure has a significant positive effect
on ROA, but ROE and EPS are not influenced much by the capital structure; it also
suggests that shareholders’ wealth maximization can be done by the perfect mix of
equity and debts (Alamgir et al., 2019).

The aim of this paper is to determine the relationship between the debt ratio and
the return on equity, the return on assets, current ratios, for the companies that
operate in wholesale trade of motor vehicle parts and accessories (NACE Code 4531)
and which, at the end of 2020 were still operating in the market.
4. Research Methods
The sample analyzed includes the Romanian companies that between 2008 and
2020 had a total annual turnover higher than EUR 100 thousand and operate in
wholesale trade of motor vehicle parts and accessories (NACE Code 4531) and
which, at the end of 2020 were still operating in the market. They were grouped by
the turnover in six categories; in the below table we show the number of companies
within each category for every year in our range, as in the Table 1:
Table 1. Number of companies with > 100 k EUR turnover in 2009-2020
Source: Trade Register Office, data processed by the authors.
185
When further analyzing the financial data for the companies included in the above
categories, we tested the structure of the financing sources where these sources are:
suppliers, bank loans, equity, and other debts (shareholders’ loans, taxes, salaries,
leasing companies). Given that a company cannot afford to accumulate unpaid
liabilities to the employees, government, and leasing companies, we can assume
that most of the ‘Other debts’ are actually the money lent by the shareholders of
the companies in our sample. The vast majority of these companies are family
businesses, and it is not uncommon that the owners provide temporary funds to
the firms.
The following four tables (Tables 2-5) show how, depending on their size, the
companies in this trading area (NACE Code 4531) make their financing mix up. The
financial data processed to get the respective numbers had been extracted out of the
annual financial statements filed by the companies with Trade Register Office.
Table 2. Suppliers share in total financing sources

Table 3. Bank loan share in total financing sources

Table 4. Other debts share in total financing sources
186
Table 5. Equity’s share in total financing sources
In conclusion, the smaller companies are financed by their owners, either by

equity (share capital and retained earnings) or by direct loans (mainly non-interest
bearing and generally on an undetermined term), while the bigger a company is,
the more balanced the mix between these four sources is, as summarized in the
table below:
Table 6. Summary of the financing mix by categories

Because the financial decision seemed to depend on the company size, the
relationship between the debt ratio and the financial ratios used for this study (ROA,
ROE, and cost of debt) was analyzed for each category. The financial data used to
compute the indicators selected as variables were gathered from the annual financial
statements filed with the Trade Register Office.
Upon our first attempt to determine how much influence the performance and
cost of debt have on the leverage, we noticed that for most of the turnover categories,
the influence is rather low, as Table 7 shows, thus leading us to introduce liquidity-
related indicators into the model. This influence was measured by the value of R-
squared for each data panel:
Table 7. Influence of ROA, ROE, and cost of debt over debt ratio
187
Although we are aware that not always a higher R-squared value means that the
selected model fits the data, due to this statistical measure cannot indicate whether
the regression model is accurate and that a low R-square value can be determined for
a good model (for example, in the case of the models that attempt to predict human
behavior; as some previous studies showed, the quality of human resources involved
in the business operations and in the financial decision and their level of financial
education and sophistication have a direct impact on the performance), we decided
to test and see whether adding more financial ratios as independent variables would
make any change in the model. These ones are: current and quick ratios, and cash
conversion cycle.
The debt ratio was chosen as the dependent variable. It expresses the proportion
of company assets that are financed by debt and is used to assess the solvency of a
business; lenders and creditors use this indicator to estimate the risk they will incur
by extending credit to a company: the higher the ratio, the less likely it is to lend
money to it. The formula is as follows:
Total liabilities (short- and long-term) ÷ Total assets
The liabilities contain bank loans, trade creditors, taxes, salaries, shareholders
loans, and debts to leasing companies.
Return on equity (ROE) is one of the independent variables. It was calculated as
the ratio of net income to shareholders’ equity and shows the company’s capability
to effectively manage the equity investors’ funds. A high level of ROE means that a
relatively small investment was turned into a big profit, and this is what the
shareholders want: maximization of the result of their investment.
Return on assets (ROA) is the second independent variable, which shows the
company’s efficiency in using its assets to generate revenues. It was calculated by
dividing the net income by the total assets in the balance sheet. The higher the ROA
is, the more productive and efficient the management is in utilization of the resources
the company has available; however, this ratio must be considered in comparison
against its competitors in the same industry and sector.
Cost of debt (Kd) is the third independent variable. It is the return that a company
provides to its debtholders to compensate them for any risk exposure associated with
lending to it. The ratio was calculated by the formula
Total interest cost incurred
𝐾𝑑 = ∗ (1 − 𝑡)
Average debt
The debt considered here is the total of short and long-term bank loans as
disclosed in the financial statements. “t” is the tax rate; for all the years taken into
our analysis the applicable corporate tax rate in Romania was 16%. The analysis
does not include the structure of the debt by maturities.
Because of the obvious preference for a certain financing mix depending on the
company size, the relationship between the variables selected was analyzed
separately for each category.
188
Current ratio (or the working capital ratio) estimates whether a company is able
to meet its short-term obligations, thus indicating its financial health; it is calculated
by dividing the current assets by the current liabilities.
5. Findings
The econometric technique used for this analyst is Panel data regression. In
statistics and econometrics, panel data or longitudinal data are multi-dimensional
data involving measurements over time (Baltagi, 1995). By combining data in two
dimensions, panel data gives more data variation, less collinearity, and more degrees
of freedom. Applying the regression equation described below on the data panel in
E-Views, we get the following result on which interpretations will be made:
Table 8. Regression results
Source: Trade Register Office, data processed by the authors in E-views.
Estimation model:
𝐷𝐸𝐵𝑇𝑅𝐴𝑇𝐼𝑂 = 𝛼 + 𝛽1 ∗ 𝑅𝑂𝐴 + 𝛽2 ∗ 𝑅𝑂𝐸 + 𝛽3 ∗ 𝐾𝐷
DEBT_RATIO = -0.52585934755*ROA + 0.00010749435227*ROE +
1.13474166056e-05*KD + 0.619592549227
For example, if ROA increases by 100 bp (basic points), namely 1%, debt ratio
decreases by 52 bp (0.52%) and if KD increases by 1%, debt ratio in turn increases
by 1.13%. This shows a direct and positive link between debt ratio and ROE and cost
of debt, respectively, a negative link between ROA and debt.
Prob: This probability is also known as the p-value or the marginal significance
level (Beers, 2022). Given a p-value, you can tell at a glance if you reject or accept the
hypothesis that the true coefficient is zero against a two-sided alternative that differs
189
from zero. For example, if you are performing the test at the 5% significance level,
a p-value lower than 0.05 is taken as evidence to reject the null hypothesis of a zero
coefficient. To assess the validity of the model, its prob value is analyzed for each
of the variables that make up the model.
R-squared: R-Squared (R² or the coefficient of determination) is a statistical
measure in a regression model that determines the proportion of variance in the
dependent variable that can be explained by the independent variable. Thus,
sometimes, a high r-squared can indicate the problems with the regression model. In
our case, the value of R2 (0.08) indicates that only 8% of the variation of debt ratio
is explained by the variation of ROA, ROE, and cost of debt.
Prob(F-Statistic): As per the above results, the probability is zero. This implies
that, overall, the regression is meaningful.
6. Conclusions
For a company to exist and operate, both its daily business activities and the new
investments need to be provided with funds, the two available sources being the
company’s own money (retained earnings, share capital) and the funds borrowed
from third parties, such as banks and other financial institutions, trade creditors, etc.
The financing decision, i.e., on maintaining an optimum capital structure to meet
the company’s financing needs, must consider the risks and the costs associated
with raising funds, the cashflows generated by the operations of the business,
the level of control (the lenders might impose some restrictions on the operations or
on how the available cash is directed toward investment projects, dividend
distributions, etc.).
Our study outlines that there is a direct and negative relationship between debt
ratio and the return on assets, and this does not depend on the size of the company.
Although this might be seen as intuitive, this relationship exists even in the case
of the small business whose financing resources are not interest-bearing,
suggesting that it is the changes in ROA that lead to the ones in the debt level:
a higher profitability of the assets means more self-generated funds and lower
needs for extra credit.
A direct relationship between ROE and debt ratio cannot be observed since the
coefficients calculated were not consistent across the turnover ranges. Moreover, no
link between the cost of debt and leverage could be observed, suggesting that the
lenders do not take the level of debt into consideration when assessing the risk of
providing funds to the companies in this trade area. Also, it could be that even when
interest rates decrease, the demand for borrowing funds to invest in the business
remains about the same.
For the small and micro-enterprises (with a turnover lower than 5 million euros),
no significant correlation could be observed between the liquidity, cash conversion
cycle, and the debt ratio levels. They are funded almost exclusively by the owners
and even when the level of liquid assets increases and there is potentially more cash
available, it is kept in the accounts instead of being reinvested; the managers in such
companies (most of the time they are the owners, too) are less financially educated
190
and sophisticated, therefore they are less concerned with purchasing and
implementing systems to assist in planning and process designing for better
managing the components of company’s liquidity.
The goal of any business is to maximize assets and minimize costs. In this regard,
it is necessary to analyze the weight of each financing option (own funds or debts)
in the share of total financing. Debt ratio is an important indicator in corporate
financing, being seen as a measure of the degree to which a company finances
its operations, this financing assuming debts to fully owned funds. In other words,
the indicator measures the level of a company's debts in relation to the value of
its net assets. In this paper, we analyzed how cost of debt, return on assets, the
financial performance (return on equity), liquidity ratios, and cash conversion cycle
relate or not to debt ratio for a sample of 758 Romanian companies in total over a
thirteen-year period (some of them active on the market only for a short while),
operating in wholesale trade of motor vehicle parts and accessories. None of them
is publicly listed.
The overall conclusion is that more financial education is needed both for the
potential investors in this sector and the existing ones so that they can make better
use of the resources they have at hand and also know where to look up for more
sophisticated instruments for funding their businesses. The graphic below (Figure 1)
shows the evolution of capital structure for the total sample selected:
Figure 1. Capital structure (% in total assets) for NACE 4531
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Trade suppliers Equity Bank loans Shareholders'loans and taxes Other
It demonstrates that there is a strong preference for the commercial credit over
the bank debt, even in the years when the inflation is on a downward slope and
interest rates decrease, too, as in this graphic, that discloses the evolution of these
values in Romania over the period we studied.
By studying the validity of the model and the connection between the variables,
a panel structure was used as an economic technique in the EViews software. Student
191
and Fisher tests indicate that the model used is valid because the probability of
F-statistic analysed for the entire model, respectively, the probability of each
t-statistic related to the variables that make up the model, are below the maximum
accepted level of 5%, with a confidence level of 95%. An important indicator for the
model is R2, also called the coefficient of determination. Its value indicates that 55%
of the variation of the debt ratio is explained by the variation of ROA, ROE, and cost
of debt. The value of the coefficients that make up the model indicates a direct and
positive relationship between ROE, cost of debt, and debt ratio, respectively, a direct
and negative one between ROA and debt ratio. In conclusion, the initial hypothesis
is kept, the chosen model being a valid one, and the dependent variable debt ratio
being influenced by the indirect variables that make up the model.
Future analysis should be considering stress scenarios when interest rate should
increase, or dividend payment could increase also, because government policy that
can approve very low tax on dividend payments.
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193

June 16-17, 2022
The Decision-Making an Approach Oriented on Financing

the System of Pre-university Education
Alina CĂLDĂRARU1*, Gabriella SZEKERES2, Mihai PĂUNICĂ3
DOI: 10.24789788367405072-018
Abstract
Like all other public sectors, the financial investment in education must be well accounted
for. Within the OECD countries, decentralizing education financing is becoming very
common. As part of the decentralized system, the central government mandates sub-central
governments and local schools to run an autonomous system that gives them the power to
decide how to expend their budgetary allocation. This study looked at accountability for
education financing in decentralized systems in the OECD and compared the results to what
takes place in Romania by investigating the allocative efficiency of local authorities at the
primary and secondary school levels. In order to determine the impact of this fiscal
decentralization system, the researcher collected data from secondary sources to look at the
effect of the practice on several educational outcomes, including policy effectiveness,
efficiency, equity, and academic performance. Results are consistent with the fact that local
authorities have shown competence in allocative efficiency in both the OECD countries and
Romania, where fiscal decentralization is practiced, resulting in improved educational
outcomes. The improved educational outcomes are similar in countries that focus the
decentralized system on sub-central governments and those that focus on local schools.
Keywords: decentralized system, fiscal decentralization, education financing,

sub-central government, allocative efficiency.
JEL Classification: H52, P44, P43, H61, I22, M48, H75.
1. Introduction
The International Institute for Educational Planning under UNESCO and the
International Commission on Financing Global Education Opportunity, also known
as the Education Commission, are both committed to finding the most effective and
efficient modalities of education financing that result in desirable outcomes,

© 2022 A. Căldăraru, G. Szekeres, M. Păunică, published by Sciendo. This work is licensed under the Creative
including improved student performance and equity in education access (Guerra,

Lastra-Anadón, 2019). Among the modalities that these two bodies recommend is
fiscal decentralization at the pre-tertiary levels. The fiscal decentralization system
simply refers to education financing where the central government gives autonomy
to sub-central governments (local authorities) and local schools to spend their
education budgets (Purwanto, Pramusinto, 2018). It also includes mandates given to
local authorities and schools to raise their funds.
The fiscal decentralization system is now globally acclaimed and has become
a common practice among the Organization for Economic Cooperation and
Development (OECD) countries. The fiscal decentralization system is also
prevalent in the European Union, of which Romania is a member. With the
continuing popularity of the system, it is essential to understand its holistic impact
on educational outcomes. The need for such assessment is further highlighted
by (Cordeiro Guerra, Lastra-Anadón, 2019), who expressed the view that there
are several points of authority in every decentralized system. The different
authority points make it difficult to ensure accountability in decentralized systems
compared to centralized systems. This situation justifies why the researcher
conducted this study to find evidence of the effects of fiscal decentralization
on educational outcomes.
In 2005, the Local Government and Public Service Reform Initiative (LGI)
organized a forum in South-Eastern European on education financing as part of
its Fiscal Decentralization Initiative (FDI) (Bischoff, 2009). The forum aimed
to encourage member countries to adopt fiscal decentralization systems for
education. Bischoff (2009) notes, however, that each country has decided its path
of interest in terms of the "extent and how to decentralize management and
financing of public education” (p. 2). As far as Romania is concerned (Camelia
et al., 2014), admit that the country's educational policies point to decentralization.
However, some feel that the nature of fiscal decentralization of pre-tertiary schools
in Romania only constitutes a legacy of incomplete reforms (Bischoff, 2009;
Camelia et al., 2014). One of the most effective ways to determine the validity of
such a notion is to conduct comparative research that uses educational outcomes
among the OECD countries practicing decentralized systems as a benchmark for
outcomes of Romania.
3. Aim of the Research

The research aims to assess educational outcomes in countries that practice the
fiscal decentralization system for primary and secondary schools. In doing this, the
following research questions will be answered:
1. What are the main decentralization options for funding preuniversity education?
2. What data do we have about the effects of decentralizing education financing on
overall education spending in the preuniversity education?
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3. What data do we have about the effects of decentralizing education financing on

student learning outcomes? Is there a link between different types of financial
decentralization in education and different educational outcomes?
4. What data is there on the implications of decentralized education financing on
educational equity? What mechanisms exist to address inequality on a
subnational level? What are the terms and conditions of the transfers?
5. What evidence do we have about the effects of decentralization of education
financing on the technical efficiency of education spending?
6. What evidence is there of the consequences of education finance decentralization
on the efficient distribution of resources at the subnational level? What
subnational procedures are in place to boost budget allocation to education?
4. Literature Review
Some existing studies relate to the phenomenon of study, which is education
financing in decentralized systems. This section has reviewed some of the existing
literature relating to research questions 2 to 6. These include literature on the
effects of decentralizing education financing on educational outcomes such
as expenditure, students' learning outcomes, policy effectiveness, equity, and
efficiency. The literature review is based on the allocative efficiency theory.
4.1 Effects of Education Financing Decentralization on Education

Expenditure
There are two leading schools of thought regarding the effect of education
financing decentralization on the education expenditure of primary and secondary
schools. The first school of thought holds that decentralization increases the
expenditure on education financing (Purwanto, Pramusinto, 2018). (Arends, 2020)
noted that, as much as decentralization might have its benefits, the core system of
having different heads of schools managing their budgets means allocating more
funds to schools within the same jurisdiction. This situation tends to increase the
overall expenditure. (Cahyaningsih, Fitrady, 2019) found that in a centralized
system, many expenses, including administrative costs, are not repetitive, as is the
case with a decentralized system. This is because educational financiers, most of
whom are the government, require a higher financial resource to implement the
decentralized system effectively. Based on this assertion, more evidence will be
collected to determine whether decentralization in education financing is less
successful in lower-income economies.
The second school of thought argues that education financing decentralization
forces the educational managers towards a path of efficiency, which automatically
positively impacts expenditure planning (Androniceanu, Ristea, 2014). For example,
quite (year) asserted that increasing efficiency is a core requirement in improving
the decentralization outcomes. Meanwhile, the system's efficiency is not only limited
to material resources but also to financial resources. Based on this, education
managers are forced to be more efficient with their expenditure, especially when they
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know there is competition for national budgetary allocation from other sectors.
(Grigoli, 2014) used the case of lower-income economies to make a case for the
positive impact of decentralization of education financing on expenditure efficiency.
In his study, he found evidence of efficient spending in secondary schools in those
lower-income economies, resulting in 36% in the overall enrollment of students.
4.2 Effects of Education Financing Decentralization on Students’

Learning Outcomes
The allocative efficiency theory is commonly used to analyze the impact of
education financing decentralization on primary and secondary schools. According
to the theory, resources should be distributed by taking into account the preferences
and needs of consumers (Vidoli, Fusco, 2018). Based on the allocative efficiency
theory, most researchers have argued that education financing decentralization
improves students' learning outcomes, since it becomes a modality for allocating
resources to the most critical areas of academic needs (Letelier, Ormeño 2018).
Already, it has been established that the decentralized system could mean education
managers having to increase their efficiency in order to be able to maximize the use
of their allocated funds. In doing so (Todea et al., 2011) indicated that they became
mandated to focus on areas of the local population's needs representing the preferred
outcomes of educational learning.
(Salinas, Solé-Ollé, 2018) also supported the claim that decentralization of
education financing positively impacts students' learning outcomes. On the other
hand, (Heredia-Ortiz, 2007) cautioned that decentralization of financing is not an
automatic guarantee for improved outcomes. To maximize the concept of allocative
efficiency for its profits, primary and secondary school heads should have the ability
to predict cultural and learning needs based on changing trends. When the allocation
is done only concerning the current learning needs of students, it will not be possible
to make competition for the future (Letelier, Ormeño, 2018). The justification of this
claim is that if the future learning needs of students are not met today, it will take
more resources than could be available to do so in the future since the complexity of
learning increases by the day.
4.3 Impact of Education Financing Decentralization on Policy

Effectiveness
Based on the allocative efficiency theory, there are two leading positions in
the literature on the impact of education financing decentralization on policy
effectiveness. The first school of thought is the most dominant in the literature and
argues for a positive effect on policy effectiveness. According to (Salinas, Solé-Ollé,
2018), fiscal decentralization means that educational managers always have fewer
mandates under their authority. Based on this, they can give their authoritative
allocation as much attention and focus as will ensure quality outcomes with
educational policies. Meanwhile, (Dincă et al., 2021) elucidated that the core
measure of policy effectiveness is the quality of its outcomes. Diaz-Serrano and
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Rogriguez-Pose (2014) noted that decentralization gives citizens and local

communities more excellent representation and voice to contribute meaningfully to
decision-making and ask for accountability. By inference, fiscal decentralization
positively impacts policy effectiveness through more substantial stakeholder
involvement in policy implementation.
However, the second school of thought holds that adverse outcomes could be
related to policy effectiveness. (Simão et al., n.d.) worried that education financing
decentralization could mean different local authorities would have different
curricular and quality standards. This situation can result in inconsistent educational
outcomes and thus negatively impact the quality of outcomes. On their part, (Arends,
2020) cautioned that the tendency of local authorities not complying with national
policy initiatives and standards is very high when they are financed locally. Given
that the national policy initiatives are developed based on years of expert research,
one would agree that non-compliance can have a negative impact on policy
outcomes. Diaz-Serrano and Rogriguez-Pose (2014) also saw that it is common to
experience elite capture, where better-developed parts of the countries will have
better policy effectiveness than lesser-developed parts.
4.4 Impact of Decentralized Pre-tertiary Education Financing on Equity

There is strong evidence supporting the notion that education financing
decentralization positively impacts equity. As used in this context, equity refers to
allocating resources based on an area's unique circumstances and conditions (Felix,
Trinidad, 2020). In this regard, the call for fiscal decentralization in education does
not necessarily mean advocating the same amount of resources for every area. It
instead means giving an area what is due based on its ability to harness those results.
The idea of education can thus be seen to relate very closely to the allocative
efficiency theory (Dincă et al., 2021). (Felix, Trinidad, 2020) held that the idea of
fiscal decentralization is an automatic requirement for equity. The basis for this is
that financial managers plan to allocate resources based on availability for each area.
This way, allocation ensures that places that need fewer funds do not get more than
they can efficiently use.
Based on evidence from Mexico, a member of the OECD, (Simão et al., n.d.)
found that fiscal decentralization resulted in inequity in educational opportunities,
especially for students from less developed communities. (Cahyaningsih, Fitrady,
2019) asserted that it is common for less developed communities to be marginally
neglected in funding education in a centralized system. This is due to the problem of
elite capture. However, this decentralized system based on allocative efficiency
theory defeats this tendency. It promotes scenarios where less developed
communities can get higher financial allocation based on their unique educational
needs. By inference, decentralization of education financing can promote equity by
bridging the gap between developed and less developed areas, as already developed
communities will not continue to receive more funding than they require.
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4.5 Impact of Education Financing Decentralization on Efficiency

Regarding education financing, efficiency is discussed in terms of using fewer
resources to achieve more significant outcomes (Kovalainen, 2021). In this sense,
the impact of decentralization on efficiency is widely divided in the literature. (Todea
et al., 2011) believed that decentralization leads to efficiency based on the core
principle of allocating just how much an area needs. By inference, there is a closer
link between efficiency and equity. That is, the fact that resources are allocated based
on the unique needs of an area means that there is an assurance that they will be used
to achieve those needs efficiently. This particular line of argument is justified by
noting that some local governments have had more financial resources than needed
in some centralized systems, leading to waste (Păunică et al., 2021).
(Simão et al., n.d.), on the other hand, asserted that education financing
decentralization could harm efficiency by reducing the economies of scale. That is,
decentralization means more individual or isolated units of localities to fund. Under
such circumstances, achieving economies of scale by producing more units of
service on a larger scale with fewer inputs becomes a defeat. This is because
individual units would mean the possibility of producing on a larger scale will
become nonexistent (Kovalainen, 2021). (Bîtcă et al., 2020) supported this claim by
emphasizing that educational management involves much outsourcing of materials,
most of which save the central government much money for the mere fact that they
will be purchased on a larger scale. This situation cannot be effectively achieved in
a decentralized system.
5. Research Methods
The study was conducted as a comparative analysis that used both quantitative
and qualitative methods to compare the effect and impact of fiscal decentralization
of pre-tertiary education on educational outcomes. The study was set in the OECD
countries and Romania. This means that all data collected were from those countries.
However, it must be emphasized that the researcher used a secondary data collection
method. The researcher did not collect first-hand data from respondents as primary
data. The need to use secondary data was justified by the amount of data required
from the OECD countries and Romania. Conducting primary research would have
involved participants from all those countries, which would have been difficult to
achieve. The secondary data ensured that the researcher could use credible sources
from different geographic locations without the need to be physically present in those
places (Vaismoradi et al., 2016).
(Braun, Clarke, 2014) cautioned that secondary research could have limitations
with the quality of results if the sources used are not credible, reliable, and current.
Since the credibility of the sources used in the study was necessary, the researcher
conducted a search strategy that helped in selecting the best available sources for the
study. To achieve this, the researcher used the national educational databases of the
selected countries. Most of the databases were available online and presented in the
199
form of Education Acts. The national constitutions of the countries were also
considered appropriate.
The researcher searched online from the Education Resources Information Center
(ERIC) database for academic articles with sufficient information to answer the
research questions. It is essential to mention that it was not all OECD countries that
the researcher found robust data on education financing at the pre-tertiary level. For
this reason, the results of the study are limited only to countries with enough data to
ensure a comparison. The results of the selected sources were extracted using the
content analysis method. These results have been presented and analyzed as findings
of the study.
6. Findings
6.1 Quantitative Results on Modalities of Decentralization in Financing

Pre-tertiary Schools
The variable of modalities of decentralization in financing pre-tertiary schools
simply focuses on the approaches that individual countries use in fiscal
decentralization implementation. Available quantitative results on the modalities
for the OECD and Romania can be categorized into the distribution of
authoritative competencies (actors making decisions on expenditure) and financial
sources. The table below shows four levels of government and four competencies
and responsibilities to describe the distribution of authoritative competencies in the
selected countries.
Table 1. Distribution of authoritative competences

Setting Purchasing School
Level Building
quality school facility
of government of schools
standards equipment inspection
Central
15 0 0 10
government
Sub-central
4 16 11 8
government
Schools 0 2 8 0
Shared
3 6 5 5
responsibility
Missing
2 0 0 1
information
Source: Simão, Millenaar and Iñigo (2019) and authors.
In Table 1, the shaded parts show where Romania belongs. From the table, it
would be noted that the modality for decentralization in most countries is to have the
sub-central government take responsibility for spending. However, the responsibility
of setting quality standards is done by the central government in most countries. This
shows that the modality of decentralization is that the central government is the
initiator, while the sub-central governments are the implementers.
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In terms of funding sources, the focus of the data analysis was on the distribution
of expenditures at the primary and secondary school levels by the central
government, sub-central, and schools. Table 2 contains data on the percentage of
expenditure financed by various levels of government.
Table 2. Percentages of expenditure financing

Central Transfer
Country School resources
government to sub-central
Chile 57% 38% 5%
Columbia 85% 0% 15%
Norway 8% 1% 91%
Mexico 29% 50% 22%
Spain 14% 0% 85%
Belgium 24% -1% 77%
Brazil 10% 7% 82%
Denmark 12% -7% 94%
Japan 2% 15% 84%
Switzerland NA 3% 96%
United States 1% 11% 89%
Poland 4% 1% 95%
Finland 11% 31% 59%
France 70% 0% 30%
Hungary 30% 34% 36%
Ireland 84% 15% 1%
Italy 82% 1% 18%
Luxemburg 84% 5% 11%
Austria 40% 37% 23%
Romania 35% 5% 60%
Source: https://stats.oecd.org/.
Table 2 shows that even though decentralization is widespread in selected

countries, the central government still plays a significant role in financing the
expenditure of primary and secondary schools. This notwithstanding, half of
the countries, including Romania, have sub-central governments funding more
significant parts of school expenditure.
6.2 Qualitative Results on the Impact of Fiscal Decentralization on Policy

Effectiveness
Data was selected from the OECD countries (only those with fiscal
decentralization) and Romania relating to specific measures of policy effectiveness.
Based on the study by (Simão et al., n.d.), the measures of policy effectiveness are
students’ performance and teacher management. In terms of students’ performance,
the measure for policy effectiveness is the program for international student
assessment (PISA). The results from (Simão et al., n.d.) “show a positive association
with PISA country average results significant at 0.6%” (p. 130). This result implies
that the use of a decentralized financing system helps schools effectively implement
201
educational policies to improve student performance (Letelier, Ormeño, 2018).

Regarding teacher management, the measures used were autonomy to recruit
teachers, selection of textbooks, and in-service teacher training programs.
Teacher management results showed a "positive association obtained for
decentralization of teacher management" (Simão et al., n.d., 2019, p. 134). Among
the three measures of teacher management, it was found that the highest level of
effectiveness was on the design of in-service training for teachers, while the least
was in terms of the selection of textbooks. This result confirms that decentralization
gives local authorities the opportunity to prioritize teacher development to align with
their unique needs (Leider et al., 2021). Specific to Romania, (Androniceanu, Ristea,
2014) found that decentralization of financing for primary and secondary schools
accounts for high teacher motivation, which translates into their output of work as
measured by students' performance. By inference, the results for the OECD in terms
of the impact of decentralization on educational policy effectiveness are consistent
with what exists in Romania.
6.3 Impact of Different Patterns of Fiscal Decentralization

on Educational Outcomes
Earlier, results had been gathered on the modalities of decentralization used in
the selected countries. This resulted in different patterns of fiscal decentralization
among the selected countries. As far as countries with decentralized systems are
concerned, the two patterns identified are those whose financing is dominated by
sub-central government and those dominated by the schools. (Simão et al., n.d, 2019)
developed a decentralization index for educational outcomes whereby a score of
0 meant no decentralization and 3.6 meant maximum decentralization.
Data from the studied articles shows that the mean score for decentralization
dominated by the sub-government and those dominated by the schools are the same.
This infers that the average outcomes for different educational attainments are
identical as some form of decentralization is practiced. However, there are some
differences in terms of the minimum scores. Those whose decentralization practices
are dominated by schools have lower minimum scores than those dominated by
sub-government. This could suggest that, as much as overall educational outcomes
could be the same, those dominated by schools may have lower scores in specific
assessment areas. This claim is supported by results from (Păunică et al., 2021), who
found that schools that use their resources in financing primary and secondary
education have infrastructural challenges in Romania. These infrastructural
challenges sometimes have a negative impact on schools in terms of maximizing
enrollment and attracting experienced teachers.
6.4 Qualitative Results on the Impact of Education Financing

Decentralization on Efficiency
The final section of the chapter was used to analyze the impact of education
financing decentralization on efficiency. The literature review found that the
202
allocative efficiency theory was the main principle, justifying decentralization's

positive impact on efficiency. Based on this, (Simão et al., n.d.) (2019) measured
how local education managers can make superior allocative decisions and exercise
allocative autonomy within the OECD countries. These results have been used
to interpret the measure of decentralization on efficiency based on the theoretical
relationship between allocative decisions and efficiency. Two main patterns
of results were obtained. The first confirms that countries with higher scores
on allocative decisions and allocative autonomy had higher efficiency with
budgetary allocation.
The second line of the result was that in "both models that look at the allocative
autonomy of sub-central governments and that of schools, the inclusion of the
allocative autonomy variable alone (does not affect the results of regressions
considerably without them" (p. 137). This infers that, while decentralization is an
essential determinant of efficiency, the type of decentralization that is practiced does
not influence outcomes with efficiency. Based on this result (Simão et al., n.d.)
(2019) found that “some decisions in different spheres tend to be decentralized
together, possibly as a strategy to promote more efficient workflows" (p. 135). These
results from the OECD are not different from what (Bîtcă et al., 2020) found in
Romania. It was evident that all schools in which decentralization exhibited
competence with resource allocation to meet the needs of individual localities
efficiently.
7. Conclusions
The research aimed to assess educational outcomes from countries that practice
the fiscal decentralization system for primary and secondary schools. OECD
countries and Romania were used as settings for the study, whereby secondary
sources from those countries were analyzed. The study was guided by six major
research questions that focused on various dimensions of quality education policies.
Both the literature reviews and secondary sources addressed the six research
questions. Based on results relating to the research questions, it can generally be
concluded that fiscal decentralization at the pre-tertiary level positively impacts
educational outcomes. In different countries, different modalities of education
financing decentralization systems are used. The two commons are decentralized
systems dominated by sub-central governments and those dominated by local
schools. The conclusion is supportive for all these types of modalities, as no
significant difference was found in terms of the outcomes of educational
effectiveness and efficiency. Romania has openly adopted the decentralized system
of financing its primary and secondary schools as a country. The results obtained for
the OECD countries are closely related to those of Romania. Based on this, it would
be concluded that decentralized financing of pre-tertiary education in Romania does
not fit the description of a legacy of incomplete reform. While the system may have
shortcomings, it has earned good outcomes that make it fit into a description of
successful reform.
203
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June 16-17, 2022
Stock Prices, Attention, and Google Searches

Alexandra HOROBEȚ1*, Cristina NEGREANU2,
Maria Alexandra IONESCU3, Lucian BELAȘCU4
DOI: 10.24789788367405072-019
Abstract
With the increasing availability of data and the expanded use of digital trading platforms,
the behaviour of individual investors actively involved in trading has a greater impact on
stock returns on capital markets. Traditional models assume that investors are perfectly
rational economic agents, but, as prior research has shown, this constraint is not fully
honoured in the actual world most of the time. Our paper investigates the dynamics of the
relationship of investors’ attention and its impact on the stock market for an institutional
investor-dominated stock exchange. The research was centred on the FTSE 100 Index of
London Stock Exchange (LSE), and we constructed an investor's attention indicator based
on the Google Search Index, which measures in real-time the information with whom
individuals come into contact daily. We introduced the indicator in the Fama and French
3-factor model. To explore the association between investors' cognitive limitations and stock
prices, we used weekly data for five years, from the beginning of 2015 to the end of 2019. We
then used multiple and panel regression to categorise quintile portfolios according to market
capitalization levels. Despite the minimal presence of private investors on the LSE, our
findings show that there is a positive correlation between the volume of Google searches and
stock prices. Furthermore, there is a positive effect of attention on the portfolio of companies
with the smallest market capitalization. Our findings have implications for investment
approaches and, specifically, for active portfolio management strategies.
Keywords: Google Searches, Investor’s attention, Panel regression, Stock returns,

FTSE 100.
JEL Classification: G12, G41.

4 “Lucian Blaga” University of Sibiu, Sibiu, Romania, [email protected].
© 2022 A. Horobeț, C. Negreanu, M.A. Ionescu, L. Belașcu, published by Sciendo. This work is licensed under
the Creative Commons Attribution 4.0 License.
1. Introduction
Especially in an environment where the use of digital trading platforms has
become a widely employed method of trading, and the European average of the
population with Internet access is 90 percent (Eurostat, 2020), individual investors
enjoy searching online for information about the companies they are interested in
investing. As a result, the frequency with which a specific asset is searched may be
a direct reflection of the amount of attention that investors pay to that asset, in
general. Given the availability of Google Trends (GT), a free public online service
provided by Google that offers data on the number of searches for a specific topic, it
is possible to use it to gauge investor interest in a particular topic.
Da et al. (2011) were the first to propose using the volume of Google searches as
a proxy for investor attention. Following this, Joseph et al. (2011), Bank et al. (2011),
Vlastakis, Markellos (2012), Takeda, Wakao (2014), and Ekinci, Bulut (2021)
demonstrated that search volume is positively correlated with returns.
Our paper addresses the Barber and Oden’s theory of attention, but for companies
in the FTSE 100 index for which no research has been conducted thus far using
Google searches volume as a direct measurement of investor’s attention. The choice
of this index was motivated by the fact that its constituents account for 80% of the
capitalization of the London Stock Exchange. Furthermore, according to Barton
(2021), 33 percent of the English population owns shares, and more than 21 percent
want to invest in the future, making the FTSE 100 the recommended subjects for this
research. Our research conducted on 125 companies during a period of five years
shows that the volume of Google searches is significant and can be associated with
a positive change in returns, which confirms the hypothesis on which it was built and
confirms the results of the other works mentioned above. Three variables based on
data downloaded from Google Trends were used to measure investor attention and
introduced in both multivariate regression as well as in panel data regression.
Regarding the structure of the paper, it consists of four sections and a conclusion.
Firstly, we reviewed the most significant research in the field, we propose our
research questions considering the literature gap identified. In addition, we stated the
premise on which we have constructed our study. The fourth part introduces the
methodology used, and the next chapter presents our result and discussions.
Merton (1987) develops an equilibrium model for a market with inattentive
investors and introduces the theory of asset recognition. He notes that familiarity
with the issuing company is a pre-requisite for acquiring or collecting additional
information about a particular asset. As a result, the theory of asset recognition or
visibility is developed. An entire branch of literature has developed around Merton's
(1987) model and theories of constrained rationality. Thus, we can distinguish,
according to the variable used to measure investor attention, two categories:
(i) indirect / proxy which can be expressed by extreme values of returns / trading
volume (Gervais et al., 2001; Hou et al., 2008), media coverage (Huberman, Regev,
207
2001; Fehle et al., 2005; Barber, Odean, 2008; Fang, Peress, 2009; Kim, Meschke,
2011), advertising spending (Grullon et al., 2004; Lou, 2014), upper price limit
events (Seasholes, Wu, 2007), other types of online searches (Antweriler, Frank,
2004; Moat et al., 2013) and (ii) directly through the volume of Internet searches
(Da et al., 2011; Bank et al., 2011; Vlastakis, Markellos, 2012; Takeda, Wakao,
2014; Tang, Zhu, 2017; Ying et al., 2015; Bijl et al., 2016; Tang, Zhu, 2017; Weng
et al., 2018; Hu et al., 2018; Nguyen, Schinckus, Nguyen, 2019; Salisu et al., 2019;
Ekinci, Bulut, 2021). We noticed that most of the revised papers were studies
conducted for the American or Asian capital markets, where the presence of
individual investors is higher. As a result, we found a gap in the literature regarding
the UK capital market, which is addressed in this paper. This research examines
the importance of the attention factor in asset valuation in developed markets
with a high presence of investors, confirming the theory of attention of Braber
and Odean’s (2008).

In conjunction with previous research, the purpose of this study is to examine and
reconfirm the existence of a relationship between investor attention and capital
market asset returns. The primary factor investigated is the effect of individual
investors' attention on price movements. This element derives from the following
research questions: is there any relationship to be confirmed between attention and
returns even in a capital market with multiple institutional investors, are there any
differences in the relationship between attention and returns when companies are
sorted by market capitalization, and what is the correlation a low or high volume of
searches and returns? Our research aim is obtained by quantifying investor’s
attention using three variables derived from data downloaded from Google Trends.
4. Research Methods
4.1 Data Selection

We constructed the attention index using Google Search Volume data from the
Google Trends site. This open source is a Google Inc.-operated website that was
launched in 2006 and provides access to the Google Search Volume (GSV/SVI) for
a particular term. This data is available across multiple regions / countries,
categories, and the type of search / category of object you are looking for (images,
news, YouTube), and its frequency varies depending on the time period selected
(weekly data for long periods, hourly data for short periods). The critical aspect of
this data is that the values are not provided in their absolute form, but rather in a
relative, normalized form. Each keyword produces a time series containing an entry
for a particular frequency. The data used in our research are at the national level (i.e.,
Great Britain), as Da et al. (2011) argue that country-level data are more significant
than global data. We have considered in our GSV data retrieval process the following
premise: In 2016, Google Trends has made improvements to its database, as well as
208
the way in which keyword information is made available. Consequently, when you
enter a term in the search field, its feature appears, which may be one of the
following: "search term" - which includes all searches for that topic, "topic" – which
includes searches related to that topic, and "company" – which includes searches for
the keyword as a company.
For the market data, the sample included the closing prices and trading volume
of the companies that comprise the FTSE 100 Index for a five-year period, from
2015 to 2020, as obtained from the Bloomberg platform. This sample encompasses
all 125 companies that have been included in the FTSE 100 Index during the review
period. We chose this method to avoid survivorship bias and the potential impact of
adding or removing companies, given the index's composition is adjusted quarterly
(as opposed to the S&P 500, Dow Jones, or Nikkei 250).
4.2 Variables
We define the independent variable, Google search volume, in three ways,
following Takeda and Wakao's methodology (2014) (Table 1). We use the
methodology proposed by Da et al. (2011), Tang and Zhu (2017) to construct the
index of abnormal investor attention, as the relationship between the value of SVI
and returns may not accurately reflect the true effect of investor attention on market
returns, as the level of SVI is relative. In this sense, an abnormal search index, called
ASVI has been developed.
Table 1. Google Searches Index Variables
Name of variable Equation
Simple Search Volume Index SVIt-j = lnSVIt-j
Delta Search Volume Index ΔSVIt-j = lnSVIt-j - lnSVIt-j-1
Abnormal Search Volume Index ASVIi,t-j = lnSVIi,t-1 – ln[Med(SVIi,t-1,…., SVIi,t-7)]
Source: Authors’ work.
We sorted the portfolios into quantiles based on their market capitalization level.
Thus, portfolio 1 (P1) will contain the companies with the smallest market
capitalization, while portfolio 4 (P4) will contain the largest. Portfolios are composed
of equally weighted. Then, we integrated our variables in the Fama and French
(Fama, French, 1993) three-factor model (Equation 1).
RPk,t – Rf,t = αk + β1kXt + β2k(RM,t – Rf,t) + β3kSMBt + β3kHMLt + εk,t (1)
The second part of the analysis rebuilds four portfolios in which the assets are
sorted into four quantiles according to the search volume defined in Table 1, with
portfolio k = 1 having the fewest searches and portfolio k = 4 having the most. Each
portfolio's assets are equally weighted. If β1k is significant for portfolios with a higher
search volume (i.e., the Fama and French 3 factors do not fully explain the change
in returns), this leads to the conclusion that returns and search volume are correlated.
Further, we regressed a simple FF3 model upon the above-mentioned portfolios, in
209
which αk will be the abnormal search volume return as proposed by Joseph et al.
(2011), Bank et al. (2011), Takeda, Wakao (2014), and Ekinci, Bulut (2021).
Due to the multidimensionality of the data (companies, years), we proposed to
use a multifactorial panel data regression integrating only theabnornal volume of
searches, which is similar to the methodology used by Bank et al. (2011), Takeda
and Wakao (2014), Vlastakis, Markellos (2012), Ekinci, Bulut (2013), among others
(2021) (Equation 2).
RQk,t – Rf,t = αk + β1kASVIt + β2k(RM,t – Rf,t) + β3kSMBt + β4kHMLt + εk,t (2)
5. Findings
5.1 Portfolios by Market Capitalization

The results for portfolios based on market capitalization show a positive and
significant relationship between the volume of Google searches a week in advance
(i.e., with lag j equal to 1) for portfolios that include small market capitalization
companies (P1, P2) (Da et al., 2011; Takeda, Wakao, 2014; Ekinci, Bulut, 2021).
The link between search volume and portfolio 3 returns is weak. This may be related
to the search results. In particular, negative news can cause investors to sell their
shares. Thus, the volume of searches has a significant effect on companies
with low market capitalization, confirming Barber and Odean's price pressure
hypothesis (2008). When the weekly search volume is compared to the weekly
returns, it is observed that the relationship is positive for portfolios with low
market capitalization (P1, P2) as well as portfolios with the highest capitalization.
On the other hand, the relationship between Google searches and portfolio 3 (P3)
returns is insignificant in this case as well, which may be due to the low level of
recognition of its member companies. Additionally, for time t+1, three of the four
portfolios' dynamics of the relationship between search volume and returns is
positive. Thus, it is demonstrated that there is a positive correlation between the
increase in yields and the subsequent week's searches.
The results varied depending on the form of the independent variable used. The
results for the logarithmic search volume (SVI) and the abnormal search volume
index (ASVI) are similar. Contrarily, the search volume delta shows no correlation
with the excess returns on portfolios sorted by market cap at time t-j. Overall, the
results for each type of search volume show a positive correlation with returns for
portfolios with small market capitalization companies.
5.2 Portfolios by Search Volume

When portfolios were grouped according to search volume, the results confirmed
that an increase in search volume is associated with an increase in the returns on
those investments (Table 2). Increased volume would result in lower returns for
all time periods (t-j, t, and t + j) for the first portfolio (P1), which contains the
companies with the lowest level of searches; however, the p-value indicates that
210
the variable SVI is not statistically significant for this portfolio. The second portfolio
(P2) exhibits an increase in coefficients as the temporal characteristic of the previous
portfolio's search volume increases (P1).
Table 2. Abnormal Returns
SVI
t-j t t+j
P1 αk -0.0001 -0.0011 0.0023
p-value 0.0865*** 0.1461 0.9821
P2 αk 0.0006 -0.0005 0.0008
p-value 0.0571*** 0.5075 0.4571
P3 αk 0.0041 -0.000 0.0084
p-value 0.0967*** 0.0266** 0.0933***
P4 αk 0.0008 0.0001 0.0010
p-value 0.0436** 0.0870*** 0.0348**
ΔSVI
t-j t t+j
P1 αk 0.0003 -0.0005 0.0005
p-value 0.7284 0.533 0.5385
P2 αk -0.0003 -0.0011 0.0087
p-value 0.7245 0.2012 0.9372
P3 αk 0.0001 0.0009 0.0002
p-value 0.0305** 0.0248** 0.0407**
P4 αk 0.0012 0.0032 0.0011
p-value 0.0216** 0.0296** 0.0240**
ASVI
t-j t t+j
P1 αk -0.0001 -0.0011 0.0023
p-value 0.0865*** 0.1461 0.9821
P2 αk 0.0006 -0.0005 0.0008
p-value 0.0571*** 0.5075 0.4571
P3 αk 0.0041 -0.000 0.0084
p-value 0.0967*** 0.0266** 0.0933***
P4 αk 0.0008 0.0001 0.0010
p-value 0.0436** 0.0870*** 0.0348**
Note: * The null hypothesis is rejected at 1%; ** The null hypothesis is rejected at 5%.
211
The results indicate that increasing the number of searches a week in advance has
a significant effect on the returns for that week, as predicted. Therefore, an increase
in returns is positively correlated with an increase in search volume. Similar
situations are identified and analysed for portfolios with the highest search volume.
For time t, the results indicate that the assets in portfolio two will experience the
highest abnormal returns associated with searches. The value of the coefficient
increases from portfolio two to three, but this increase is not sustained, as the
portfolio with the highest search volume has the lowest level of abnormal returns.
Additionally, a decreasing trend in abnormal returns associated with search volume
can be observed for time t + j. It is critical to note that the results indicate that the
portfolio comprised of companies with the highest search volume has the lowest
returns, which contradicts Takeda and Wakao's findings (2014). According to Ekinci
and Bulut (2021), because the relationship between returns and search volume is
contemporaneous, we cannot conclusively determine whether the abnormal results
reflect a high level of public interest visible in Google searches or whether the high
returns attract attention, causing people to search.
The final section of the analysis, which involved applying a regression to panel
data, confirmed the previous findings in large part (Appendix 1). Specifically, the
regression coefficient of the search volume is positive and significant for time t,
indicating that a change in Google searches during the current week is associated
with an increase in returns during the same period. For time t-j, the search volume is
also a significant predictor of returns, with a positive relationship between them
(similar results were obtained by Takeda and Wakao, 2014). On the other hand, it is
observed that the search volume is associated with a decrease in returns at time t + j,
but this relationship is not statistically significant. It is worth noting that in regression
on panel data at time t + 1, the search volume coefficient is negative and statistically
insignificant, whereas the remaining variables are positive and significant. This
result is comparable to that of Bijl et al. (2016). This finding may imply that an
increase in returns is associated with a decline in search volume in the coming week.
6. Conclusions
The results confirm that the impact of individual investors' attention on capital
market prices must not be neglected, even if more than 50% of the market is occupied
by institutional investors. First, despite the low presence of individual investors in
the English stock market, the results show a significant positive relationship between
investor attention and returns. According to the findings in the literature, small-cap
companies will benefit from investor attention more than large-cap companies.
Second, the finding of a positive relationship between prices and searches in the
absence of individual investors calls into question the theory of attention's
applicability. Barber and Odean (2008) hypothesize that institutional investors are
rational agents who select assets differently than individual investors. Specifically,
retail investors will buy assets that catch their eye, whereas institutional investors
will buy assets based on fundamental value. Individual investors' anomalies,
reflected in my research by abnormal returns, should be offset by institutional
212
investors' actions. The FTSE 100's assets' visibility may be an answer to this
situation. It is possible that many of the included companies are well-known,
resulting in large returns. This can be considered for future studies that analyse all
companies listed on the London Stock Exchange to confirm or deny the results. If
this is not the case, the subject opens the door for further research into the asset's
ownership structure. However, the frequency of the data depends on the time period
selected. For periods longer than five years, only monthly data are available. This
limited the length of the data used and its frequency. Thus, the present study's
limitations allow for future research, improvement of data processing methods, and
revision of model variables. However, data availability constraints are unavoidable.
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Appendix
Appendix 1. Panel data regression results
At time t-j
Variable Coef. Std. Error t-Statistic p-value
ASVI 0.0295 0.0159 1.8542 0.0237**
MKT_RF 0.0055 0.0003 15.6322 0*
SMB 0.0022 0.0002 8.2312 0*
HML 0.0009 0.0002 3.8064 0.0001*
C 0.0001 0.0003 0.4097 0.682
At time t-j
ASVI 0.0769 0.0151 5.0772 0*
MKT_RF 0.0014 0.0003 3.9337 0.0001*
SMB 0.0025 0.0006 4.0194 0.0001*
HML 0.0008 0.0005 1.5096 0.1312
C 0.0007 0.0007 1.0180 0.3087
At time t-j
ASVI -0.0120 0.0159 -0.7544 0.4506
MKT_RF 0.0055 0.0003 15.7199 0*
SMB 0.0022 0.0002 8.2222 0*
HML 0.0000 0.0002 3.6556 0.0003*
C 1.28E-05 0.0003 0.0407 0.9675
215

June 16-17, 2022
The Paradox of Taxation: Capital or Labor Force?

Empirical Evidence for the European Union Countries
Paula LAZĂR1*, Mirela PĂUNESCU2,
Mirela Elena NICHITA3, Alexandra FRĂȚILĂ (ADAM) 4
DOI: 10.24789788367405072-020
Abstract
The COVID-19 crisis that started as a healthcare system crisis, rapidly emerged as a
financial crisis. In the European economy, classified as an open economy where production
factors can freely move, the mix of fiscal, budgetary, and monetary policies faces even more
challenging times in response to the new status quo. Fiscal policy is one of the first
mechanisms that a state will use to intervene in the economy to correct for a possible
disequilibrium. Nevertheless, the fiscal policies of the member states are not entirely
harmonized: thus, different countries will use different approaches in similar situations,
creating even more significant disparities between countries. Our paper investigates whether
there is a shift between taxing capital and taxing labor force – both seen as production
factors – in the European Union member states’ fiscal policies, particularly in difficult
periods. The data was collected from the Eurostat database and referred to all European
member states for 2007-2021, covering the latest crises: financial (2007-2008) and pandemic
(2020-2021). By employing a cluster analysis accompanied by a paradox of rationality, the
investigation will accentuate that nowadays, more than ever, fiscal policies at the European
level are imbalanced and uncoordinated, encouraging the development gap among
economies. Our research emphasizes the need for closer coordination of direct taxation at
the European level to stimulate the convergence of fiscal policies. Both academics and
policymakers may use our results in their future analytical studies or decision-making
processes related to the blending of taxing capital and labor force.
Keywords: European fiscal policies, capital taxation, labor taxes, COVID-19 crisis,
financial crisis.
JEL Classification: E62, H21, H87.

© 2022 P. Lazăr, M. Păunescu, M.E. Nichita, A. Frățilă (Adam), published by Sciendo. This work is licensed under
1. Introduction
In a borderless world governed by the mobility of factors of production,
especially capital and labor force, and characterized by the existence of common
markets, fiscal policy is emerging as a critical component of economic reform with
a profound impact on future developments of the economy.
Fiscal competition is not a new concept, but the tax competition issue is a
noteworthy topic because, in worldwide economies, there is a tendency to
understand, as accurately as possible, the positive or negative effects of this
phenomenon. For the European Union (EU-27), seen as a conglomerate of states and
an exponent of economic globalization, the fiscal policy strongly influences the
multiple economic processes that occur within each member state. The coordination
processes in the taxation field at the European level (which is intended to be a
“federal type of state”) are complex actions with multiple ramifications, and it is
practically difficult, if not impossible, to harmonize and coordinate 27 different
fiscal policies, coming from as many countries with different degrees of
development, more or less willing to give up national practices. Furthermore, the
EU-27 is known as a high-tax burden economic environment compared with other
advanced economies. Thus, taxes and compulsory actual social contributions in the
27 Member States of the EU-27 accounted for 40.1% of the gross domestic product
(GDP) in 2019 (European Commission, 2021). Hence, the tax burden (measured as
total tax revenues and social security contributions received as a percentage of GDP)
was in EU-27 6.3 percentage points (pp) above the OECD average and more than
15 pp above the US tax burden.
An efficient taxation system should adapt to the different stages of the economic
cycle, such as expansion, peak, contraction, and trough. That is why taxation systems
are complex mechanisms, and their implementation requires an outstanding
knowledge of their composing elements and network interconnections. When
discussing the complexity of the fiscal policy, we need to focus on tax rates and tax
bases, and thus on the tax burden. Furthermore, we must assess the tax burden
distribution on different tax bases – i.e., labor, capital, and consumption.
According to the Maastricht Treaty (1993), the free movement of labor and
capital are two of the EU single market's four fundamental freedoms (free movement
of goods, persons, services, and capital). While divergences are innevitable, fiscal
differences among the Member States can alter the free movement of the above
mentioned (Delgado and Presno, 2011). In any given scenario, the foundation of the
fiscal policy is the tax rate, and this “seemingly insignificat” element holds in its
power the world wide web of taxation and has been analyzed over the years on
numerous occasions and contexts. Therefore, the tax rate is employed as a variable
in macroeconomic analysis using different approaches: as a statutory tax rate,
whether as a flat or marginal tax rate (Popescu et al., 2019; European Commission,
217
2021; Ernst & Young, 2022); as an implicit tax rate (European Commission, 2021)
or as effective tax rates (European Commission, 2021; Lazăr, Filip, 2011).
The statutory tax rate is the rate imposed by legislation on a taxable basis. On the
contrary, the implicit tax rate measures the actual or effective average burden directly
or indirectly levied on different tax bases or activities that could potentially be taxed
(European Commission, 2021). While some authors suggest employing in the
analysis an aggregated tax rate (Devereux et al., 2002; De Mooij, Nicodème, 2008),
others argue in favor of tax rates specific to tax basis, whether incomes/profits or
activities (Mendoza et al., 1994).
Labor force mobility in the EU-27 has been affected by the financial crisis due
to the contraction of businesses and by the COVID-19 crisis due to mobility
restrictions. After a peak in 2007, during 2009 -2010, mobility flows fell by 41%
compared to 2007 and 2008 (Barslund, Busse, 2014) and came to a halt during the
pandemic (European Commission, 2022). Capital mobility has been increasing since
the Maastricht Treaty was signed, and the flows are running from advanced
economies toward emerging economies (Camarero et al., 2021). Furthermore, the
financial crisis has affected the latter, where capital mobility has decreased. The
COVID-19 crisis has triggered major disruptions in capital flows with a rapid shock
that spread to the global economy (OECD, 2020). As it is more mobile than labor, a
question has often arisen for capital taxation: is there a race to the bottom related to
tax rates applied in determining the tax burden? According to Plümper et al. (2009),
tax competition tends to cause a decrease in taxes on capital and increase tax rates
relative to labor. The scholars explained that there is no race to the bottom in capital
taxation, since governments will not abolish taxes levied upon them. Recent research
(Sokolovskyi, 2021; Razin, Sadka, 2011) shows that a country might apply higher
tax rates under tax competition than tax coordination when faced with an upward
flux of labor and capital. Thus, economies might find themselves in a seesaw
situation rather than in a tax-competitive one.
The cluster analysis is a statistical method that organizes a set of objects so that
objects in the same group are more similar to each other than those in other groups.
This type of analysis is similar in concept to discriminant analysis (Sinharay, 2010).
By employing a cluster analysis at the European level, Mihokova et al. (2016) have
shown that, despite ongoing integration within the EU, differences between member
countries persist and are visible in the statutory and effective tax rates, especially
between older and newer EU members.
The difference in taxation policy, in the limit set by the European framework,
was investigated over the time. As examples, Kočenda et al. (2008) found that a
significant level of heterogeneity exists in fiscal convergence, while Esteve et al.
(2000) reported convergence in fiscal pressure during the 1979-1994 period, while
important divergence was found for the years 1967-1979.
In this context, we conducted our analysis by scrutinizing the member states’
taxation systems using the following variables:
i. statutory tax rates for labor force (%L) and capital (%K);
ii. implicit tax rates for labor force (ITR L) and capital (ITR K);
218
iii. the connected tax burden (%L/GDP and %K/GDP) as tax revenues collected
to GDP.
Our research looks at the shift between taxing labor and capital, seen as
production factors, by employing a cluster analysis in the European Union, and
focuses on the similarities and differences between member states when facing
challenging times.
As mentioned above, fiscal policy is likely to be the first intervention tool used
to regulate the economy. Therefore, policymakers will use taxation and its elements
to boost investments, production, and employment. This leads to tax competition
among counties, even if the EU has established that fiscal convergence is its long-
term objective. In our analysis, we will focus on direct taxes settled for labor and
capital because when it comes to indirect taxation, the European legislation is already
coordinated for most of the related taxes.
We will conduct our research by employing a cluster analysis, approaches used
to classify the member states into emerging and advanced economies, and our
research questions support this procedure.
The research hypotheses are as follows.
H1: Is there a shift between taxing the labor force and capital in emerging economies
from the EU-27?
H2: Is there a shift between taxing the labor force and capital in advanced economies
from the EU-27?
We expect to find conclusive evidence to support that capital, seen as a
production factor, is the “golden item” of the European taxation systems regardless
of the cluster. Furthermore, we aim to highlight the switch in fiscal policies during
both the financial crisis (2007-2008) and the COVID-19 crisis (2020-2021).
4. Research Methods
To test our hypothesis, we collected the data for 2007-2021 from Eurostat
regarding the variables included in the analysis. We have chosen this period
because, over the 15 years included in the research worldwide, economies have
undergone two crucial turning points in their evolution - first, the financial crisis
(2007-2008) - and then, the COVID-19 crisis (2020-2021). Thus, the statutory tax
rates for labor and capital, the implicit tax rates for labor and capital, and the tax
revenues collected to GDP from taxing labor and capital were used in our
quantitative analysis. The cluster analysis approach is the method of choice for the
empirical grouping of EU countries, as it is most widely accepted for groping
counties according to various indicators (Velichkov, Stefanova, 2017). Hence, we
decided to organize the EU countries into two clusters using the International
Monetary fund country classification (IMF, 2022). By employing the IMF country
classification, the EU-27 member states were divided into – emerging economies –
219
Bulgaria, Croatia, Hungary, Poland, and Romania – and advanced economies – the
remaining 22 countries.
We embarked on a complex macro back-looking analysis to find empirical
evidence that, in a long-term trend, there is a shift between taxing labor and capital
in EU-27 economies. Our analysis compares statutory and implicit tax rates for the
variables employed and then continues with the parallel between tax rates and tax
burden. The research will emphasize the similarities and differences in taxing
production factors throughout the financial and the COVID-19 crises. The following
section presents our findings for each cluster for the analyzed period.
5. Findings
The emerging economies represent the first cluster in our analysis. These states
are geographically situated in Eastern Europe and are similar in macro-economic
development.
Figure 1a. Statutory versus implicit tax rates in emerging economies

40
35
30
25
20
15
10
5
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
%L ITR L
Source: Authors own computations.
Figure 1b. Statutory versus implicit tax rates in emerging economies

25
20
15
10
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
%K ITR K
220
The average statutory tax rates for the labor force and capital are lower than
the average implicit tax rates over the analyzed period. For the labor force, the
implicit tax rates are, on average, 6.2 percentage points (pp) higher than the
statutory tax rates. For capital, the average difference between implicit and statutory
tax rates is 2.2 pp. Furthermore, we can acknowledge that the labor force is overtaxed
face to capital because both statutory and implicit tax rates are higher for labor
than for capital.
We noticed that, during the financial crisis (2007-2008), the emerging economies
in the EU-27 have put pressure on capital because while the statutory tax is
unchanged, the implicit tax rates, as a measure of the effective tax burden, have
increased. However, during the COVID-19 crisis, the situation is in reverse – the tax
burden is levied upon labor force with a slight increase in the implicit tax rates. It is
to be noted that the gap between tax rates related to labor force is steeper than the
one for tax rates related to capital due to tax “privileges” given to the latter, such as
tax exemption, incentives, annulments, and others.
Figure 2. Tax revenues to GDP in emerging economies

16
14
12
10
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
%L/GDP %K/GDP
2 per. med. mobilă (%L/GDP) 2 per. med. mobilă (%K/GDP)
As expected, tax revenues to GDP collected from taxing labor force exceed the
tax revenues collected from the capital. On average, the gap between the variables is
7.6 pp, showing a clear preference, in emerging economies, toward taxing labor
force. However, during the financial crisis (2007-2008), emerging countries have
registered a slight constriction of the tax revenues collected due to the decrease of
the tax rates for both production factors. However, for the COVID-19 crisis,
paradoxically, tax revenues’ collection has increased for capital even if the average
statutory tax rate has remained unchanged (see Appendix, Table 1).
221
One might argue that the statutory tax rate is not the correct variable to describe
taxation trends, and therefore we move forward and compare implicit tax rates with
the tax revenues collected to GDP. As stated above, implicit tax rates quantify the
real tax burden perceived by the production factor. We can notice that the analyzed
variables follow the same trend, but the paradox mentioned above is even more
apparent. Thus, during the financial crisis, the collected tax revenues to GDP
decreased for both labor and capital as an immediate effect of tax rate contraction.
Nevertheless, during COVID-19, even if the average implicit tax rate for labor has
increased, the tax revenues collected have slightly subsided, while for capital,
the situation is reversed. So, for capital, the average implicit tax rate was cut back by
1.1 pp, but the tax revenues to GDP have moderately increased. This goes to show
that the EU-27 emerging economies are encouraged to have a “race to the bottom”.
The advanced economies of the EU-27 represent the second cluster in our
analysis.
Figure 3a. Statutory versus implicit tax rates in advanced economies
50
40
30
20
10
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
%L ITR L
Figure 3b. Statutory versus implicit tax rates in advanced economies

30
25
20
15
10
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
%K ITR K
222
When it comes to taxing labor force and capital in advanced economies, we notice
that average statutory tax rates are higher than the average implicit tax rates, meaning
that the actual tax burden is lower than what the legislation is establishing as a tax
rate. This is a positive effect of tax incentives, tax deductions, or tax exemptions and
should stimulate tax revenue collection. If for the labor force, the average statutory
tax rates are 6.9 pp over the average implicit tax rates for the analyzed period, for
capital, the gap is just 1.6 pp. We can also notice that for capital, during both the
financial crisis and the COVID-19 crisis, the average statutory tax rates and the
average implicit tax rates have decreased, but for labor force, the COVID-19 crisis
was a period in which both types of tax rates have increased (see Appendix,
Table 2).
Figure 4. Tax revenues to GDP in advanced economies

25
20
15
10
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
%L/GDP %K/GDP
2 per. med. mobilă (%L/GDP) 2 per. med. mobilă (%K/GDP)
As in emerging economies, advanced economies collect more tax revenues from

GDP from taxing the labor force. Natural, we can say, if, on average, the implicit tax
rates for the labor force are 12.1 pp higher than the ones for the capital. During the
financial crisis, we can notice, again, a paradox, this time when it comes to taxing
the labor force – a tiny decrease in tax burden has the opposite effect on tax revenues
collection. Furthermore, for capital, even if the tax burden decreased in the same
period, the response in the economy is the expected one – a decrease in tax revenues
collection. For the period related to the COVID-19 crisis, advanced economies
reacted differently. For the labor force, the tax burden slowly increases, which leads
to a lower level of tax revenues collection, whereas for capital, the tax burden
decreases, and ,as an effect, the tax revenues’ collection registers the same value as
in the pre-pandemic period. (see Appendix, Table 2).
Advanced economies in the EU-27 have a different approach to the tax burden
related to production factors than emerging economies. Thus, taxation systems in
223
advanced economies rely substantially on tax incentives, even if they incline

toward taxing the labor force. Moreover, although, on average, the tax burden in
advanced economies is higher for both production factors (see Appendix Table 1 in
corroboration with Table 2) than in emerging economies, the capital is more likely
to be the protégée of the fiscal system.
However, our research is subject to some limitations related to the relatively
short period under analysis and the fact that the present analysis focuses on tax
structure by type of tax base. Nevertheless, we succeeded in covering two major
macroeconomic events that took place in the last 20 years – the financial crisis and
the COVID-19 pandemic and by working with the available data on Eurostat, which
is curated, the study has certifiable outcomes.
6. Conclusions
The study pivots around taxation policies in the European Union, focusing mainly
on taxing production factors, i.e., labor force and capital. By employing a cluster
analysis, the research showed that at the European Union level, seen as a unified
space, where production factors can move freely, the labor force and capital are
among the most wanted tax basis, and tax policies will engage in a “fight” over who
is taxing what and how.
In all five European emerging economies, capital – seen as a production factor –
is less taxed than the labor force. We expected this, since the capital is more likely
to”run” from tax burden more easily than labor. During the financial crisis, emerging
economies have decreased the statutory tax rates for labor and maintained the ones
for capital. Nevertheless, looking at the implicit tax rates, we will notice that for
labor, they decreased, and for capital, they increased – the aftermath was a steady
tax revenues collection from labor but a slight decrease from capital tax collection.
During the Pandemic, the statutory taxes for labor have decreased, but the implicit
tax rates have actually increased – the result was a moderate decrease in tax
collection. The paradox is met when it comes to taxing capital because, during the
Pandemic, the statutory tax rates have remained the same, but the implicit tax rates
have decreased, yet the tax revenues collected have increased.
In advanced European economies, the tax burden related to capital – seen as a
production factor – is lower than that of the labor force. During the financial crisis,
advanced economies decreased both statutory and implicit tax rates, but,
paradoxically, the tax revenues collected from labor increased in 2008 compared to
2007. During the Pandemic, the statutory and implicit tax rates for labor increased,
and the immediate result was a moderate decrease in tax collection. Again, a paradox
is met when it comes to taxing capital. During the Pandemic, the statutory and
implicit tax rates have slightly subsided, yet the tax revenue collection has increased.
One can infer that advanced economies are inclined to have a “race to the bottom”
when taxing capital.
The significant difference between clusters is that implicit tax rates for both labor
force and capital are lower than the statutory tax rates in advanced economies. The
multitude of tax reliefs explains these exemptions and other tax deductions applied.
224
On the opposite side, in emerging economies, this situation is reversed. Implicit tax
rates are much higher than the statutory tax rates for both production factors. This
shows that the tax legislation in emerging economies is “hiding” around the tax basis
and the procedure to increase the tax burden.
Without a doubt, we can state that capital – seen as a production factor - is the
taxation system protégée at the European level. Capital is the “freest” type of tax
base because it can “vote with its feet” and so has the potential to move unhinged
from one taxation system to the next. Therefore, as a trend, at the European level,
during both crises, the tax rates (statutory and implicit) related to capital have
decreased, and paradoxically tax-related revenues have increased. Thus, the member
states will have no interest in harmonizing capital.
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Appendix
Table 1. Descriptive statistics for emerging countries
%L ITR L %L/GDP %K ITR K %K/GDP
2007 34,3 33,4 13,5 17,3 19,7 6,4
2008 31,8 32,1 13,5 17,3 20,5 6,2
2009 30,8 31,7 13,2 17,3 19,4 5,6
2010 29,8 30,5 12,7 17,1 17,5 5,1
2011 25,1 31,3 12,6 17,1 17,2 5,3
2012 25,1 31,9 13,0 17,1 17,9 5,3
2013 24,2 32,3 13,2 17,1 17,3 5,3
2014 24,2 32,3 13,3 17,1 17,4 5,3
2015 24,2 32,2 13,0 17,1 18,1 5,6
2016 24,0 31,3 13,1 17,1 19,2 5,9
2017 23,1 31,1 13,2 14,8 18,7 5,7
2018 21,9 31,7 13,6 14,8 18,6 5,5
2019 21,9 31,7 13,5 14,8 18,4 5,6
2020 21,9 31,3 13,9 14,8 19,6 5,6
2021 20,5 31,6 13,5 14,8 18,5 5,7
Source: Data: Taxation trends in the European Union series; authors own computations.
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Table 2. Descriptive statistics in advanced economies

%L ITR L %LGDP %K ITR K %K/GDP
2007 40,9 34,2 17,1 25,7 24,6 7,7
2008 39,9 34,1 17,5 25,0 23,1 7,1
2009 39,6 33,6 18,0 25,0 21,6 6,3
2010 40,0 33,9 17,7 24,3 20,9 6,3
2011 40,8 34,2 17,7 24,2 20,6 6,4
2012 41,2 34,7 18,0 24,2 21,8 6,5
2013 42,3 34,9 18,2 24,6 22,5 6,7
2014 42,3 35,0 18,3 24,3 22,7 6,9
2015 42,1 35,0 18,0 24,2 22,2 7,0
2016 42,1 35,0 18,1 23,8 23,0 7,0
2017 42,3 35,1 18,1 24,1 23,0 7,1
2018 42,6 35,2 18,3 23,7 22,9 7,2
2019 43,1 35,3 18,5 23,6 23,3 7,1
2020 42,6 35,4 19,3 23,1 24,0 6,8
2021 43,1 35,6 18,8 22,9 23,1 7,2
Source: Data: Taxation trends in the European Union series; authors own computations.
227

June 16-17, 2022
Climate-aligned Tokens as Instruments of Climate Change

Financing and Investment – the Case of Energy Tokens
Kamilla MARCHEWKA-BARTKOWIAK1, Marcin WIŚNIEWSKI2*
DOI: 10.24789788367405072-021
Abstract
The growing role of Tokenomics in the world of finance has stirred much interest in
different areas of the economy. Digital tokens as financial innovations, also known as
cryptoassets, emerged alongside the blockchain technology (or the more broadly applied
concept of the ‘distributed ledger technology’ – DLT). At present, numerous analyses are
being carried out on the ever emerging new types of digital tokens and the process of
tokenization. In recent years, tokenization has also found application in the field of
organising and financing climate change and energy policies.
The aim of the article is to identify climate-aligned tokens, with particular regard to
energy tokens. In the second part of the paper, the authors evaluate the investment
attractiveness of 12 selected energy tokens from the point of view of the effectiveness
measures applied to ordinary financial instruments. In this way, it was possible to compare
energy tokens with traditional financial instruments. Furthermore, the authors attempted to
investigate the relationship between the formation of rates of return of the researched energy
tokens and the rates of return on stock and commodity markets. The aim of this
study was to point to the possibility of diversifying an investment portfolio using the tokens
in question.
The results of the study indicate the low investment attractiveness of energy tokens
compared to investments in stock markets, commodity markets, and investments in major
cryptocurrencies such as Bitcoin and Ethereum. The research therefore indicates that buyers
of energy tokens today should not be driven by investment or speculative motives, but rather
by a desire to obtain a means of clearing energy trading, or other utility.
Keywords: digital tokens, tokenization, climate-aligned tokens, energy tokens,

investment efficiency.
JEL Classification: G11, G12, O13, Q54.
1 Poznań University of Economics and Business, Poznań, Poland,

[email protected].
2 Poznań University of Economics and Business, Poznań, Poland, [email protected].
© 2022 K. Marchewka-Bartkowiak , M. Wiśniewski, published by Sciendo. This work is licensed under the Creative
1. Introduction
The ever-advancing climate change requires taking immediate action if we
want to halt environmental degradation and ensure the ecological security of our
planet. This issue has become so important and pressing that in 2015 the UN passed
the Resolution on Sustainable Development Goals, among which – in addition to
tackling poverty, hunger, exclusion, inequality, armed conflict – climate and
environmental issues were prioritised. In particular, the promotion of water
resources management, access to affordable and clean energy, protection of life
on land and in water were mentioned (United Nations, 2015). On 7 March 2018,
the European Commission launched the Action Plan for Financing Sustainable
Growth, with the aim of encouraging and promoting sustainable investment. This act
is in line with the European policy for a new sustainable world and continues
the work carried out by European authorities following the Paris Agreement and the
UN Agenda (European Commission, 2018).
However, the latest report of the Intergovernmental Panel on Climate Change
(IPCC, 2021) leaves no illusions that climate change can be stopped now. The
authors predict that over the next 20 years, global temperatures will on average reach
or exceed a 1.5°C increase. Hence, there are numerous calls for governments and
international associations (such as the European Union) to accelerate action to reduce
carbon emissions. It is therefore becoming a priority for the EU to implement the
Green Deal strategy, including, in particular, the energy sector, which is responsible
for 75% of the EU's greenhouse gas emissions (EC, 2019). It should also be noted
that the European Union is increasingly promoting further legislative initiatives
related to financing and investing in sustainable and green assets (investments), such
as the Sustainable Finance Disclosure Regulation (European Parliament and the
Council, 2019), among others, which is a set of new regulations that help to better
classify the sustainable specification of investment funds and the new EU
Taxonomy, which offers a classification for economic activities that are green and
sustainable.
The renewable energy market is therefore becoming an increasingly attractive
market from the point of view of financing and investment, including financial
investment. Furthermore, the use of the decentralised ledger technology (DLT) and
the tokenization process is increasingly being considered in the energy sector.
According to the Union of the Electricity Industry, which represents 3500 energy
sector companies across Europe, a blockchain enables secure data storage and
executing smart contracts in peer-to-peer networks. Owing to its unique attributes,
this technology has the potential to play a significant role in the energy sector. The
possible solutions that could be implemented across the electricity supply chain, with
regard to process optimization, include networks and trading platforms as the
traditional wholesale trading as well as peer-to-peer (Eurelectric, 2017).
The first aim of the article is to identify climate-aligned tokens, including energy
tokens, based on the practice of their use to date. Another objective is to answer the
question about the attractiveness of energy tokens as an instrument for investment
and diversification of the investment portfolio of market investors.
229
To the best of our knowledge, this is the first analysis ever to include energy
tokens in a portfolio analysis as financial instruments. This is because so far the
main focus has been on researching this digital token in its payment and utility
function only.
Thus, the article is organised into four main sections. The first section presents
an analysis of the research to date on providing public access to environmental
resources, including clean and affordable energy as public goods, and traditional
ways of financing this process. This is followed by a description of the issues of
using new blockchain technology and climate-aligned tokens to achieve climate
goals. In the next section, the essence and significance of energy tokens as a way of
using blockchain technology in the energy sector is discussed in more detail using
the classification criteria of digital tokens and the existing issuing practice. In the
last section, the authors present the results of empirical studies conducted on the
investment efficiency of energy tokens and their portfolio attractiveness.
2. Climate-aligned Traditional Financing

The implementation of sustainable development goals is automatically
connected with the tasks of the state. It is so because ensuring citizens' access to
environmental resources, including clean water, clean air, energy sources, etc., is
perceived in terms of a public good, construed as a good that, once produced for
specific consumers, can be consumed by other entities as well, without incurring
additional costs (Samuelson, 1954). This feature can be described as “non-rivalry”
in consumption (McNutt, 1998), “jointness” in consumption, or “non-excludability”
from consumption (Holcombe, 1997). Moreover, the globalisation processes taking
place in recent decades have resulted in a change in the perception of public goods.
In 1999, the concept of global public goods emerged. Its authors defined
global public goods as “outcomes (or intermediate products) that tend toward
universality in the sense that they benefit all countries, population groups, and
generations. At a minimum, a global public good would meet the following criteria:
its benefits extend to more than one group of countries and do not discriminate
against any population group or any set of generations, present or future” (Kaul et
al., 1999, p. 16). Such goods are the emanation of national public goods beyond the
borders of specific states, and the fundamental difference in their provision is that
they do not result from coercion but from international agreements (Kleer 2014,
p. 45). In considering the nature of goods whose provision should be handled by the
state, a true milestone is the definition of the so-called merit goods by Richard A.
Musgrave (1957, pp. 33-43; 1959, pp. 13-15), who argues that these goods include
public goods and selected private goods that have positive and measurable
spillover effects (or "externalities") on other people and society as a whole.
Education and healthcare, among others, are also included in this group of goods.
Such a broad approach to the definition of goods, the provision of which is the
responsibility of the state, strongly implies the need for the government to also
engage in environmental protection issues. It is precisely providing people with fair
230
and sustainable access to environmental resources, including diversified energy

sources, that is now becoming the key merit good.
Bearing in mind the above considerations concerning the essence of the
public good, it should be stated that, in principle, the burden of financing the
implementation of measures related to climate change lies with the state (public
funds). The actions of public authorities supporting environmental protection under
the conditions of climate change have, therefore, consequences both on the side of
public expenditures (financing or co-financing of pro-environmental and energy
projects) and public revenues (e.g., lower budget revenues caused by the application
of reliefs in public levies, rewarding pro-environmental activity of taxpayers). The
accumulation of public funds for the described objectives may consist in obtaining
new public revenues, including taxes and fees imposed, e.g., on entities whose
activities harm the environment and increase carbon emissions. Appropriate
construction of the tax system (including green tax) and budget revenues obtained
from the auction sale of emission allowances, including EU ETS, is yet another issue
(Marchewka-Bartkowiak, Jarno, 2020).
In addition to budgetary resources, climate finance can also be repayable and
result from public commitments in the financial market. The last decade has seen a
sharp increase in the volume and value of green bonds and climate-aligned bonds,
including those issued by governments, both central and local governments
(Wiśniewski, Zieliński, 2019, pp. 83-96). According to the Climate Bond Initiative
(2021), in 2020, the global green bond market was worth USD 1.1 tn – dominated
by bonds issued by sovereigns, government-back entities, local governments and
development banks. Additionally, sustainability bonds, which finance the
implementation of both green and social goals, appeared in the statistics. In 2020,
the value of the market for these bonds amounted to USD 317 bn, and their issuers
included mainly development banks, however, not excluding sovereigns,
government-back entities, and local governments.
This path is also being followed by private entities, which increasingly use
repayable financing (loans, bonds) of green nature. The commitments entered into
finance green activities specified by the issuer, which constitutes an incentive for
socially and environmentally responsible investors to purchase these instruments. In
order for an investor to be confident in the greenness of their investment, certification
by institutions such as the Climate Bond Initiative, CICERO, Moody's Green Bond
Assessments and Standard & Poor's Green Evaluation is required (Ehlers, Packer
2017, p. 93). It is emphasised that such certification makes it easier for a green debt
issuer (both public and private issuer) to place a bond issue and reduces the investor's
margin, thus reducing the cost of debt, due to the additional bonus investors receive
in the form of the belief that they are doing something valuable for the environment
(Wiśniewski, Zieliński, 2019, pp. 83-96).
However, modern technologies are increasingly becoming an alternative to the
so-called traditional methods of financing climate policy. In this article, the authors
will focus on the latest trend in financing and investing in the field of climate and
231
energy policy based on the distributed ledger technology (DLT, or more narrowly:
blockchain), namely tokenization.
3. Climate-aligned Digital Tokens

The increasing interest in the new DLT technology has resulted in the growing
popularity of digital tokens and the process of their creation (issuance) called
tokenization. Accordingly, tokenization may revolutionise and fundamentally
diversify sources of funding and investment in the so-called climate and energy
market in the future. As mentioned in the introduction, blockchain and digital tokens
are already seen by potential issuers and investors as a future-oriented asset for
practical application in the field of energy and climate change financing. Therefore,
it should be assumed that climate-aligned tokens will increasingly be taken into
account in financial decisions by both the private and public sector (Table 1).
Table 1. Financial instruments in financing tasks
and activities regarding climate change
Economy Financial instruments
sector Traditional Modern (digital)
Budgetary sources
(incl. budgetary spending on green
investments, green tax credits,
public taxes and charges on entities Climate-aligned tokens
Public
acting to the detriment of the (e.g., green bond tokens)
environment, public revenues from
green debt, especially green bonds)
Climate-aligned tokens
ESG-linked loans and securities (e.g., energy, climate, green
Private
(incl. green bonds and loans) tokens)
Source: Authors’ own elaboration.
Generally, digital tokens or cryptoassets are defined as a digital representation of

value or rights which may be transferred and stored electronically, using the
distributed ledger technology or a similar technology (definition adopted by the
European Commission in COM(2020)593). Digital tokens are currently used in
many business models (Diedrich, 2016; Adhami et al., 2018). Their diversity in
terms of functionality has also given rise to the recognition of a new area of analysis
called the Token Economy, or Tokenomics for short (Mougayar, 2017). The most
important division of digital tokens is mainly based on three aspects: the purpose of
their creation, the function they are supposed to perform, and their technical aspects.
Based on these three criteria, the authors separated climate-aligned tokens as a
type of digital asset used in the field of climate-energy policy. The characteristics of
climate-aligned tokens within the framework of digital tokens classification accepted
in the literature (BIS, 2018; FSB, 2018; ESMA, 2018; ECB, 2019; OECD, 2019;
FCA, 2018; Oliveira et al., 2018) are presented in Table 2.
232
Table 2. Climate-aligned token features

Criteria Climate-aligned tokens features
Energy tokens
Aim of the creation (issuance)
Green (climate) tokens
Exchange type (payment tokens)
The value or rights represented Utility type (utility tokens)
Investment type (asset or security tokens)
Public or private sector
Type of the issuance
Institutional or individual entities
Method of technological link Native or non-native tokens
Price/value stability standard Stable or non-stable tokens
Digital contract Fungible or non-fungible tokens
Climate-aligned tokens can be used in a wide variety of ways for direct financing
of climate and energy policy (on digital platforms); they can also be used as an
investment instrument (e.g., for trading on digital stock exchanges); they can also be
used for clearing purposes (e.g., in energy trading) or for utility purposes, entitling
their holder to certain services. It is also worth noting that although digital tokens are
most often issued by institutional entities, personal tokens are becoming increasingly
popular (Marchewka-Bartkowiak, Nowak, 2020). In the future, it should therefore
be possible to use tokens by households or individuals in the climate-energy area not
only as beneficiaries, but also as issuers of tokens (e.g., of energy surpluses). From
a technical point of view, the construction of climate-aligned tokens can be based on
existing functionalities of digital tokens, such as technological link with platforms,
price stability standard, or smart contract. However, these issues will largely depend
on the further development of DLT technology in the near future.
Today, one of the most popular climate-aligned tokens is energy tokens, to which
a more in-depth analysis is devoted.
4. Energy Tokens as the Climate-aligned Tokens

Nowadays, many different applications of the DLT technology can be found as
far as energy is concerned. First of all, the blockchain is used in energy trading –
buying and selling individually generated energy – by individual users. With the help
of this technology, electricity trading platforms are created, services enabling
payment for charging electric vehicles at stations, or giving users the opportunity
to quickly change energy service providers (Basden, Cottrell, 2017). The literature
highlights that the use of new technological solutions can increase the security of
energy trading, as the technology perfectly allows for confirmation of ownership, it
is a reliable and inexpensive way to conduct and control transactions without a
central generation unit of power, and promote the development of the renewable
energy microgrid. In addition, it introduces intelligent solutions and energy
management systems to ensure universal and safe access to energy. Blockchain,
through liquidation of intermediaries and introduction of P2P transactions, also
allows reducing energy prices, under the conditions of high competition
233
(Varnavskiy et al., 2018, pp. 46-49). Researchers dealing with the possible
applications of the technology described also point to its use for: crowdfunding of
assets and distribution of revenue, facilitating green energy investments and assets
co-ownership, bringing together sustainable energy projects and prospective
investors, rewarding low-carbon and green energy production (Andoni et al., 2019,
pp. 158-159).
Generally speaking, energy tokens issuers are entities involved in providing
clean energy, mediating its settlement, as well as implementing new solutions in
the renewable energy market.
Energy tokens can thus be considered as a means of payment in a clearing
or utility function (Varnavskiy et al., 2018; Andoni et al., 2019), but also as a
commodity (Guseva, 2021, pp. 175-176) or decentralised means of investments
(Lin, Tjio, 2020, p. 1). Thus, these tokens can also represent an alternative form of
investment compared to classical financial instruments, such as stocks, bonds, or
mutual fund units. Even if they are not "equity" tokens, which are a digitalised form
of financial instruments, they can be regarded as an alternative investment, such as
investments in commodities (oil, metals, and grain).
The study conducted below is based on a group of 12 energy tokens. Table 3
presents their characteristics, specifying the type of issuer, services offered,
availability, etc., as well as their market capitalisation value, and describing their
essence. Data for the analysis was obtained from the CoinMarketCap and CoinGecko
portals, while detailed information on the tokens was collected from the websites of
their issuers. Detailed descriptions of the energy tokens and the technical solutions
used are also described in detail in: Andoni et al., 2019; Varnavskiy et al., 2018;
SolarPlaza, 2018; PWC, 2018.
Table 3. The energy tokens under study

Market
Date of
Acronym Name capitalisation Characteristics
“issuance”
(USD)*
native token behind the Energy
Web Chain, a blockchain-based
virtual machine designed to
EWT Energy Web Tokens 206 787 847 31/03/2020
support and further application
development for the energy
sector; used to create DApps
native token which allows
market participants to trade
WPP WPP Token 138 884 888 14/04/2019
Energy and biofuel production
(Switzerland)
native token which uses public
ETH blockchain, designed to
enable local areas to sell and
distribute solar power without
POWR Power Ledger 120 547 246 08/11/2017
the help of middlemen, used to
facilitate energy and
environmental commodity
trading
234
Market
Date of
Acronym Name capitalisation Characteristics
“issuance”
(USD)*
native cryptocurrency token of
energy efficiency platform
Efforce, used as the medium
WOZX EFFORCE 76 678 254 07/12/2020 through which energy savings
created on the Efforce platform
are tokenized for use by any
participant
cryptocurrency operating on the
ETH platform, which enables
MWAT Restart Energy 17 608 389 02/03/2018
energy producers to tokenize
their energy
ETH platform, that gives
GRID+ GRIDplus 8 392 318 02/03/2018
consumers direct access to
wholesale energy markets (USA)
native coin which binds energy
to money
using the power of electric
vehicle charging as a basis of
CHG Charg Coin 4 149 307 14/06/2018
value; time of charging vehicle
(in Charge Coin network) is
transformed into the price of the
coin
native cryptocurrency which
empower individuals to freely
SNC SunContract 4 021 650 19/11//2017 buy, sell or trade electricity by
providing an open energy
marketplace (Slovenia)
a platform which allows green
WPR WePower 3 909 418 11/02/2018 energy producers to raise capital
by issuing these tokens
ETH platform, that allows for
ELEC Electrify.Asia 527 240 21/03/2018 the trading of energy among
individual producers of energy
(Singapore)
Native cryptocurrency, which
enable digital energy trading,
PYLNT Pylon Network 358 687 21/03/2018 and foster market transparency
by tracking and certifying source
of energy (Spain)
native cryptocurrency, which
supports peer to peer power
TSL Energo / Tesla 203 381 28/12/2017 trading system by applying a
blockchain to the microgrid for
decentralized energy autonomy
* data as of 1 August 2021
Source: Own elaboration based on energy tokens issuers’ websites.
235
The list of energy tokens presented in Table 3 allows several observations

to be made:
• in most cases, energy tokens have the nature of payment tokens - with their help
individual energy producers and energy buyers can make settlements without an
intermediary, which can reduce the cost of electricity; others allow, for example,
the self-creation of tokens by entities interested in using the created blockchain
or decentralised applications (DApps), or even the creation of coins thanks to
charging electric vehicles from a specific network;
• the first tokens of this type appeared in 2017 and the dominant part of them was
implemented a year later; two of them were launched only in 2020;
• the majority (8 out of 12) of the surveyed energy tokens are native tokens,
meaning that their issuers have created their own blockchain - the others were
based on Ethereum (non-native tokens);
• market capitalisation of the researched tokens is very diverse and very variable,
too - from a few hundred thousand USD to over 200 million. In August 2021, the
average value of the market capitalisation of all energy tokens, as reported on the
aforementioned portals, amounted to approximately USD 700 million, with the
daily turnover exceeding USD 20 million.
It is therefore clear that most of the instruments described are of payment or use
character, which definitely defines the nature of their users (buyers). In such an
approach, the valuation of these instruments is highly difficult, as it is subjective in
nature to value access to some service, or the possibility of relatively cheaper
acquisition or disposal of energy, or to value the "utility" of owning a token that has
created capital for the creation of renewable energy sources, or to value the
possibility of creating one's own DApp.
5. Energy Tokens as the Investment Instrument

In the era of progressive changes related primarily to the greater digitalisation of
modern life, the change in investor behaviour, including a greater interest in
acquiring digital and at the same time alternative instruments, with their greater
availability and lower transaction costs compared to classical financial instruments,
the acquisition of energy tokens may represent an alternative for the investor. Of
course, valuing his satisfaction resulting from the fact that he allocates his resources
to finance environmentally friendly actions is highly difficult due to its subjective
nature. However, evaluation, from the point of view of financial investment, is also
most possible and objective, too
The fundamental research on energy tokens undertaken by the authors concerns
in particular the following:
• analysis of profitability, risk, and investment efficiency of tokens in the light of
classical measures used by investors;
• correlation between the rates of return of the tokens under study (intra-group), as
well as between the rates of return of these tokens and selected stock indices.
The authors have attempted to apply classical investment measures, including in
particular profitability, risk, and efficiency, to the verification of the tokens under
236
analysis. Such an analysis of energy tokens leads to an assessment of their

investment attractiveness from the perspective of portfolio analysis. By investment
attractiveness of a particular instrument, the authors understand its high expected
rate of return and low risk (low volatility of return rates) - according to the portfolio
theory of Markowitz (1952). Investment efficiency, on the other hand, will be
considered in terms of reward-to-variability, as the relationship between the
above categories, according to the commonly used concept, formulated by Sharpe
(1952, 1994).
Although in the literature it is possible to find a study of the risk of investing
in tokens (initial coin offerings – ICOs) using the Value-at-Risk methodology
(Kuryłek, 2020, pp. 512-530), in this study, the authors focused on classical risk
measures such as standard deviation of returns, which to the best of the authors'
knowledge no one has done before.
The study conducted concerns the energy tokens characterised above for the
period from 12 November 2017 to the end of June 2021 (i.e., from when they were
listed on the indicated information platforms).
To measure their investment attractiveness in a comparative manner, the study
was also conducted for:
• the major cryptocurrencies (Bitcoin (BTC) and Ethereum (ETH));
• indices of the largest world stock exchanges (American: SPX, DJI, Brazilian:
BVP, British: FTM, German: DAX, French: CAC and Japanese: NKX);
• and for alternative commodity investments (gold price (XAU) and WTI-NYMEX
crude oil price (CL.F)).
Weekly logarithmic returns were determined for the investment evaluation of
the tokens. The choice of such an interval was dictated, among others, by the need
to standardise the frequency of data – in the case of stock market indices, a week is,
in principle, five days long, while in the case of tokens, data are available on each
day of the week.
In addition to examining the investment attractiveness of energy tokens, the
authors also looked at the relationship between their rates of return and those of
stocks and commodities, because for investors who want to diversify their portfolio
and make it resilient to changes in the economic situation, it is also important
whether the prices of the assets held are correlated with each other – how strongly
and in what direction. Therefore, the next study undertaken is an analysis of the
correlation of the returns of tokens, stock indices, and commodities.
For each token, stock index, and commodity price, the following measures of
investment attractiveness were determined (Table 4):
• profitability, determined as the arithmetic mean rate of return;
• risk, described by the standard deviation of the return rates;
• effectiveness, calculated with the Sharpe ratio (quotient of mean rate of return
and standard deviation – the value of risk-free rate was omitted in the Sharpe
ratio calculation due to the effectively zero interest rates occurring in the
analysed period).
237
Table 4. Investment measures of energy tokens against selected cryptocurrencies,

stock market indices, and commodity prices
Energy tokens EWT WPP POWR WOZX MWAT GRID CHG SNC WPR ELEC PYLNT TSL
Number of weeks
65 116 190 29 174 190 159 189 177 171 182 183
under study
Profitability 0.0330 0.0049 0.0020 -0.0415 -0.0017 -0.0077 0.0086 -0.0036 -0.0137 -0.0241 -0.0219 -0.0307
Risk 0.2261 0.3801 0.2042 0.1948 0.2310 0.2997 0.6287 0.1929 0.1936 0.2398 0.2769 0.2643
Effectiveness 0.1462 0.0129 0.0096 -0.2132 -0.0072 -0.0257 0.0138 -0.0185 -0.0706 -0.1006 -0.0791 -0.1161
Crypthocurrencies /
stock indices / BTC ETH SPX DJI BVP FTM DAX CAC NKX XAU CL.F
commodities
Number of weeks
190 190 190 190 190 190 190 190 190 190 190
under study
Profitability 0.0094 0.0103 0.0027 0.0021 0.0030 0.0007 0.0009 0.0010 0.0013 0.0018 0.0015
Risk 0.1194 0.1531 0.0288 0.0314 0.0360 0.0305 0.0326 0.0313 0.0306 0.0195 0.0671
Effectiveness 0.0784 0.0673 0.0955 0.0664 0.0833 0.0221 0.0284 0.0331 0.0410 0.0909 0.0221
Source: Authors’ own calculations.
For easier reading, tokens are marked in bold and shaded, cryptocurrencies in
bold, stock indices in italics, and commodity prices without distinction (this also
applies to the next table). The measures presented in the table indicate significant
variation in profitability, risk, and efficiency of the instruments studied. In addition,
unlike indices, commodities and BTC and ETH, some tokens are new instruments
and therefore have not been traded in the entire period since November 2017. To
highlight this fact, the table notes the number of weeks from June 2021 backwards
for which data was available.
Table 4, despite providing detailed information on the measures described, does
not facilitate the drawing of synthetic conclusions. Therefore, on the basis of this
data, an investment ranking was made in the indicated three criteria, and its results
are presented in Table 5. The places in the ranking mean respectively the highest
profitability, the lowest risk and the highest efficiency of a given token, stock index
or commodity.
The results of the study clearly show that – in light of the investment measures
used – most energy tokens perform worse than investments in stocks or commodities.
The only exception to the list is the Energy Web Token, which is characterised
by above-average profitability and efficiency, but its case should be analysed
with great caution due to its shortest period on the market. Charg Coin and WPP
Token were also characterised by high profitability; however, they both occupy
the last places in the risk ranking. The study showed that even during such a
turbulent time – the COVID-19 pandemic period – the stock and commodity markets
were characterised by lower risk than investments in cryptocurrencies and the
energy tokens under study.
In addition to examining the investment attractiveness of energy tokens, another
study examined the relationship between their return rates and the return rates of
stocks and commodities. This issue is crucial for investors who want to diversify
238
their portfolio and make it resilient to economic fluctuations. It is therefore important

whether the prices of the assets held are correlated with each other – how strongly
and in what direction.
Table 5. Investment ranking of energy tokens and selected cryptocurrencies,

stock indices, and commodity prices
Rank Profitability Risk Effectiveness
1 EWT XAU EWT
2 ETH SPX SPX
3 BTC FTM XAU
4 CHG NKX BVP
5 WPP CAC BTC
6 BVP DJI ETH
7 SPX DAX DJI
8 DJI BVP NKX
9 POWR CL.F CAC
10 XAU BTC DAX
11 CL.F ETH CL.F
12 NKX SNC FTM
13 CAC WPR CHG
14 DAX WOZX WPP
15 FTM POWR POWR
16 MWAT EWT MWAT
17 SNC MWAT SNC
18 GRID ELEC GRID
19 WPR TSL WPR
20 PYLNT PYLNT PYLNT
21 ELEC GRID ELEC
22 TSL WPP TSL
23 WOZX CHG WOZX
The values of the Pearson correlation coefficient between the return rates of
tokens, stock indices, and commodities were determined for the available data
(respectively, the number of weeks of trading of a given token indicated in Table 4).
The matrix of the correlation coefficient value is presented in Table 6, with bold
highlighting those values where there is statistical significance of the relationship for
a significance level of 0.05; while grey highlighting those values where the p-value
is below one per mille, indicating a strong correlation.
239
Table 6. Values of the correlation coefficient between the rates of return

of energy tokens, cryptocurrencies, stock indices, and commodity prices
EWT WPP POWR WOZX MWAT GRID CHG SNC WPR ELEC PYLNT TSL BTC ETH SPX DJI BVP FTM DAX CAC NKX XAU CL.F
EWT 1
WPP 0.0260 1
POWR 0.4574 0.0997 1
WOZX 0.4949 -0.0102 0.4859 1
MWAT 0.1300 0.0843 0.3371 0.4600 1
GRID 0.2392 0.1143 0.4246 0.2193 0.1964 1
CHG 0.0570 -0.0097 -0.0046 0.1802 0.0076 -0.0418 1
SNC 0.4263 0.1693 0.5999 0.1805 0.3352 0.2934 0.0824 1
WPR 0.4195 0.1689 0.6839 0.3854 0.3689 0.3437 -0.0458 0.5607 1
ELEC 0.2931 0.1005 0.4538 0.0105 0.2425 0.2853 -0.0390 0.4391 0.5129 1
PYLNT 0.3284 0.0102 0.2661 0.1723 0.0388 0.2261 0.0107 0.1399 0.2890 0.1367 1
TSL 0.2706 0.0529 0.4145 0.0991 0.2242 0.2268 -0.0238 0.3359 0.4446 0.3396 0.2591 1
BTC 0.4457 0.0591 0.6050 0.1499 0.3844 0.3721 -0.0197 0.6249 0.6317 0.4388 0.2735 0.4041 1
ETH 0.4723 0.0565 0.6655 0.2517 0.3424 0.4663 -0.0605 0.6132 0.6558 0.4572 0.2505 0.4092 0.7585 1
SPX 0.1719 0.0544 0.1490 0.0873 0.1205 0.2337 -0.0368 0.1339 0.1779 0.0849 0.0583 0.1263 0.1581 0.2588 1
DJI 0.1751 0.0619 0.1568 0.1810 0.1517 0.2415 -0.0253 0.1245 0.1825 0.0739 0.0822 0.1193 0.1569 0.2528 0.9765 1
BVP 0.3673 0.1615 0.2141 0.0722 0.1683 0.2549 -0.0683 0.1389 0.1820 0.1020 0.0831 0.1447 0.2050 0.2702 0.7022 0.7133 1
FTM 0.2868 0.1154 0.2073 -0.0867 0.2274 0.2718 -0.0645 0.1743 0.2030 0.0710 0.0542 0.1587 0.2211 0.3009 0.8147 0.8315 0.7128 1
DAX 0.2463 0.1851 0.2394 -0.0708 0.2507 0.3279 -0.1942 0.1652 0.2920 0.1005 0.1280 0.1538 0.2725 0.3467 0.7620 0.7746 0.6504 0.8607 1
CAC 0.2171 0.2085 0.2141 0.0939 0.3158 0.3043 -0.1576 0.1788 0.2933 0.0644 0.0863 0.1438 0.2738 0.3441 0.7379 0.7561 0.6457 0.8588 0.9555 1
NKX 0.2279 0.1507 0.1697 0.0001 0.1912 0.2206 -0.0727 0.1766 0.2736 0.0944 0.0794 0.1317 0.1912 0.2459 0.7399 0.7576 0.5906 0.7794 0.7929 0.8084 1
XAU 0.1535 -0.1334 0.0879 -0.2384 -0.0034 0.1471 -0.0577 0.1782 0.0777 0.0815 0.0626 0.1244 0.1893 0.2516 0.2819 0.2884 0.2776 0.2888 0.2260 0.1900 0.2053 1
CL.F 0.1587 0.1193 0.1723 0.1761 0.2029 0.1615 -0.1606 0.1098 0.1859 0.0901 0.0202 0.0696 0.1928 0.2253 0.3980 0.3981 0.4228 0.3999 0.3875 0.3761 0.2697 0.0767 1
Source: Authors’ own calculations.

Generally, the results indicate a weak correlation between the return rates of
energy tokens and stock market indices, gold and oil prices. This means that the
markets for these instruments are not strongly correlated, which is an advantage for
an investor wishing to diversify his or her portfolio and make it resilient to economic
changes. Additionally, the energy tokens analysed do not show strong intra-group
linkages - the exceptions being EWT and POWR tokens, where linkages with some
other tokens are noticeable. Importantly, some of the tokens also do not show links
to the key cryptocurrencies, Bitcoin and Ethereum, which may be due to the fact that
many of them are based on separate blockchains.
6. Conclusions
The herein presented considerations on tokenization in the field of climate and
energy policy have allowed the authors to formulate a number of conclusions of
theoretical and practical nature.
Taking into account the ongoing climate changes, the authors point to the
key role of the state and international organisations in this process. The
considerations made at the beginning clearly indicate that common resources,
including water, air, solar energy, and land, should be the subject of state interest,
and providing society with access to these resources in the modern economy has
become a public good. Therefore, the provision of such a good should be financed
similarly to other public goods.
This does not mean that private entities do not have the opportunity to care for
the environment. On the contrary, in addition to taking action to reduce the burden
240
of our daily lives on the environment, it is also possible to use modern technologies,
including blockchain technology, to solve environmental problems.
One possible action is to use tokenization to solve energy problems. Energy
tokens on the market allow for energy settlements, in particular between private
buyers and providers (prosumers), financing the creation of own renewable energy
sources, or creating own DApps (Decentralised Applications).
The valuation of the environmental benefits of acquiring energy tokens remains
a subjective issue. These benefits may have a financial dimension, in the form of
lower costs of electricity generation, or a more attractive form of their sale by
individual small producers, bypassing the intermediary. It may be possible to
calculate these benefits for an individual user, but the benefits depend on many
individual characteristics - how much energy the user buys/sells, in what cycles, and
finally on whether he or she can derive any tax benefits from it. It is even more
difficult to assess the value of non-financial benefits, such as the satisfaction of doing
something good for the environment.
Despite this, the authors have attempted to evaluate energy tokens from the point
of view of their investment attractiveness. Obviously, apart from their clearing and
utility values, the buyer of such a token may treat it as an alternative investment
instrument. However, the results of the conducted research indicate a low investment
attractiveness of the tokens in question. Compared to investments in stock or
commodity markets, or even to investments in major cryptocurrencies such as
bitcoin and Ethereum, investments in energy tokens are characterised by relatively
lower profitability and higher risk, which from the point of view of investment
efficiency, measured using the Sharpe ratio, places them lowest in the herein
prepared ranking. This research may therefore indicate that purchasers of energy
tokens should not be driven by investment and speculative motives, but rather by the
desire to obtain a means of clearing energy trading, or other utility.
Acknowledgment
The study was conducted within the research project Economics in the face of the
New Economy financed within the Regional Initiative for Excellence programme of
the Minister of Science and Higher Education of Poland, years 2019-2022, grant no.
004/RID/2018/19, financing 3,000,000 PLN.
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243

June 16-17, 2022
The Impact of Corporate Social Responsibility

on Organizational Performance:
Evidence from Romanian SMEs
Lakiss NOUR1
DOI: 10.24789788367405072-022
Abstract
The purpose of this study is to analyze the impact of the dimensions of corporate
social responsibility (environmental, community services, and human resources) on the
performance of Romanian SMEs. A questionnaire has been designed and distributed
randomly, questionnaires were distributed among non-financial SMEs in Romania by
sending one questionnaire for each firm. Questionnaires were sent via Google Forms to
respondents among stakeholders, managers, and directors of financial departments. The
number of questionnaire sheets given to customers and used in this survey (540). The results
suggest a positive and direct significant impact of the dimensions of corporate social
responsibility (environmental, community services, and human resources) on SMEs
performance in Romania, collectively and individually.
Keywords: Corporate social responsibility, SMEs performance.
JEL Classification: A10, M14.
1. Introduction
Dealing with SMEs and considering their role in the economy of a certain country
is essential. Where it was stated by Haque et al. (2017) that SMEs play a vital role
from different aspects, such as: developing the economy, leading to social welfare
& innovation, and also providing better job opportunities. On the other hand, SMEs
are essential in the field of employment within developed countries. In addition,
Morina and Gashi (2016) added that SMEs are considered important in relation to
both social stability and economic development, such as: SMEs are involved in
solving and addressing problems related to employment, SMEs are considered useful
in the development of large enterprises, SMEs contribute to a country’s GDP, and,
finally, SMEs are involved in issues related to export-import activities in a country .
© 2022 L. Nour, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0 License.
Nowadays, there is a competition among SMEs in the related market, which led
to the application of novel systems, such as corporate social responsibility. Keeping
in mind that SMEs have become part of the society. Therefore, customers now
have a great awareness of social responsibility, so they prefer corporates
that apply corporate social responsibility. Generally, when discussing corporate
social responsibility, it reflects the corporate social concern within the business
process.
Moving to organizational performance, it is useful to mention that basically the
performance is related to what and how people are achieving their goals and
objectives. Furthermore, Contu (2020) mentioned that in relation to an organization,
the organizational performance relies on the adaptation of a certain corporate to the
changes within the external atmosphere and environment. Contu (2020) added that
when dealing with a performance of a certain company, it is useful to consider
financial indicators that present the achieved economic goals and reflect investors’
view. However, Chen and Zhao (2020) indicated that non-financial indicators are
not being described or analysed from corporate’s financial data. Therefore, the need
to consider organizational performance in this study came from the inclusion of
both financial indicators and non-financial indicators.
In conclusion, it is essential to consider the current situation of the COVID-19
pandemic and its influence. Therefore, the researcher in this current study is going
to find the impact of corporate social responsibility on organizational performance.
Moreover, since there is an interest in the SMEs expansion within the economy, so
that the study will take a place among Romanian SMEs.
About Corporate Social Responsibility
As mentioned by Patil et al. (2021), there are different names of corporate social
responsibility such as: corporate citizenship, corporate social opportunity, corporate
responsibility, and responsible business. It was added that corporate social
responsibility is the outcome of business ethics. Where business ethics concern about
moral values. However, corporate social responsibility deals with sustainability,
environmental, and social issues. Furthermore, Tiep et al. (2021) indicated that
corporate social responsibility may include: charity events, creative activities,
sponsorships, and voluntary employees. Also, it was mentioned that corporate social
responsibility as a serious strategy for a business within its marketing planning and
it is vital in marketing of a particular business. Moreover, Zdonek et al. (2021) added
that the concept of corporate social responsibility refers to the firm’s ability to
incorporate voluntarily both environmental and social interests within the related
market, besides the firm’s relationship with different groups of stakeholders.
In the end, Tiep et al. (2021) concluded that there are several benefits in
contributing to corporate social responsibility. For example, brand development,
reputation formation, image promotion, increasing sales, and changing customer
attitudes.
245
Dimensions of Corporate Social Responsibility

In this study, the researcher considered three dimensions that are: environmental,
community services, and human resources. Where each of these dimensions will be
discussed below:
- Environmental dimension
It was mentioned by Chwilkowska-Kubala et al. (2021) that environmental
practices are being defined as the activities that are considered by a certain business
for the purpose of lowering the effect of these practices on the environment. Based
on the study conducted by Seles et al. (2019) where the researchers stated some
examples of environmental activities by applying corporate social responsibility
that are: evaluating the effect of environmental activities, introducing of activities
related to water-saving and energy, encouraging customers to concern about
natural environment, and the implementation of control systems regarding pollution
and waste.
- Community services
Based on the study conducted by Sudana et al. (2019), it was stated that
community reflects a firm’s participation into the community in different forms
including: arts and education, scholarships and supporting education locally,
community services, involvement in public health, and developing performance. In
addition, Deigh et al. (2016) added that community concept differs depending on
certain disciplines, for example, psychology, anthropology, town planning,
philosophy, sociology, and political sciences.
Back to Sudana et al. (2019), the researchers added that following community
practices led to enhance relations within a community, gain competitive advantage
and operational efficiency, and increase in market performance.
- Human resources
In accordance to Jang Ardichvili (2020), it was mentioned that the participation
of human resources in corporate social responsibility is vital through the importance
of considering issues related to human and social sustainability. Here that can be
attained by connecting human practices with the three major objectives of a certain
firm. Furthermore, it was stated by Al Qaisi (2019) that human resources within
corporate social responsibility reflect how a certain business decision has an impact
on public, suppliers, and employees.
Based on the study conducted by Jang and Ardichvili (2020), the researchers
concluded that the development of human resource is involved with both
organizational performance and long-term human development based on training
and organization development.
Organizational Performance
As was mentioned by Ion and Criveanu (2016), performance referred to the sum
of work effects since they presented the strongest relation among strategic goals of
an organization, economic involvement, and the satisfaction of customers. Richter et
al. (2017) stated that when dealing with the performance of a firm, it is essential to
consider the use of financial indicators that present the achievement of the economic
246
goals by a multinational enterprise in the terms of finance. Richter et al. also added
that organizational performance is being affected by the financial performance.
At the end, Chen and Zhao (2020) stated that financial indicators and non-
financial indicators are related to each other. Where the non-financial indicators are
being used to compensate efficiently the financial indicators defects when assessing
firms’ performance and the indicators s are vital to the business system in order to
evaluate performance.
3. The Study Problem and Its Questions

The concept of corporate social responsibility is being widely applied, where
corporate governance has required corporates in different fields to follow and apply
corporate social responsibility. However, there are several challenges that SMEs are
facing. For example, funding issues where some SMEs do not have sufficient fund
to follow entirely what corporate governance has asked them. So that those SMEs
tend to follow corporate social responsibility partially. Keeping in mind that any paid
expense without gaining any return will end up having a loss that will lead them to
exist from the market. Therefore, that might cause several problems to SMEs
especially in the current situation of COVID-19 pandemic. Moreover, the crisis has
led to a reduction in SMEs profitability based on the increment in row materials since
supply chains were disrupted across countries. However, such disruption affected
importing and exporting activities which cause obstacles for SMEs, so they did not
tend to follow corporate social responsibility for the purpose to avoid experiencing
any losses. In conclusion, there were several studies that recommended further
studies of corporate social responsibility in different areas and its implementations
within SMES, such as the studies conducted by: Tiep et al. (2021), and Maldonado-
Erazo et al. (2020).
Therefore, the study has one major question that this:
Q: “Is there any significant impact of corporate social responsibility through its
dimensions (environmental, community services, and human resources) on the
performance of Romanian SMEs and which dimension has the most impact
among the dimensions?”
4. Hypotheses
H1. A: There is a positive impact of environmental dimension on SMEs
performance in Romania.
H1. B: There is a positive impact of community dimension on SMEs performance
in Romania.
H1. C: There is a positive impact of human resource dimension on SMEs
247
5. Study Methodology
The Used Method and Tool
In this current study, the researcher used a quantitative approach. As mentioned
by Daniel (2016), the quantitative approach is useful, since it saves time and allows
for generalization. Moreover, the researcher collected data by the use of
questionnaire. Where it was indicated by Cleave (2021) that this tool is beneficial
since it helps in reaching respondents on a wide base and saves costs in comparison
to other tools.
Population and Sample
As mentioned before, there are (480,791) SMEs in Romania, where the researcher
used an equation by the following link (https://www.calculator.net/
sample-size-calculator.html) in order to get the number of the selected sample, it was
found that the appropriate sample size is represented by (384) questionnaires in order
for the researcher to be able to generalize the results of this study to the study
population. Furthermore, through a specialized agency; questionnaires were
distributed among non-financial SMEs in Romania by sending one questionnaire for
each firm. Questionnaires were sent by Google Forms to respondents including
stakeholders, managers, and directors of financial departments.
6. Statistical Analysis and Hypothesis Testing

Descriptive Examination
Table 1. The results of the descriptive test for the distribution of the study sample
Item Choice Frequency Percentage
Total assets of up to
55 10.2%
2 million euros
Capital Above 2 million euros to
485 89.8%
less than 43 million euros
All 540 100.0%
Above 9 to less than 49 48 8.9%
Number
50 to less than 249 492 91.1%
of employees
All 540 100.0%
Company’s Stakeholder 40 7.4%
Information Manager 459 85.0%
Job position Director of the
41 7.6%
department
All 540 100.0%
Service sector 57 10.6%
Industrial sector 338 62.6%
Type of
Financial sector 108 20.0%
Sector
Insurance sector 37 6.9%
All 540 100.0%
248
Item Choice Frequency Percentage

Male 480 88.9%
Gender Female 60 11.1%
All 540 100.0%
Under 25 22 4.1%
25-30 39 7.2%
31-36 105 19.4%
Age
37-42 265 49.1%
43 and Above 109 20.2%
All 540 100.0%
Personal
Diploma 26 4.8%
Information
Bachelor’s Degree 361 66.9%
Level
Master’s Degree 141 26.1%
of Education
PhD 12 2.2%
All 540 100.0%
Less than 5 Years 33 6.1%
(5- less than 10) Years 38 7.0%
Level
(10- Less than 15) years 346 64.1%
of Experience
15 years and Above 123 22.8%
All 540 100.0%
Source: Author’s own research.
Table 1 presents the results of the demographic data for the study sample, and it
is noted that the majority of the respondents were males, with a ratio of (88.9%), and
most of them work in medium-sized companies based on the size of their capital:
Above 2 million euros to less than 43 million euros, at a rate of (89.8%), with 50 to
less than 249 employees in a ratio of (91.1%), and the majority of respondents are
found to be managers of these companies at a rate of (85%), and most of them work
in the industrial sector, at a rate of (62.6%), and most of the respondents were
between 37 and 42 years old, with a percentage of (49.1%) of the study sample. Also,
most of the study sample are holders of a bachelor's degree, with a percentage of
(66.9%). It was also found that the study sample had good experience, where the
majority had 10 to less than 15 years of experience with a percentage of (64.1%).
These results represent good indicators of the study sample on their having long
practical experiences, as well as good academic qualifications that enable the
researcher to complete the research and reach results and conclusions that are
generalized to the study community. In order to show the rates of answers to the
study questions, the researcher relied on the fifth Likert Scale, and the weighted
average was therefore calculated to determine the level of importance of the study
sample observations for each variable, first by calculating the length of the period
(4 divided by 5), where 4 represents the number of distances, 5 represents the number
of choices, and the result is 0.80, and accordingly, the results of the descriptive
analysis of variables are presented as follows:
249
Table 2. Results of the descriptive analysis of the study variables

Degree
No. Variable Mean Std. Deviation
of Approval
1 Environmental 3.131 0.867 High
Community
2 4.361 0.305 High Very
services
3 Human resources 4.126 0.335 High
4 SMEs Performance 4.203 0.297 High
Arithmetical mean has a value between (1 to 1.79), the result of degree of approval is
"Very low"; (1.80 to 2.59) the result of degree of approval is "Low";(2.60 to 3.39) the
result of degree of approval is "Medium";(3.40 to 4.20) the result of degree of approval is
"High";(4.21 to 5.00) the result of degree of approval is "Very High."
The previous results of the descriptive analysis of the study variables presented
in the above table that the Community services dimension has the highest degree of
significance among the Corporate Social Responsibility dimensions, with an
arithmetic mean of (4.361), and a Very High degree of importance, Human resources
dimension was in second place in terms of importance with an arithmetic mean of
(4.126) and a high degree of importance, and Environmental dimension was in the
last place in terms of importance with an arithmetic mean of (3.131) and a high
degree of importance, while the arithmetic mean of the SMEs Performance variable
was (4.203) and a high importance.
Study Hypotheses Test
It was verified that there is no problem with the linear interference in the study
models by using the (Variance Inflationary Factor) (VIF) and the Tolerance factor,
where all VIF variables are less than (5), and the results of the analysis presented in
the table below showed that the Tolerance coefficient for all variables had values
greater than (0.20), and according to the study of (Ekiz, 2021; Salmerón et al., 2018),
it is clear that all the independent study variables have passed these two indicators,
which means that there is no problem of linear interference in the study model, and
therefore the multiple regression test was used to test the study hypotheses, as
follows:
Table 3. The results of the multiple regression test for the study model
F-statistic: 367.305Adjusted R-Square: 0.671
Sig (F-statistic): 0.000R-squared: 0.673
S.E. of regression: 0.170R: 0.820
Variable Coefficient T-Statistic Sig.T VIF Tolerance

Constant -------------- 7.234 0.000 ------- -------
Environmental 0.160 5.393 0.000 1.442 0.694
Community services 0.325 10.826 0.000 1.476 0.677
Human resources 0.490 15.234 0.000 1.695 0.590
250
The table indicates that the calculated F value reached (367.305), which is
significant at a level of (0.05), which indicates that the first proposed study model is
appropriate, and the results of the regression analysis showed that the (Sig. F-
statistic) value reached (0.000), and it is less than the significance level of the test,
which is (5%), and based on the correlation value of (R = 0.820), it is found that the
main hypothesis is accepted, which indicates that there is a positive impact of
corporate social responsibility on SMEs performance in Romania. The results of the
regression analysis also showed that the adjusted R-square value reached (0.671),
which means that only about 67.1% of the fluctuations that occur in SMEs
performance can be explained by the changes that occur by applying Corporate
Social Responsibility. According to the study of (Purwanto, Sudargini, 2021), which
classified the explanatory power, it was found that the explanatory power of this
model is high and reliable in the process of predicting and interpreting SMEs
Also, the results of the regression analysis showed that the level of significance
for all dimensions of corporate social responsibility decreased at the significant level
of (Sig.T < 0.05), which indicates that there is an effect of all dimensions of corporate
social responsibility represented by (Environmental, Community services, and
Human resources) on SMEs performance, and all of these dimensions were found to
influence positively based on the value of impact coefficients, and therefore all sub-
hypotheses of the study are accepted. The Coefficient value of Environmental
dimension, which reached (0.160), indicates that Environmental ranks last in terms
of impact on SMEs performance in Romania among the dimensions examined by
the study within the application of Corporate Social Responsibility, as well as the
Coefficient value reached (0.325), which belongs to the Community services
dimension, which indicates that this dimension is ranked second in terms of order,
and the Coefficient value related to the human resources dimension reached (0.490),
which indicates that this dimension ranks first in terms of impact on SMEs
performance in Romania among the dimensions examined by the study within the
application of Corporate Social Responsibility.
Conclusion
This study aimed to find the impact of corporate social responsibility by its
dimensions that are (environmental, community services, and human resources) on
SMEs performance in Romania. It is a quantitative research approach by which
the researcher collected the data by using questionnaires. Where only (540)
questionnaires were applicable to analysis among stakeholders, managers, and
directors of financial departments who work within non-financial SMEs in
Romania. Furthermore, the study resulted in a group of findings, as what will be
discussed below:
First, there is a positive and direct impact of corporate social responsibility on
SMEs performance. That can be justified because, in general, corporate social
responsibility has an effect on society and building a better community. It also
reflects the SMEs success strategy where it helps in creating a critical ethical attitude
251
among employees by making them responsible to accomplish their public tasks. The
result is consistent with the studies conducted by Singh (2021) and Ullah et al.
(2020), where their studies resulted in having a positive relation between corporate
social responsibility and business performance.
Second, there is a positive and direct impact of environmental dimension on
SMEs performance and it is found to have the least impact among other dimensions.
That might be justified since environmental dimension of corporate social
responsibility plays a vital role among several environmental issues, such as: using
water and changes in climate. Where taking environmental issues into consideration
will be useful in saving costs and generating revenue that will be reflected by the
enhancement of a SMEs performance. The result is consistent with the studies
conducted by Al Qaisi (2019) and Naseem et al., (2018), where they found that there
is a positive impact of environmental dimension and business performance.
Third, there is a positive and direct impact of the community service dimension
on SMEs performance and it is found to have the second most impact among other
dimensions. That can be justified where corporate social responsibility can have an
opportunity to be involved and participated by communities within different levels
in a certain society. Therefore, there is a benefit within a community itself and SMEs
by seizing diversified benefits that will lead to enhance SMEs performance. This
result is consistent with the study conducted by El Moslemany and Etab (2017)
where the study resulted in having a positive impact of the community dimension on
business performance.
Fourth, there is a positive and direct impact of the human resource dimension on
SMEs performance and it is found to have the greatest impact among other
dimensions. That might be justified due to the essential role of human resource in
developing corporate social responsibility. Where developing corporate social
responsibility at SMEs, is important in dealing with societal issues within its
workers. That will ultimately lead to an enhancement in performance. This result is
consistent with the studies conducted by Gimeno-Arias et al. (2021) and Franzoni et
al. (2021) where there is a positive relation between human resource dimension and
business performance.
The researcher faced a set of limitations while conducting the study such as:
difficulty in reaching SMEs, lack of studies related to the topic of the study in
Romania, where the researcher was unable to perform comparisons, and the
researcher was unable to use content analysis for the selected SMEs annual reports
so that the use of a questionnaire was required.
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254

June 16-17, 2022
Smooth Transition Approach for Monetary Policy Shocks

over the Business Cycle
Georgiana PLEȘA1
DOI: 10.24789788367405072-023
Abstract
The empirical assessment of the monetary policy shocks represents an area of interest
widely studied among macroeconomic research papers due to the implications for both
central bank and economic agents, respectively. Given the fact that the economies are
characterized by asymmetries over the business cycles, it becomes challenging for the
monetary policy authorities to ensure price and financial stability. The method proposed in
this paper is a Bayesian Smooth Transition Vector Autoregressive model (STVAR) that
allows for nonlinearity via a two regime-dependent model. This dependence is defined by a
logistic function to switch between cyclical positions when the economy is “overheated”
(i.e., positive output gap) and periods when the actual output is below potential output
(i.e., negative output gap). To assess the effects of a contractionary monetary policy shock
on the economic activity, we use the real economic growth and inflation, all variables at a
quarterly basis. The transmission mechanism is presented in this paper into a comparative
analysis between three Central and Eastern European countries classified as emerging
markets (Czech Republic, Poland, and Romania). Results suggest that a contractionary
monetary policy shock that, according to the literature, is expected to decrease the gross
domestic product and lower inflation produces different effects over the business cycle and
across distinct states. Subsequently, the estimated effects of the shock are gradually
dissipated in the medium term.
Keywords: monetary policy, smooth transition, regime switching.
JEL Classification: E52, E30, E32, E42.
1. Introduction
The monetary policy transmission mechanism represents an area of interest
widely studied among economic research papers. To the extent that monetary policy
shocks are essential for policy analysis, especially in times marked by uncertainty
and data revisions, the key empirical question of this paper is how the effects of these
shocks vary over the business cycles. The answer to this research problem is
© 2022 G. Pleșa, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0 License.
important not only for policymakers to maintain price stability and sustainable
economic growth, but also for economic agents to form their decisions. The objective
of monetary policy is to stabilize the domestic economy by reducing the variability
of prices and output growth. Changes in interest rates affect consumers directly
through the cost of borrowing, while stable prices and steady real economic growth
ease the economic and financial planning (Cecchetti, 2000).
Most empirical research papers assess the interaction between monetary policy
and macroeconomic variables in a linear setup. According to economic theory, a
contractionary monetary policy shock depresses economic activity and increases
inflation, producing effects in the same direction, similar to a supply shock. The
vector autoregressive multivariate models, estimated via classical econometric
techniques or Bayesian inference are widely used to investigate the interactions
between macroeconomic variables and the effects of shocks using impulse response
functions. However, nonlinear models, such as regime-switching ones, highlight the
existence of asymmetries in the transmission mechanism of shocks. This class of
models permits the assessment of this mechanism that depends on the regime, on the
subject to structural changes. These shifts could be abrupt (e.g. Markov-Switching,
Threshold models) or gradual which are referred to as smooth regime switches or
transition models. In this paper, we implement a Smooth Transition Vector
Autoregressive model (STVAR) using the Markov Chain Monte Carlo method, more
specifically the Metropolis Hasting algorithm, following a method similar to
Auerbach & Gorodnichenko (2010) and Gefang & Strachan (2010).
The rest of the paper is structured as follows: the next section presents a survey
of the literature, followed by the aim of the paper. Then, we present the methodology
of the STVAR model implemented in this study and the framework of data
introduced. Section 5 presents the results, and the last section concludes.
The data-driven economic mechanisms are often time-varying such that a specific
model could perform better in some periods and worse in others, resulting in a non-
linear (e.g., state-dependent) evaluating and forecasting performance. Our focus on
nonlinearities related to the monetary policy transmission mechanism is justified by
two important stylized facts. First, macroeconomic time series display asymmetric
behaviour over the business cycles (see, among others, Lo, Piger, 2005). Second,
monetary policy features non-identical dynamics in boom and bust periods. The
literature presents different exhibitions of asymmetry, in the direction and the size of
monetary policy action; or asymmetry related to the business cycles phases (Weisse,
1999; Lo, Piger, 2005).
In the first instance, Taylor (1993) specified a monetary policy rule where the
short-term interest rate increases if the inflation is above the target and the actual
output is above the potential output. The effects usually appear with a delay, because
policymakers tend to smooth adjustments according to expected future movements
in inflation and output gaps. The original version of the Taylor rule has been
modified in many ways, to incorporate nonlinearities and to indicate asymmetric
256
preferences of the central bank. However, studying a Taylor rule could also require
expert judgment and rational forward-looking behaviour. Thus, a straightforward
framework to study the interaction between monetary policy and economic data
series is represented by vector autoregressive models. Additionally, Bayesian
methods improved upon frequentist ones because this approach allows incorporating
prior information about the parameters into posterior probability statements
(Miranda-Agrippino, Rico, 2018).
Regime–switching models have received attention over the last years aimed at
measuring, testing, and forecasting the economic variables. Among others, the
seminal work for these is related to Chan and Tong’s (1986) for threshold
autoregressive models (TAR), Hamilton’s (1989) for Markov-switching regime, and
Teräsvirta’s (1994) in the case of smooth transition models. For the last class of
models, which is the one implemented in this research study, there are two different
perspectives for state indicator. This could be defined either as logistic function
(LSTAR) or exponential function (ESTAR). But, given the fact that there are
findings for identification and estimation issues that make ESTAR models unsuitable
for econometric modelling (Buncic, 2019), we prefer the logistic approach to control
for the smoothness of the transition function. Among others, the LSTAR approach
is implemented by Teräsvirta (1994), Lopes & Salazar (2006), and Dijk et al. (2002).
Within the literature that employs a regime-switching type of nonlinearity of
effects of monetary policy during recessions and expansion, Peersman & Smets
(2002) use multivariate extensions of Markov-Switching regressions allowing one to
endogenously determine the phase of the economy and test the existence of different
effects in the two states. The results estimated suggest that, on average, the short-
term interest rate movements have significantly larger effects on output growth in
recession than in boom periods. Bruns & Piffer (2021) prove similar conclusions by
extending the smooth transition vector autoregression model to allow for
identification under external instruments and sign restriction.
After years of empirical research and methodological advances, there is still
uncertainty around the effects of monetary policy. The magnitude and the sign of the
responses depend on the dataset, identification strategy, model specification, and
also on the sample period. Hence, imperfect and asymmetric information or price
rigidities are some of the reasons that increases in short-term interest rates could lead
to countercyclical responses entitled „puzzles”. This is equivalent to a short-term
increase in output or prices in response to monetary contraction during recessions.
Bolboacă & Fisher (2019) investigate via a recursive identification the state-
dependent effects on news shocks about technological information indicating that
the probability of a regime switch is highly influenced by the news shocks.
Moreover, the response to a news shock is larger in an expansion than in a recession,
the intuition for those differences is related to increased uncertainty of the economic
agents about what to expect when the economy is in recession.
A different strand of the research field investigates the relationship between
monetary policy and uncertainty, arguing that the uncertainty shocks have been
recently identified as one of the drivers of the business cycles. Therefore, some
257
counterfactual simulations suggest that the effectiveness of monetary policy actions

is more pronounced in expansions than in recessions (see Caggiano et al., 2017).

We contribute to the state of the art by studying whether the monetary policy of
shocks produces effects conditioned by the state of the economy (expansion vs.
recession). The analysis is conducted on three Central - Eastern European emerging
markets that point out similar economic characteristics (Czech Republic, Romania,
and Poland). To distinguish between periods that the economy is situated
on expansionary or recessionary phases, we estimate the cyclical component of
the economy via a classical Hodrick-Prescot filter. The regime-dependence is
represented by a logistic function for switching between cyclical positions when
the economy is “overheated” and periods when the actual output is below the
potential output.
The results presented in this paper validate the hypothesis of the existence of
asymmetric behaviour of the central bank over the business cycle. We also find some
counterintuitive responses, defined by the literature as “economic puzzles”, that
could be potentially explained for example by the price rigidity. Moreover, these
results could potentially indicate the need for another way of identification of shocks,
such as sign restrictions (Uhlig, 2005) rather than the Cholesky decompositions.
Also, we demonstrate that for the Czech Republic data, the hypothesis of
nonnormality is rejected, therefore we did not perform impulse response functions.
The quarterly dataset used in this paper is based on macroeconomic variables that
are useful to be chosen when studying the possibility of nonlinearity of the business
cycles. In this context, we use the short-term (3-months) interbank interest rates as a
proxy for the monetary policy rate, introduced in absolute differences in the VAR
model. Also, we include the economic growth calculated as a percentage change of
real gross domestic product and a measure of core consumer prices inflation
calculated from a harmonized index of consumer prices excluding food, energy,
alcohol, and tobacco. All series are provided by the Eurostat database for the period
2003Q1-2021Q3. The evolutions are illustrated in Figure 1 to Figure 3.
Figure 1. The evolution of data series in period 2003Q1 – 2021Q3 for Czech-
Republic
Source: Authors’calculations, data available on Eurostat.
258
Figure 2. The evolution of data series in period 2003Q1 – 2021Q3 for Poland
Source: Authors’calculations, data available on Eurostat
Figure 3. The evolution of data series in period 2003Q1 – 2021Q3 for Romania
Source: Authors’calculations, data available on Eurostat.
We test linearity versus nonlinearity by applying Akaike Information Criteria

(AIC) and Bayesian Information Criteria (BIC). According to Table 1, for the Czech
Republic, it has been rejected the nonlinearity hypothesis in the vector autoregressive
model. If we apply the methodology presented in the section above, the results are
not conclusive. In the case of Poland, the values for linear and non-linear models are
very close, even if the non-linear model is not recommended. Therefore, we will
estimate the Smooth Transition Autoregressive model only for Poland and Romania.
Table 1. Lag length criteria (AIC and BIC) for non-linear model vs. linear model
Country Non-linear model Linear model

AIC BIC AIC BIC
Czech - Republic -3.4215 -3.2035 -2.7089 -2.6155
Poland -3.2642 -3.0463 -3.0842 -2.9908
Romania 0.96747 1.1854 1.2458 1.3392
Source: Authors’ contribution.
4. Research Methods
The methodology introduced in the following is closely related to the smooth
transition vector autoregression model (STVAR) using Bayesian estimation
techniques as in Auerbach & Gorodnichenko (2010) and Gefang & Strachan (2010).
In this paper, the smooth regime-switching model allows for differentiated responses
to monetary policy shocks across recession and expansion. We define these two
259
regimes by the deviations of actual GDP from its potential, assessed by a logistic
function 𝐹(𝑠𝑡 ). This can be interpreted as the probability of the underlying regime 2
(recession). The model specification for the vector of data 𝑌𝑡 is represented as
𝑝 𝑝
𝑌𝑡 = (1 − 𝐹(𝑠𝑡−1 )) ∑𝑗=1 𝐴1,𝑗 𝑌𝑡−𝑗 + 𝐹(𝑠𝑡−1 ) ∑𝑗=1 𝐴2,𝑗 𝑌𝑡−𝑗 + 𝜀𝑡 (1)
𝑢𝑡 ~𝑁(0, Ω𝑡 )
Ω𝑡 = (1 − 𝐹(𝑠𝑡−1 )) Ω1 + 𝐹(𝑠𝑡−1 ) Ω2 (2)
𝑒 −𝛾𝑠̂𝑡 𝑠𝑡 − 𝜇
𝐹(𝑠𝑡 ) = , 𝛾 > 0, 𝑠̂ 𝑡 = (3)
1+ 𝑒 −𝛾𝑠̂𝑡 𝜎𝑠
The nonlinear vector autoregressive process of order p allows for two types of
difference in the propagation of structural shocks as in Auerbach and Gorodnichenko
(2010): i) dynamic via differences in lag polynomials and ii) contemporaneous via
differences in the matrix of covariances of disturbances. In other words, this basic
specification of the nonlinear model could be set up as a weighted sum of two linear
models with the estimated coefficients for the lagged variables ( 𝐴1 , 𝐴2 ) and the
matrix of covariances of the residuals ( Ω1 , Ω2 ).
The regime-switching is assumed to be captured by the first order logistic smooth
transition function 𝐹(𝑠𝑡 ), defined by the transition variable 𝑠𝑡 , which is normalized
so that 𝛾 is scale-invariant. Parameter 𝛾 > 0 determines the speed of the smooth
transition. In this paper, for a smooth curvature, we calibrated it to 10 due to the
Auerbach & Gorodnichenko (2010) findings suggesting that point estimates for 𝛾 to
be above 5 and 10, so that the model to be best described by switching regimes at
certain thresholds. When 𝛾 → ∞, the transition logistic function becomes a Dirac
function and the model converges to a two-regime threshold VAR. When 𝛾 = 0,
𝐹(𝑠𝑡 ) is constant, equal to 0.5 the model collapses to a linear VAR. This convention
of non-negative 𝛾, permits that the behavior of the system described the coefficients
matrix 𝐴 and covariance matrix of residuals Ω to be in a (sufficiently) deep recession
(i.e. 𝐹(𝑠𝑡 ) ≈ 1) or being in a (sufficiently) deep expansion (i.e. 1 − 𝐹(𝑠𝑡 ) ≈ 1).
The parameter estimates and their standard errors are computed using Monte
Carlo Markov chain methods. Following Bayes’ theorem, the prior is combined with
the information contained in the data, as captured by the likelihood function to obtain
the posterior probability distribution for the estimates.
The log-likelihood function that has to be maximized is:
𝑇 1
log 𝐿(𝜃) = 𝑐𝑜𝑛𝑠𝑡𝑎𝑛𝑡 − log|Ω𝑡 | − ∑𝑇𝑡=1 𝜀′′ Ω𝑡−1 𝜀𝑡 (4)
2 2
Where the vector of

𝑝 𝑝
𝜀𝑡 = 𝑌𝑡 − (1 − 𝐹(𝑠𝑡−1 )) ∑𝑗=1 𝐴1,𝑗 𝑌𝑡−𝑗 − 𝐹(𝑠𝑡−1 ) ∑𝑗=1 𝐴2,𝑗 𝑌𝑡−𝑗 . (5)
Conditional on γ, Ω1 , Ω2 , the coefficients can be estimated by minimizing

1
∑𝑇𝑡=1 𝜀′′ Ω𝑡−1 𝜀𝑡 . If we note
2
𝑊𝑡 = [(1 − 𝐹(𝑠𝑡−1 ))𝑌𝑡−1 𝐹(𝑠𝑡−1 ) 𝑌𝑡−1 … (1 − 𝐹(𝑠𝑡−1 ))𝑌𝑡−𝑝 𝐹(𝑠𝑡−1 ) 𝑌𝑡−𝑝 ]
260
It can be proved that the first-order condition with respect to 𝐴 is given by the
representation
𝑣𝑒𝑐𝐴′ = (∑𝑇𝑡=1[ Ω−1 ′
𝑡 ⨂ 𝑊𝑡 𝑊𝑡 ] )
−1 𝑣𝑒𝑐 (∑𝑇 𝑊 ′ 𝑌 Ω−1 )
𝑡=1 𝑡 𝑡 𝑡 (6)
To ensure positive definiteness of the variance-covariance matrix, we estimate

the alternative vector Ψ = [𝑐ℎ𝑜𝑙( Ω1 ), 𝑐ℎ𝑜𝑙 ( Ω2 ), 𝐴1,𝑗 , 𝐴2,𝑗 ]. To compute the
posterior estimates we implement the Markov Chain Monte Carlo (MCMC)
simulation via Metropolis- Hasting algorithm using MATLAB R2018a software.
5. Findings
As we mentioned before, we identify the transition between the two distinct
phases of the business cycle, recession, and the expansion using a state variable given
by the output gap, calculated by a simple Hodrick - Prescott filter. The transition
between these two distinct economic regimes is smooth, as a result of logistic
indicator function 𝑭(𝒔𝒕 ). In the last representation of Figure 4 and Figure 5 it is
drawn the regime indicator, meaning that for a level of 1, there is a 100% probability
for the economy to be situated in periods with negative output gap (as we can see the
outbreak of COVID-19 pandemic crises in 2020, that generated significant drops in
output, both for Poland and Romania).
Figure 4. The state variable and the transition function for Poland
261
Figure 5. The state variable and the transition function for Romania
Following an increase of one standard deviation in the short-term interest rate,

the responses of the shock in output and inflation are represented in Figure 6 and
Figure 7. In the case of Poland, we can see results that are in line with economic
theory only regarding inflation in Regime 1 (expansion). Most exactly, an increase
in interest rate, decreases inflation with about 0.05 percentage points when economy
is above its potential. For the recession case, we can observe a”price puzzle” that is
potentially explained by the nominal price rigidities or other factors that are not
quantified in this research study. The economic growth seems to be positively driven
by a monetary policy shock in expansion, while for the second regime, the results
are not significant at 95% confidence level.
Figure 6. Impulse responses functions of monetary policy shock for Poland

(95% confidence)
262
Figure 7. Impulse responses functions of monetary policy shock for Romania

(95% confidence)
As for Romania, an increase in the interest rate depresses economic activity in

expansion by almost 0.5 percentage points, while for prices, the results don’t put
forward economic interpretation due to the fact that there are outside of confidence
interval. Also, the estimated effects of the shock are gradually dissipated in the
medium-term. A better way to address these issues is a different calibration of
parameters or the identification of business cycles phases by a multivariate, much
complex filter.
6. Conclusions
This paper attempts to assess the monetary policy mechanism from the
perspective of a smooth transmission of shocks at the macroeconomic level. This
analysis is developed for the CEE countries that have similar characteristics in terms
of the business cycle. The method introduced in this study is widely used among
research papers and it is based on the Bayesian Smooth Transition Vector
Autoregressive model (STVAR) that allows for nonlinearity via a two regime-
dependent model.
The preliminary results reject the hypothesis on nonlinearity for the Czech
Republic economy, therefore, this specification of the model is not appropriate to be
applied in this case. Consequently, we estimate the impulse responses of the
monetary policy shock for Romania and Poland. We obtain results that are in line
with economic theory (i.e., an increase in interest rate depress economic activity and
diminish inflation) only in expansion regime for inflation in Poland. Similarly, in an
expansion regime, the economic growth is decreased in Romania's case. Also, there
are shreds of evidence of “price puzzles”, possibly explained by the factors that are
not incorporated in this study. These findings could be a starting point for further
developments in the area by including other variables and recalibrating the model.
References
[1] Auerbach, A.J., Gorodnichenko, Y. (2010). Measuring the output responses to fiscal
policy, NBER Working Paper Series, No. 16311.
[2] Bolboacă, M., Fischer, S. (2019). News shocks: Different effects in boom and recession?
Working Paper, No. 19.01, Swiss National Bank, Study Center Gerzensee.
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[3] Bruns, M., Piffer, M. (2021). Monetary policy shocks over the business cycle: Extending
the Smooth Transition framework, University of East Anglia School of Economics
Working Paper Series 2021-07, School of Economics, University of East Anglia,
Norwich, UK.
[4] Caggiano, G., Castelnuovo, E., Nodari, G. (2017). Uncertainty and monetary policy in
good and bad times: A replication of the VAR investigation by Bloom (2009). CESifo
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[5] Cecchetti, S.G. (2000). Making monetary policy: objectives and rules, Oxford Review of
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[6] Chan, K.S., Tong, H. (1986). On estimating thresholds in autoregressive models,
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[12] Peersman, G., Smets, F. (2002). Are the effects of monetary policy in the Euro Area
greater in recessions than in booms? In L. Mahadeva and P. Sinclair (Eds.), Conference
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[13] Uhlig, H. (2005). What are the effects of monetary policy on output? results from an
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Conference Series on Public Policy, 39, pp. 195-214.
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264

June 16-17, 2022
The Contagion Effect on the Romanian Capital Market

in the Context of the COVID-19 Pandemic
Ela-Andrada PUȘCAȘU1
DOI: 10.24789788367405072-024
Abstract
The capital markets’ activity is often disturbed by turbulences that quickly extend
worldwide due to complex links existing between countries. Even though the COVID-19 crisis
first broke out in the healthcare sector, the negative effects extended rapidly to the financial
sector, capital markets being one of the major affected activities due to lockdowns, shutdown
of non-essential activities, decrease in capital flows, and changes in investors’ behavior. The
scientific literature in the field proposes different methodologies in order to study volatility
and the contagion effects, in recent times focusing on GARCH models’ application to study
the contagion during the global financial crisis (2007-2009), at the same time developing
research papers for the coronavirus pandemic period. This paper investigates the contagion
effect between the Romanian stock market and the stock markets of other twelve countries
worldwide during the COVID-19 pandemic crisis. The study applies the Dynamic
Conditional Correlation GARCH model to daily stock returns of market indexes from
selected countries for the period January 2016 - April 2021. The breakpoint due to crisis is
identified using the Chow test for structural breaks by testing possible dates that mark
changes in the Romanian capital market. The results show a significant increase in the mean
of dynamic conditional correlation coefficients between Romania and most of the other
selected stock markets in the crisis period compared to the pre-crisis period, especially in
relation with Italy, Hungary and United Kingdom. The findings prove the existence of
contagion between Romania and most of the selected stock markets. The paper contributes
to the field of study by investigating the effects of the recent global health crisis on stock
markets’ movements and by studying the contagion effects on the emerging Romanian capital
market in these turbulent times.
Keywords: Financial crisis; contagion; COVID-19; Romania; GARCH-DCC

model.
JEL Classification: E44, G15, N2.
© 2022 E.-A. Pușcașu, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
1. Introduction
Prolonged periods of economic development are often disturbed by economic,
political, or other types of turbulence that expand at a rapid pace across countries
due to the complex links existing between them. The COVID-19 pandemic crisis
broke out at the regional level in China’s health sector and escalated rapidly, leading
to the infection and death of millions of people. To contain the negative effects of
the virus, it was necessary to impose generalized protection measures, but the
adverse effects of the pandemic were not limited to the health sector alone, affecting
also the commercial and financial sectors, global supply chains, and stock markets.
The financial systems have adopted measures to counter the pandemic negative
effects and to encourage consumption and investment, measures such as: decreasing
the monetary policy interest rate and the minimum reserves and supporting access to
financing sources for households, SMEs, and corporations. Capital markets are one
of the main activities affected due to lockdowns, the shutdown of non-essential
activities, and the decrease in capital flows and changes in investors’ behaviour.
Figure 1 shows the evolution of the economic growth rate from the end of 2015
to mid-2021 in the selected countries. Historically, a similar trend has been observed
up to the emergence of the COVID-19 pandemic.
The economic growth rate’s evolution for the period between the first and the
third quarter of 2020 is correlated with the COVID-19 cases expansion worldwide.
China is the first to experience an economic decline in the first quarter of 2020, while
the other selected countries are lagging in terms of economic response, with GDP
decreasing in the second quarter of 2020 as the COVID-19 infection spread across
Asia and other continents. After the first pandemic wave, the economies are slightly
increasing, their recovery depending on the epidemiological situation of each
country, its ability to manage the crisis and to respond to shocks.
Figure 1. Evolution of quarterly economic growth in selected countries (%)

Romania 20
USA 15
France 10
Germany 5
Japan 0
China -5
Canada -10
Italy -15
Great Britain -20
2019-Q2
2015-Q4
2016-Q2
2016-Q4
2017-Q2
2017-Q4
2018-Q2
2018-Q4
2019-Q4
2020-Q2
2020-Q4
2021-Q2
Australia
Poland
Hungary
Source: OECD database.
Further on, the paper details in chapter 2 the current state of the scientific
literature regarding the contagion in international financial markets, followed by the
research statement (chapter 3), the study’s research methods (chapter 4) and the
empirical results (chapter 5).
266
Capital markets influence economic growth and are considered a barometer of
the health of the economy (Kazi, 2011). The relationship between capital markets
was analysed in the early period by Granger and Morgenstern (1970), their study
focusing on the interdependence between markets. Further on, research papers
studying stock markets correlations were developed, such as Ripley (1973) and
Panton et al. (1976), where simultaneous movements in the share price were the
result of factors such as geographical proximity, currency relations, and trade
partnerships, cultural and economic elements.
Bekaert, Garcia and Harvey (1995) indicate that capital markets have a crucial
role in the economic development of emerging markets because properly functioning
markets ensure that the right prices are obtained for securities. The links established
between financial markets and economic growth relate mainly to the diversification
of risks’ exposure, companies being able to choose riskier projects with higher
returns, and households being able to invest at a higher level than their economies.
The concept of contagion was introduced around the 1990s to distinguish
between the classic transmission of a crisis that occurs through links to the real sector
and the one transmitted through the financial markets. Contagion is defined as a
significant increase in the links between financial markets after a shock has been
applied to a particular country, as measured by the extent to which asset prices or
financial flows move simultaneously across financial markets relative to the same
simultaneous dynamics in calm periods (without crisis). (Dornbusch, Park,
Claessens; 2000). A crisis can be identified by a sudden and acute fall in stock prices
that persists for a relatively long period of time, with stock index values providing
the most concise information on the capital market (Burzala, 2016).
Moreover, the need to achieve results on the transmission of financial market
disturbances in order to identify and implement public policy measures to increase
market resilience is imperative in recent years as the financial sector is developing
and crises are more frequent (The Great Economic Crisis of 1929-1933, Black
Monday in 1987, Dot-Com crisis of 2000-2002, Financial crisis of 2007-2010,
Sovereign debt crisis in Europe in 2009-2019, COVID-19 pandemic crisis).
Alper and Yilmaz (2004) analyse the contagion of share returns’ volatility from
emerging markets and financial centres to the Turkish capital market since 1992. The
methodology involves simple rolling regressions that identify periods of persistent
volatility on the Istanbul Stock Exchange and the contagion of volatility to this
capital market, while also applying a GARCH model to obtain solid estimates. The
results show an increase in volatility and its persistence in the Turkish capital market
around prominent economic events such as the economic crisis of 1994, the Russian
crisis of 1998, the Marmara earthquake of 1999, and the crisis of 2001.
Kazi et al. (2011) investigate the spillover effect between the US stock market
and 16 OECD member countries in the context of the global financial crisis of 2007-
2009. The methodology is based on the GARCH model of dynamic conditional
correlation developed by Engle (2002), applied to daily share price data for the
period 2002-2009. An upward trend of the DCC coefficients between the US capital
267
market and those in the OECD countries is identified from October 2007 onward.
Finally, the simultaneous movement of major capital markets in times of crisis
highlights the contagion between the US capital market and those of the selected
OECD member countries, a relationship confirmed by several previous studies.
Burzala (2016) tested whether the approach developed by Orlov (2009) is
relevant to capital markets and whether high-frequency fluctuations are the result of
lagged reactions or are caused by simultaneous reactions. The research carried out
indicates that the return rates on the European markets studied react simultaneously
to a much greater extent as a result of interdependencies between them or as a
response to the situation observed on third-country markets, than as a result of
mutual contagion.
Da Silva et al. (2016) investigate the impact of the 2008 financial crisis and the
contagion effect by studying the cross-correlations between the closing price of
indexes in G7 countries. The methodology involves computation of the DCCA cross-
correlation coefficient and construction of an index, defined as the share between the
post and pre-crisis coefficient value. The results show a positive cross-correlation of
the index, the financial crisis of 2008 leading to a greater grouping of capital markets
in G7 countries, and the effects of the crisis spreading to most countries. Thus, a
movement in a particular stock market leads to similar changes in other markets.
The scientific literature on the economic effects of the COVID-19 pandemic
crisis recently began to develop as Baker et al. (2020) and Zhang et al. (2020) explore
the effects of the pandemic on aggregated markets, and McKibbin and Fernando,
(2021) show the effect of COVID-19 outbreak on the global economy.
In this context, Akhtaruzzaman et al. (2021) are investigating the effects of the
COVID-19 pandemic on firms’ profitability, the financial contagion generated by
them and the implications for portfolio composition. The results show that dynamic
conditional correlations between the securities’ return in China and those in the G7
countries have increased significantly in the pandemic period. The results also show
that China and Japan are net transmitters of spillover effects during the outbreak, the
financial contagion effect following a similar pattern to that of virus contagion.
The scientific literature regarding the effects of the coronavirus pandemic on
financial markets, and, more specifically, on stock exchange movements and
contagion, is still scarce even after two years of the global health crisis. The difficulty
in studying this topic arises from the ongoing pandemic situation, the data being
limited and uncertain, while the crisis consequences, both short and long-term, and
are not fully revealed. At the same time, the emerging capital market of Romania
attracts investors rather on a regional level, not having the power to influence more
developed markets. The research papers studying its connection with other capital
markets have expanded in recent years, but are still limited and slow to incorporate
recent changes in international stock exchanges.
Thus, the present paper contributes to the field of study by investigating the
effects of the recent global health crisis on stock markets’ movements and by
studying the contagion effects on the emerging Romanian capital market in these
turbulent times.
268
3. Aims of the Research

The research aims to study the effects of the contagion on the Romanian stock
market of other twelve international capital markets in the context of the COVID-19
pandemic by using a DCC-GARCH model.
4. Research Methods
The database includes information on the daily closing prices for thirteen stock
indexes, for the period from 1st of January 2016 to 30th of April 2021:
Table 1. The countries and stock indexes selected
Country Stock exchange index
Romania BET
United States of America Nasdaq 100
France CAC 40
Germany DAX 30
Japan Nikkei
China Shanghai Composite Index
Canada TSX 60
Italy MIB
Australia AII Australian 50
United Kingdom FTSE 100
Poland MSCI Poland
Hungary MSCI Hungary
Turkey BIST 100
Source: Author’s analysis.
The stock index return 𝑅𝑖,𝑡 is computed as the logarithmic difference of the
closing price of each stock index 𝑃𝑖,𝑡 using the formula: 𝑅𝑖,𝑡 = log(𝑃𝑖,𝑡 /𝑃𝑖,𝑡−1 ) ×
100 and subtracting the mean of each series’ values. The data sources mainly consist
of the financial platform Investing.com and the stock exchanges’ websites.
The methodology applied refers to a Dynamic Conditional Correlation GARCH
(DCC-GARCH) model applied to the daily price return of the stock indexes from the
thirteen countries selected. For this, the structural break within the data series has to
be identified. The applied model is based on the research conducted by Kazi et al.
(2011), where the empirical study refers to the methodology of Engle (2002).
To identify the structural breaks, a Bai-Perron test is performed on the BET index
data series, this approach allowing for the estimation of several structural breaks of
a linear model estimated using the least-squares method.
Following the application of the Bai-Perron test on the BET index closing price
series between January 2016 and April 2021, three structural breaks were identified,
as can be seen in the table below. Analysing the SARS-CoV-2 infection cases, as
well as authorities’ announcements and the news, there is no link between the
evolution of the financial market and the epidemiological situation, the identified
structural breaks being caused by other factors. At the same time, applying the Bai-
Perron test on the BET index return data series, no structural breaks were identified.
269
Table 2. Bai-Perron test results

BET closing price BET return
0 vs 1 * (1373.907)
1 vs 2 * (1030.438)
Break test 0 vs 1 (5.691192)
2 vs 3 * (115.4271)
3 vs 4 (10.86373)
17.02.2017
Break dates 28.06.2019 -
17.07.2020
Note: The numbers in parentheses show the Bai-Perron F-statistic for each hypothesis
testing. *Significant at 0.05 level
Source: EViews output, Author’s analysis.
Further on, the date from the pandemic period that could be a structural break in
the BET index data series was identified based on news, press releases, and
regulations passed by the authorities. The selected dates were checked using the
Chow test to identify if they prove to be a structural break or not.
Thus, the Romanian capital market experienced a structural break for both the
BET closing price and the BET return on 17th of March 2020, the day following the
establishment of the state of emergency in Romania due to the global pandemic
situation. Therefore, because of the global spread of the coronavirus, an immediate
reaction of investors is observed based on the increased uncertainty of
macroeconomic conditions and global markets. The table below shows the Chow
test F-statistic when the date of 17th of March 2020 is tested as a structural break:
Table 3. Chow test F-statistic when testing 17th of March 2020
BET closing price BET return
F-statistic 347.1240*** 5.1958**
*Significant at 0.10 level; **Significant at 0.05 level; ***Significant at 0.01 level.
Therefore, the data series was divided into two periods, the pre-pandemic time
(respectively the period 04.01.2016 – 16.03.2020), and the period during the
COVID-19 crisis (respectively the period 17.03.2020 – 30.04.2021).
To measure the degree of simultaneous movement between time-varying
correlation coefficients, a DCC-GARCH model is applied on pairs of capital markets
indexes, each being considered together with the BET index, following the steps:
First, the return series 𝑦1𝑡 and 𝑦2𝑡 are defined:
2
𝜎𝑡2 = 𝑉𝑎𝑟(𝑦𝑡 /𝑦𝑡−1 ) = 𝑐 + 𝛼𝑢𝑡−1 + 𝛽𝜎𝑡−1 (1)
Furthermore, the GARCH(1,1) model is fitted to each of the return series. The
standardized residual series is extracted from the GARCH fit. Let 𝑧𝑖,𝑡 be the
standardized 𝑢𝑖,𝑡 , where 𝑖 ∈ (1; 2), indicating each pair of stock indexes analysed.
For every 𝑧𝑖,𝑡 , the sample variance and covariance are calculated, as well as the
conditional correlation coefficient is computed for each pair of stock indexes,
respectively between 𝑧1,𝑡 and 𝑧2,𝑡 .
270
The log-likelihood method is used to estimate the parameters, allowing for the
conditional variance and covariance to be estimated for each variable. The log
likelihood function is defined by the following formula:
1
𝐿𝑜𝑔𝑙 = − (2 log(2𝜋) + 𝑙𝑜𝑔|𝑅𝑡 | + (𝑧12 + 𝑧22 − 2𝜌12 𝑧1 𝑧2 )/|𝑅𝑡 | (2)
2
Where |𝑅𝑡 | is the determinant of the correlation matrix, computed as follows:

2
|𝑅𝑡 | = (1 − 𝜌1,2 ) (3)
The contagion effect is identified if there is a positive change between the co-
movements of stock indexes returns, meaning if the mean of DCC coefficients in the
crisis period is higher than their mean for the pre-pandemic period.
5. Findings
The GARCH(1,1) coefficients, estimated for each stock exchange index for the
period between January 2016 and April 2021, are significant and positive, indicating
that the volatility of the capital market indexes is captured by the estimated GARCH
model. The table below shows the estimated coefficients of the GARCH(1,1) model
of each stock index return series:
Table 4. GARCH(1,1) coefficients and standard errors
Stock index C Resid(-1)^2 GARCH(-1)
0.000001* 0.352332* 0.654324*
BET
(0.000000) (0.012128) (0.015500)
0.000001* 0.192705* 0.776889*
CAC 40
(0.000000) (0.017583) (0.019573)
0.000001* 0.182315* 0.783815*
Nasdaq-100
(0.000000) (0.01795) (0.019191)
0.000000* 0.096176* 0.880105*
DAX 30
(0.000000) (0.009846) (0.012768)
0.000000* 0.111903* 0.861736*
Nikkei
(0.000000) (0.010315) (0.012974)
0.000000* 0.074979* 0.915600*
SSE Composite Index
(0.000000) (0.006071) (0.005773)
0.000000* 0.252961* 0.698035*
TSX Canada
(0.000000) (0.023404) (0.03077)
0.000001* 0.156714* 0.812531*
MIB Italy
(0.000000) (0.012722) (0.016896)
0.000000* 0.144946* 0.813103*
FTSE 100 UK
(0.000000) (0.016611) (0.020767)
0.000000* 0.131462* 0.834187*
AII Australia
(0.000000) (0.013103) (0.018174)
0.000000* 0.059368* 0.909745*
MSCI Poland
(0.000000) (0.006360) (0.013237)
271
Stock index C Resid(-1)^2 GARCH(-1)

0.000001* 0.097603* 0.86519*
MSCI Hungary
(0.000000) (0.010356) (0.014725)
0.000003* 0.071970* 0.836539*
BIST Turkey
(0.000000) (0.013231) (0.037527)
Note: The numbers in parentheses represent the associated standard errors. *Indicates that
the coefficients are significant at the level of 5%.
The GARCH error parameter measures the reaction of conditional volatility to

market shocks, a relatively high value (e.g., above 0.1) meaning that the volatility is
very sensitive to market events (Alexander, 2008). Based on the empirical results,
the error parameter is greater than 0.1 for most countries except Germany, China,
Poland, Hungary, and Turkey. Therefore, the capital markets in most of the selected
countries show immediate movements due to changing macroeconomic and
financial circumstances, as was the case of the COVID-19 pandemic crisis, when
health issues affected the commercial and financial sectors, increasing, in turn, the
volatility in the capital markets of selected countries.
The GARCH lag parameter measures the persistence of conditional volatility, and
when its value is relatively high (for example, over 0.9), it takes a long time for the
volatility to disappear after a financial crisis (Alexander, 2008). Based on the above
results, the lag parameter is well below 0.9 for stock indexes in Romania, France,
the US, Canada, Italy, Great Britain, Australia, and Turkey, while being over 0.9 or
close to it in specific cases, including Germany, Japan, China, Poland, and Hungary.
Based on the results, for most of the selected countries, the pandemic’s negative
effects will not impact the stock markets in the long term. As the global
epidemiologic situation improves and countries’ economies fall back on track, the
stock markets are expected to no longer be affected by the previous pandemic
condition.
Based on the bivariate GARCH-DCC model estimated for the period between
January 2016 and April 2021, the mean of the DCC coefficients between Romanian
capital market and each of the other selected capital markets is shown below:
Table 5. Mean of DCC coefficients
Before crisis In time of crisis % Difference
CAC 40 0.306 0.483 58.0%
Nasdaq-100 0.206 0.153 -25.6%
DAX 30 0.313 0.496 58.5%
Nikkei 0.230 0.374 62.5%
SSE Composite Index 0.160 0.147 -7.6%
TSX Canada 0.215 0.261 21.5%
MIB Italy 0.263 0.480 82.5%
FTSE 100 UK 0.248 0.483 94.6%
AII Australia 0.219 0.256 16.9%
MSCI Poland 0.255 0.339 33.2%
MSCI Hungary 0.237 0.439 84.9%
BIST Turkey 0.131 0.251 91.3%
272
The results indicate, for almost all the stock indexes selected in pair with the BET
index, that the dynamic conditional correlation coefficients have higher values
during the pandemic crisis compared to the pre-pandemic period. Therefore, the
phenomenon of contagion in the context of the global pandemic crisis is present in
most of the selected capital markets to the Romanian stock index.
The largest conditional correlation for the pre-crisis period is observed between
the BET index in Romania and DAX 30 index in Germany (0.313), followed by the
correlation between the BET index and the CAC 40 index in France (0.306). The
overall economic activity of Romania is strongly linked with the German and French
markets through capital flows, related especially to trade and investments, therefore
their capital markets are also greatly connected.
For the pandemic period, the strongest correlation is with the DAX 30 index and
the CAC 40 index, after the correlation coefficient increases by approx. 58%. The
stock market relation between Romania and Germany or France grows stronger in
pandemic times, showing that financial disturbances are transmitted faster in crisis
periods than the movements in calm periods.
At the same time, the lowest conditional correlation before the pandemic crisis is
registered between the Romanian stock market and the Turkish stock market, which
increases by approx. 91% during the pandemic. For the crisis time, the lowest
correlation coefficient is noticed between the BET and SSE composite index, the
Romanian and Chinese markets not being directly linked in the financial sector.
6. Conclusions
The GARCH(1,1) model estimated for each of the thirteen stock indexes
significantly captures the real movements of the stock markets analyzed. For most
of the selected countries, their capital market is sensitive to market events and
shocks, while the expected volatility persistence is rather low for the global
pandemic period.
An upward trend is identified in the dynamic conditional correlations starting
with March 2020 for most of the sample markets, from the moment when the
coronavirus pandemic outbroke worldwide onward. Thus, the mean of the DCC
coefficients is higher in the pandemic period than the mean of the DCC coefficient
for the pre-pandemic period in most of the selected markets. The results of the
empirical analysis indicating the existence of simultaneous movements between the
Romanian stock index and the other twelve selected indexes prove the contagion on
the Bucharest Stock Exchange from the other capital markets in the context of the
COVID-19 pandemic.
Following on, the policy implications of the study refer to the urgency to increase
stock markets’ resilience in times of generalized crises, the authorities needing to
ensure mechanisms that make markets able to cope with increased volatility. As it
can be seen from the results, in crisis periods, the correlation between stock
markets is increasing, which makes them more vulnerable to shocks transmitted
across countries.
273
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274

June 16-17, 2022
Tracking Firms' Adaptation to COVID-19 in Albania

Bitila SHOSHA1*, Romeo MANO2, Armela ANAMALI3
DOI: 10.24789788367405072-025
Abstract
With the country being closed for a relatively long time, followed by the declining
demand for many product categories after the opening, many businesses in Albania faced
many difficulties because of COVID-19. The reduction of income to the minimum limits, on
the one hand, and the inability to reduce the level of expenses, on the other hand, brought
great difficulties to businesses. If we had to emphasize three key and immediate issues
arising during COVID-19, they would be debt management, lack of liquidity, and fear for
the future of their businesses. During the research carried out for our paper, we observed
that other authors have studied these issues, but our paper brings novelty in terms of
drawing comparisons of these issues over the two time spans 2019-2020 and 2019-2021.
Our paper aims to study the statistical relationships between factors and their comparison
for the "pre-pandemic" period and the post "pandemic lockdown" period, a period that
continues with restrictions on life and social activity to manage the spread and fatalities of
COVID-19. The bivariate correlation relationships for these two periods are compared by
using the Pearson correlation coefficients (PCC).
Keywords: Liquidity, COVID-19, Firm size, Bivariate Correlation Relationships.
JEL Classification: M10, L25, G01.
1. Introduction
Albania experienced two devastating shocks within a very short time: the
November 2019 earthquake and the COVID-19 pandemic in the spring of 2020 that
forced large parts of the economy to “freeze” (ReSPA, 2020). These shocks have
dominated the economic developments and the short-term perspective of the
country's economy. Although the earthquake in Albania was soon followed by the
initiation of the reconstruction process, the global COVID-19 pandemic was
1University “Aleksander Moisu”, Durrës, Albania, [email protected].

2
University “EqremÇabej”, Gjirokastër, Albania, [email protected].
3University “Aleksander Moisu”, Durrës, Albania, [email protected].
© 2022 B. Shosha, R. Mano, A. Anamali, published by Sciendo. This work is licensed under the Creative
beginning to show its first effects in the country, effects that are obscure and
entirely different from other shocks or crises that our country may have gone
through. COVID-19 was expected to have a strong impact on all economic and
financial indicators of the country. Like many other countries, Albania took various
measures to prevent the spread of the pandemic, inflicting on the other hand
serious problems on businesses. As anywhere else in the world, in Albania, the
impact that the pandemic had on this category was inevitable and quite visible.
Albania undertook two instruments of measures to cope with the current situation,
the focus of which was debt financing by changing loan terms and employment
support. Various countries, including Albania, in order to prevent the spread of the
virus, took the measure of closing state borders for a certain time span. Obstacles to
the movement of goods across borders affected both importers and exporters
during this period.
During 2020, the lending standards for businesses, both for investment loans
and liquidity, were considerably tightened. According to the Bank of Albania
(2021), the tightening of these standards emerged as commercial banks perceived
an increased risk due to the pandemic conditions for reduced solvency and the
lack of liquidity that was observed throughout 2020. Thus, one of the main
challenges of the Albanian market today, after harshly facing the consequences of
COVID-19, has been the survival of entrepreneurs from the pressures of global
manufacturers/suppliers who supply the Albanian market with quality and
competitive prices. Our paper aims to study the correlation relationships of several
factors for the "pre-pandemic" period and the post "pandemic closure" period
during COVID-19. In order to have continuity and a good coordination of what has
happened to businesses in our country during these two periods, the authors have
come up with important results.
The COVID-19 pandemic has significantly affected businesses worldwide by
reducing demand, hampering operations, tightening supply chains, and restricting
access to financing (Krammer, 2021). In Hadiwardoyo’s study (2020), the most
affected sectors were crowd-based sectors, such as tourism and tourism-supporting
businesses, including mass transportation, hotels, and tertiary products businesses,
whose sales depend on public savings funds, properties, and lending institutions.
The decline in commercial activities and lack of income made many firms
dependent on their cash reserves to meet their obligations (Dörr et al., 2021). While
temporary liquidity shocks may be overcome after economic activity resumes, an
extended period of low income may eventually cause solvency problems (Guerini
et al., 2020).
In their study, Wieczorek-Kosmala et al. (2021) found that firm size is a factor
influencing firms' perceptions of the aggravating effect of outages that COVID-19
causes on costs, sales, financial liquidity, and access to credit, as well as business
survival. Higher borrowing and higher levels of debt between firms and households
276
during this time make short-term shocks stronger compared to previous pandemics
(Boissay, Rungcharoenkitkul, 2020).
Firms are part of the real economy that supply and are supplied with money
through a series of channels (Sokol, Pataccin, 2020). Nevertheless, this pandemic
might have catastrophic consequences resulting from the sudden severance of
mutual relations between firms and others (Gourinchas, 2020). According to
Carsslon et al., (2020), to understand the negative shocks that COVID-19 has
brought to the economies of each country, it is important to understand the
economic transmission channels, such as the direct impact (by immediately
reducing the consumption of goods and services); indirect impact (through
financial market shocks); supply interruptions (supply chains).
3. Methodology
The data collected for conducting this study are divided into secondary and
primary data. Secondary data are collected mainly from articles in scientific
journals or official websites and books, which are related to the literature review,
carried out in order to establish the theoretical model used, and investigate the
preliminary studies and approaches followed by them. Secondary research serves
as a good starting point for any research process. Secondary research also allows
researchers to collect data in a shorter period and at a lower cost. Whereas, the
primary data were collected from the questionnaires addressed to a sample of
selected businesses that are included in our study. Primary research is ideal if a
researcher is seeking for new findings or wants to explore new aspects of their field
of study. Primary research is also used to provide individual, reliable results related
to a topic being researched. In order to study the correlations between economic
factors for the "pre-pandemic" period and the relationships between economic
factors for the period following the "pandemic closure", the data processing and
analysis in this article were performed using SPSS software. Pursuant to the
purpose of this paper, as well as with the aim of coming up with novelties and
conclusions in this study, the correlation relationships (evaluated by PCC) between
the factors have been considered comparatively. These relationships are compared
from the following perspectives:
(i) Qualitative: The change in the direction of the correlative interaction between
factors for the two periods. So, sign (PCC before the pandemic) ≠ sign (PCC
during the pandemic);
(ii) Quantitative: For the relationships that maintain the direction of statistical
interaction, we have compared their level of strength for significant changes
(greater than 0.05);
(iii) Statistical significance: Qualitative change of the significance level by turning
the correlation relationship into statistically insignificant and vice versa.
277
4. Results and Discussions
‘Liquidity’ Analysis According to Bivariate Correlation Relationships

In times of crisis, the management of activity and working capital, in particular,
takes on a special importance, as even a small mistake may cause a loss of liquidity
for firms (Chang et al., 2019). Liquidity was one of the most severe consequences
of COVID-19 for individuals, firms and countries. The lack of liquidity due to the
closure and restrictions burdened firms with obligations, which they continue to
carry even today. This crisis knew no age, stratum, or power. In the sample
analysis considered in the study:
(i) it is clearly noted that the age of Albanian firms, which bears per se their
maturity and financial stability in the market, did not affect their response to
the crisis.
(ii) the increase in the size of firms is in a positive relationship with exports, and
this relationship is stable even in times of pandemics, although it has no impact
on the firm's income. This suggests that firms concentrate their revenue mainly
in the domestic market.
(iii) in 2019, the changing rate of income has no statistically significant
relationship with any of the other factors taken into consideration, such as loan
financing, or collection and payment policies. The private sector was in a status
quo in terms of economic and financial activity.
4.1 TheCOVID-19Pandemic Year: The Response of Firms

under the Unexpected Regime of Restrictions
The following analyses will consist of comparing the 2019-2020 bivariate
correlational relationships to the relationships that changed arising from the need
to survive.
Table 1. Comparison of bivariate correlation replationships 2019-2020
Average Average Revenues
Firm Firm Loan Export
Collection Repayment Growth
Size Age Financing Sales
Period Period Rate
PCC 1 .336* .376* .350* .267 .552** .103
Firm Size Sig.
.027 .013 .022 .084 .000 .512
(2-t)
PCC .336* 1 .021 -.103 -.122 .049 -.174
Firm Age Sig.
.027 .893 .509 .435 .753 .266
(2-t)
**
PCC .290 -.020 1 .279 .537 .075 .023
Loan
Sig.
Financing .059 .900 .070 .000 .633 .884
(2-t)
Average PCC .347* .015 .225 1 .695** .439** .120
Collection Sig.
.023 .926 .146 .000 .003 .444
Period (2-t)
Average PCC .243 -.151 .250 .678** 1 .129 .090
278

Period Period Rate
Repayment Sig.
.117 .335 .105 .000 .411 .566
Period (2-t)
PCC .582** .131 .130 .475** .307* 1 .247
Export
Sig.
Sales .000 .403 .406 .001 .045 .111
(2-t)
Revenues PCC .177 -.207 .131 .208 .202 .223 1
Growth Sig.
Rate .256 .184 .404 .180 .194 .151
(2-t)
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
Source: Authors’s calculations.
a) The statistical relationship between ‘Firm Size’ and ‘Loan Financing’ in 2019,
was a non-significant, positive and weak relationship (PPC2019 = 0.290). During
the pandemic shock year (2020), it becomes significant, positive and moderate
in terms of strength (PCC2020 = 0.376*). This result reinforces the role that
business size plays in credit access and financial situation (Wieczorek-Kosmala
et al., 2021). In the study conducted by the Bank of Albania (2021), taking out
loans to cover current expenses has marked a significant increase for all sizes
of enterprises, thus reflecting the situation brought about by SARS-Cov-2
pandemic. However, small businesses have felt that financing costs and access
to credit during this period have been a hindrance for them.
b) The statistical relationship between ‘Average Repayment Period’ and ‘Loan
Financing’ changed in terms of statistical significance and quantity. From an
insignificant relationship for businesses, it turned into not only a significant
relationship, but also a very strong one. (PCC greater than 0.05). The average
repayment period in the first year of the pandemic experienced an extension due
to the very restrictions imposed by governments on reducing the transmission of
virulence and tolerant policies regarding the payment of taxes and bank loans
(Mano et al., 2021). However, the limited activity led businesses from banks to
'fill' their cash-boxes under reduced revenue stagnation.
c) The statistical relationship between ‘Average Repayment Period’ and ‘Export
Sales’ changed qualitatively, losing its statistical significance during the 2020
pandemic year. Prior to the pandemic, the phenomenon of business expansion to
foreign markets (exports) was accompanied by a prolongation in the timeframe
of settlement of obligations to third parties. During the "pandemic closure"
period, these two phenomena did not statistically interact with each other.
4.2 A Year Later, in the Presence of the COVID-19 Pandemic: Adapted

Behaviour of Firms
The year 2021 is known as the year that firms began to actively adapt to the
pandemic and, in a certain way, to reconfirm the manner of doing business under
the new conditions. In this paper, we endeavoured to interpret this through
279
statistical relationships between factors and their comparison for the pre-pandemic
period and the post "pandemic closure" period, a period that continues with
restrictions to life and social activity to manage the spread and fatalities of
COVID-19.
Table 2. Comparison of bivariate correlation relationships 2019-2021
Period Period Rate
PCC 1 .336* .295 .373* .187 .627** -.069
Firm Size Sig.
.027 .055 .014 .230 .000 .660
(2-t)
PCC .336* 1 -.009 .009 -.158 .091 -.040
Firm Age Sig.
.027 .955 .957 .310 .561 .801
(2-t)
* **
PCC .290 -.020 1 .313 .593 .111 -.292
Loan
Sig.
Financing .059 .900 .041 .000 .479 .057
(2-t)
Average PCC .347* .015 .225 1 .764** .525** -.367*
Collection Sig.
.023 .926 .146 .000 .000 .016
Period (2-t)
Average PCC .243 -.151 .250 .678** 1 .251 -.540**
Repayment Sig.
.117 .335 .105 .000 .104 .000
Period (2-t)
*
PCC .582** .131 .130 .475** .307 1 -.051
Export
Sig.
Sales .000 .403 .406 .001 .045 .747
(2-t)
Revenues PCC .177 -.207 .131 .208 .202 .223 1
Growth Sig.
.256 .184 .404 .180 .194 .151
Rate (2-t)
*. Correlation is significant at the 0.05 level (2-tailed).
Source: Authors’s calculations.
d) The statistical relationship between ‘Loan Financing’ and ‘Average Collection

Period’ changed significantly. From an insignificant relationship, it changed
into a significant relationship in business activity. This relationship turning
into important positive links shows that, despite the fact that cash collection is
an important source, the lack of liquidity in the market causes firms to finance
themselves with alternative sources in the financial system. This may also be a
competitive strategy that firms apply, so as to maintain their market and
preserve their reputation in the sector where they operate, in such times of
crisis.
e) Likewise, the statistical relationship between ‘Loan Financing’ and ‘Average
Repayment Period’ changed in two directions, both significantly and
qualitatively. This relationship becomes stronger and more significant
(PCC2021=0.593**>0.5).The prolongation of deadlines and at the same time
loan financing, indicates the need for firms to maintain their business
cashboxes supplied.
280
f) The relationship between ‘Average Repayment Period’ and ‘Export Sales’

loses its statistical significance in (PCC2021=0.251, p=0.104>0.05), compared
to the same relationship in 2019 (PCC2019=0.301*). A similarly insignificant
relationship has returned in 2020. This indicates that the strength of the money
supply chain of domestic firms through exports has weakened, and they have a
negligible impact in relation to their use as an important source for the
settlement of liabilities.
g) Significant changes, both qualitative and quantitative, have occurred in the
relationships between ‘Revenues Growth Rate’ and ‘Average Collection
Period’ (PCC2019=0.208 andPCC2021= -0.367*)as well as ‘Revenues Growth
Rate’ and ‘Average Collection Period’ (PCC2019=0.202 and PCC2021=-
0.540**). From statistically and insignificantly positive relationships, they
have turned into statistically moderate and strong relations, but in both cases
they are significant and in the opposite direction (negative). This proves that
in 2021,forAlbanian businesses, the increase in turnover was accompanied by
the resilience to collect cash in in the shortest possible time. It was also
accompanied by an increased correctness of the payment of obligations in the
shortest possible time.
5. Conclusions
The restriction measures taken by the government in 2020 caused problems in
the settlement of liabilities for the businesses under consideration. The decline in
revenues due to the global pandemic was not accompanied by a reduction in
liabilities. Hence, businesses still had to pay their liabilities to third parties,
creditors, suppliers, while they also had to cover operating costs. While measures
eased and business activity returned to normal, during 2021, businesses had to
pay part of their obligations, slowly returning to the norms of the year before
the pandemic.
Referring to the results and analysis of the correlations in our paper, we
conclude that the average period of revenue receipts from customers has increased
somewhat. This may have been caused by problems that the clients themselves
may have had with their liquidity, leading consequently also to the liquidity
problem of the sample businesses covered by the questionnaire to provide us with
the data. The reason for these changes may have been the reduction of income, the
fact that some consumers might have lost their jobs during the lockdown/closure
period, etc. However, during 2021, as the situation alleviated, the average
collection period has come to a decrease, approaching what it was in the year prior
to the pandemic.
The closure of a large part of businesses, the reduction of revenues due to the
impact of the pandemic, the increase of the average collection period, has caused
businesses to have problems with liquidity. This, coupled with the fact that
liabilities have remained almost unchanged, mainly rents, bank loan instalments,
taxes, etc., have reduced the ability of businesses to repay liabilities quickly. As
previously stated, although the lockdown measures and the pandemic itself
281
in 2020 had a significant impact, in 2021 the situation started to improve.

Nevertheless, such a situation has not yet returned to normal, to be the same as the
period before the pandemic.
In 2021, we notice that the situation has started going back to normal, and we
expect to have an increase in turnover compared to the previous year 2020. This
shows that in 2021, the increase in turnover for Albanian businesses was
accompanied by their persistence to collect revenues as soon as possible. In
addition, Albanian businesses showed an added correctness in settling their
obligations in the shortest possible time.
In completion of our work through the analysis of results and findings, we come
to a final conclusion for business managers, accentuating the great importance of
establishing a serious balance between collection, settlement of debts, and debt
financing for their businesses.
References
[1] Bank of Albania (2021). Financial and borrowing situation of enterprises in Albania.
[2] Boissay, F., Rungcharoenkitkul, P. (2020). Macroeconomic effects of COVID-19: an
early review, Bank for International Settlements.
[3] Carsslon-Szlezak, P., Reeves, M., Swartz, P. (2020). Understanding the Economic
Shock of Coronavirus, Harvard Business Review.
[4] Chang, C.C., Kam, T.Y., Chang, Y.C., Liu, C.C. (2019). Effects of the 2008 Financial
Crisis on the Working Capital Management Policy of US Enterprises, International
Journal of Business and Economics, 18(2), pp. 121-139.
[5] Dörr, J.O., Licht, G., Murmann, S. (2021). Small firms and the COVID-19 insolvency
gap, Small Business Economics, pp. 1-31.
[6] Gourinchas, P.O. (2020).Flattening the pandemic and recession curves. Mitigating the
COVID Economic Crisis: Act Fast and Do Whatever.
[7] Guerini, M., Nesta, L., Ragot, X., Schiavo, S. (2020). Firm liquidity and solvency under
the COVID-19 lockdoën in France, OFCE policy brief, 76.
[8] Hadiwardoyo, W. (2020). Kerugian ekonomi nasional akibat pandemi COVID-19.
Baskara: Journal of Business and Entrepreneurship, 2(2), pp. 83-92.
[9] Krammer, S. M. (2021). Navigating the New Normal: Which firms have adapted better
to the COVID-19 disruption?, Technovation, 102368.
[10] Mano, R., Anamali, A., Shosha, B. (2021). COVID-19, Business Failure and Bank
Loan Collapse: Albanian Case, Universal Journal of Accounting and Finance,
pp. 1058-1066.
[11] ReSPA. (2020). Analysis of Economic and Social Consequences of the COVID-19
Pandemic in Western Balkans Administrations.
[12] Sokol, M., Pataccini, L. (2020). Winners and losers in coronavirus times:
Financialisation, financial chains and emerging economic geographies of the COVID‐19
pandemic. Tijdschrift voor economische en sociale geografie, 111(3), pp. 401-415.
[13] Wieczorek-Kosmala, M., Błach, J., Doś, A. (2021). COVID-19 interruptions and SMEs
heterogeneity: Evidence from Poland, Risks, 9(9), p. 161.
282

June 16-17, 2022
Consequences of Exits from Political Unions

on Corporate Financial Policies: Brexit Case
Mohamad YOUNESS1
DOI: 10.24789788367405072-026
Abstract
The paper addresses the impacts of political exits on the capital budgeting policies, taking
the impact of the Brexit deal on the UK’s companies as a practical case. The paper linked
the political risk and uncertainty of Brexit and linked it directly to the capital budgeting
policy of UK companies over the last years. The paper divided into two periods, the first
period before the Brexit deal (2010-2015), and the second period is after the Brexit deal
(2016-2021). The aim of dividing the period is to show how the UK companies were
developing their capital budgeting policies before Brexit, and in presence of Brexit. The data
of the study were collected through a survey which was sent to the UK companies and the
answers of respondents were analyzed through statistical techniques and empirical tests to
reach the final results. Therefore, the results show that there is a direct relation between
political exits and corporate financial policies such as capital budgeting. In addition, the
results show that (NPV, IRR, PB, MIRR, Prof. Index) are the most used techniques at UK
where financial managers are preferring NPV over IRR. Moreover, the results show that the
use of net present value (NPV) method decreases with the political risk, where the use of the
Payback method increases with the political risk. This means that during uncertainty periods
managers seek to use different methods in order to understand all the surrounded atmosphere
while developing their capital budgeting policy.
Keywords: Capital Budgeting, Political Exits, Brexit.
JEL Classification: C83, D81, F51, G31.
1. Introduction
Politics is linked to some extent to economic and financial policy, where there is
a significant correlation between politics and the economy of any country. As it is
not possible to hide the impact of political decisions, including elections, joining,
exit, or even split on the economic situation, especially on the corporate financial
policies. Kinder and Mebane (1983) confirms that politics interfere in economics in
© 2022 M. Youness, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
different ways, where the political activities and decisions draw the general track of
the economic policies and effect on the pattern of the economic.
Political decisions such as joining or exiting political unions have a great impact
on the economic and financial level, especially with regard to the future of
companies operating in those countries, and the impact of these decisions and
regulations on the corporate financial policy and the performance of these
companies. Thissen et al. (2020) mention that the political exits such as Brexit have
a lot of implications on the UK and EU economy, trade scenarios, and the
performance of the companies. In such cases, the political exits may have an effect
to a large extent on the performance of companies operating in that region, especially
as they may face this scenario for the first time.
Exits from the political union happened when one of the participating members
wants for various reasons and considerations to leave the union, and it is often
discussed between the two parties to reach a final formula that satisfies the interests
of both, knowing that any political member of the union must have regulations and
laws protecting entry and exit operations. According to Huysmans and Crombez
(2020), historically we witness a lot of political exits from political unions and the
split of some countries from each other. Often these unions were subjected to
external and/or internal pressures in exercising their role, which push their members
to leave it, or for any worse situation leading to the termination of the union as the
case of the League of Nations and the Soviet Union.
In recent years, we have witnessed the split of many countries around the world,
the most important example of which was the split of South Sudan from Sudan 2011,
and Eritrea's split from Ethiopia 1993 and recently the UK's exit from the European
Union 2020, which is known as Brexit. According to Acemoglu & Robinson (2012),
states do not fail overnight. The seeds of their destruction are sown deep within their
political institutions. Usually, most of the separated states and countries, face many
challenges such as their inability to fully take advantage of the potential of their
society to grow, which makes citizens suffer from social and economic problems.
As for Brexit, there were many reasons that push the UK to leave the EU. Mauldin
(2016) mentions that there are three reasons that lead UK to leave the EU back to
economics, sovereignty, and political elitism. First, for economics, the UK believes
that the EU brings negative influences for on its economy because it is an unbalanced
economic organization includes some economically troubled countries. Second, for
sovereignty, Brexit is a symbol that a nationalism is rising. Lastly, for political
elitism, it is beneficial for government to make policies and decisions by themselves
without returning back to the EU in order to secure its interests and achieve its
priorities.
Certainly, the Brexit deal will leave its impact on the performance of UK
companies, but the question remains to what extent? According to Bloom et al.
(2019), Brexit created uncertainty in June 2016. This uncertainty persisted with more
time without agreement on the terms of the UK's withdrawal, as companies became
more skeptical about the fate and terms of the deal, and whether there would be a
second referendum. The UK’s exit from the EU was a political and economic shock.
284
They studied how companies were being affected by Brexit depending on variables
such as sales, prices, investment, and employment. The study contributed to tracking
the views of companies throughout this period to assess the impact of Brexit and the
associated uncertainty on corporate performance.
So, to which extent will the UK's exit from the EU affect the capital budgeting of
UK companies where these companies have not been faced a similar situation? Also,
the economic relations that will be agreed upon between the two parties and the
impact of this decision on the performance of UK companies and their trading
movement.
In this paper, we address the impacts of political exits on the capital budgeting
policies, taking the impact of the Brexit on UK’s companies as a practical case. The
paper shed light on the political uncertainty of Brexit and linked it directly to the
capital budgeting policies at the UK over 10 years. It also addresses the topic in a
scientific manner to reach the final results. Therefore, this study shows the impact of
political exit on the capital budgeting policies.
According to the nature of the topic, this paper could be useful for academics and
researchers specializing in finance and economic field, as the study shows the
impacts of political exits on the capital budgeting policies, taking the Brexit deal as
an example. In addition, this study could be helpful for EU & UK in order to reach
a suitable agreement between them, considering that any future procedure effect on
the financial sector of the two parties.
The remainder of the paper is structured as follows. Section 2 addresses the
theoretical background and tested hypothesis of the study. Section 3 describes the
data and methodology that include the empirical tests. Section 4 shows the results
and discussion of the study. Section 5 includes the conclusions and limitations.
It is known that politics are linked in one way or another to the economic and
financial policy of any country where the impact of political decisions is often
reflected in economic and financial trends. O'Leary (1985) mention that it can be
said that the political concept in societies is directly related to how the government
carries out its political activities and applies them on the ground. However, no matter
how good these practices are, they may sometimes be used incorrectly when applied
to theories and practices. Therefore, the urgent need to link the political system and
the financial policies of companies must be recognized as a fundamental factor in
ensuring the development of companies and maintaining their continuity in light of
global political and economic conditions.
It is certain that the political atmosphere has many impacts on the economic and
financial policies. Political decisions such as the split of countries and the exit from
political union have many impacts on corporate financial policies. According to
Graham and Harvey (2001), a corporate financial policy denotes to the company's
overall approach to manage its financial decisions; it also refers to how corporations
deal with funding sources, capital structuring, and investment decisions. Corporate
finance policy is linked to the decisions and regulations related to the financial
285
system within the organization and the implementation of various strategies within
the corporation.
Political decisions such as the exit from the political union have an impact on the
corporate financial policies, especially on the capital budgeting. For DeBenedetti
(2014), changing global policy practices can cause changes in economic and
financial policies continuously; sometimes it leads to a change in economic policy,
and the conversion of so-called strong investments into financial disasters. As a
result, companies of all types must define and mitigate political risks to avoid losses
from these practices. However, capital budgeting is more than just accounts, as
political climates can play a huge role in where the money is invested.
In addition, DeBenedetti (2014) mentions that the capital budget differs from the
regular costs that companies cost during the operating cycle. The differences include
the amount of money spent and the expected duration of the investment to generate
returns. The capital budget often uses time periods greater than a year. Funds
invested in income-generating facilities or equipment require capital budget
accounts. International companies may have capital assets in politically unstable
countries, which makes decisions to allocate critical assets critical. Countries'
political performance directly affects borrowing costs and taxes, regardless of
corporate regulation and policy. Erroneous political practices such as bribery and
corruption have dangerous effects on most companies.
Furthermore, Holmen and Pramborg (2009) analyze the impact of the political
risks and instability on the capital budgeting by applying of regression models; they
found that in the presence of capital market deficient and unsystematic conditions,
political risks can affect the capital budgeting. These risks are difficult to estimate,
especially since they lead to higher deliberation costs, managers tend to use simple
rules to make decisions about the capital budget decisions. Political risks may help
to explain why firms depend on alternative methods such as the Payback method,
despite their theoretical flaws. Holmen and Pramborg (2009) added that the political
risks may greatly effect on the capital budgeting policy, where the prevailing
political climates greatly affect the size of investment and projects. Therefore, it
requires politicians to take into account the impact of any decision or agreement
which may have repercussions on corporate finance policy, especially the capital
budgeting.
So what capital budgeting means exactly? According to Kenton (2020), capital
budgeting can be defined as the process of evaluating a potential projects or
investments. Companies aim to enter into such investments in order to yield the best
return over an applicable period, which enhance shareholder value and profit. Also,
Peterson and Fabozzi (2002) define capital budgeting as the process of identifying
and selecting investments in long-lives assets or assets expected to produce benefits
over more than one year. Capital budgeting is an ongoing process, because firms
must first determine their corporate strategy, which is centered on the future
investments.
Many studies have been reported on the capital budgeting decision, practices, and
policies. For example, Kengatharan, L. (2016) discusses about the capital budgeting
286
theory and practices, especially in developed countries. Also, Dayananda et al.,

(2002) mention that the capital budgeting practices are the investment
decision taken for increasing shareholders value. Moreover, several studies have
been conducted about capital budgeting practices in the US and Europe, such as
(Pike, 1996; Block, 2007). Furthermore, Arnold and Hatzopoulos (2000) shed light
in their study on the gap between theory and practice in capital budgeting by studying
about 300 UK companies of different sizes. The results indicate that UK companies
have increasingly relied on the analysis of prescribed financial books to reach the
stage where the majority will use only discounted cash flows, formal risk analysis,
adjustment corresponding inflation, and post-audit in their study.
Moreover, Drury et al. (1993) studied 300 manufacturing companies in the UK
and analyzed their capital budgeting practices. The results showed that PB (86%)
and IRR (80%) were the preferred methods. The widely used risk analysis was the
sensitivity analysis. In another study for Brounen et al. (2004), four European
countries such as the UK, France, Germany, and the Netherlands consisting of 313
companies during the period 2002 and 2003 were examined. The result showed that
the UK companies were used 47% of NPV and 67% of PB respectively as a primary
method for evaluating capital budgeting decision, whereas companies in Netherlands
were used 70% of NPV and 65% of PB methods. However, companies in France and
Germany reported lower usages of both methods, where in France they use 42% for
NPV and 50 % for PB, and in Germany they use 44% for NPV and
51 % for PB. Also, there are many previous studies that were conducted in the US
and the UK and some available studies for the Netherlands such as (Herst et al.,
1997; Brounen et al., 2004).
Researchers are divided on the impact of political practices and decisions on
corporate financial policies. Some researchers believe that political decisions have a
weak impact on the financial policy of companies, where they believe that these
issues are internal issues decided by the board of directors of each company, as they
cannot determine whether or not the politics has a direct impact on the company's
financial policy.
Faccio (2006) addressed that the impact of political ties mostly depends on the
level of the institutional and economic development of the country, as the impact
varies from one country to another. In other words, it can be said that the impacts of
practicing politics can vary between one country and another, and in some cases it is
not possible to say that there is no impact on a corporate financial policy. In addition,
Feltri, S. et al. (2017) addressed that until the past two decades, finance researchers
did not pay much attention to political economy until the impact of politics on the
economy began to emerge. At that time, analysts did not study the impact of politics
on the economy and on the companies’ performance, thinking that there was no close
relationship between them. The hypothesis below [H0] is adopted by some
researchers who believe that politics charts the general framework of economic and
financial policy, but it does not interfere in the corporate financial policy. These
287
issues are an internal matter usually decided by the BOD, managers, and
stakeholders, who draw the company orientation and policies.
H0: The exits from political unions have no impact on the capital budgeting policies.
On the other hand, there are many authors that investigate about the impacts of
the political decisions on the corporate financial policies such as capital budgeting.
For example, Holmen and Pramborg (2009) investigates about the impact of the
political risks and instability on the capital budgeting, where they found that in the
presence of capital market deficient, unsystematic country specifications, political
risks can affect the capital budgeting. These risks are difficult to estimate, so it is
important to analyze the impacts of the political instability on the capital budgeting
policies. In addition, Frederikslust, R. et al. (2008) mention that the perceived excess
of the 1980s produced a major regulation of the US financial markets that affects the
control market, credit markets, and the market structure. These changes have shed
light on the importance of the political environment and its impact on financial and
governance policies. The hypothesis below [H1] is adopted by many authors in the
political and economic field, since political decisions have an effect on the corporate
finance policy, especially the capital budgeting policy.
H1: The exits from political unions change the capital budgeting policies.
Political risks are often associated with high deliberation costs, where they are
significant for spending resources in order to make estimates of cash flows and the
risk profiles for FDIs in countries where it faces a high political risk. So, it is logic
that the political decisions such as exit from the political union could have many
consequences on the firm’s capital budgeting policies.
4. Research Methods
This paper analyzes the impact of political exits on the capital budgeting policies
during the period [2010-2021] taking the impacts of Brexit on the capital budgeting
policy of UK companies. Brexit negotiations begin in 2016, and in order to study
and analyze the impact of Brexit deal on the UK companies, we select a period of
10 years (2010-2021). The studied sample was applied to the UK companies,
especially the listed companies of FTSE 100 and other 50 company from the UK.
Data were collected from a survey sent to the selected firms and from their annual
reports and FTSE 100, using both a qualitative and quantitative approach. In
addition, some companies’ disclosures, managerial reports, and companies' financial
reports were used.
It was necessary to study the period before and after the split, to notice the impact
of Brexit (2016) on the capital budgeting policy of UK companies over 10 years,
dividing the studied period into two periods (before & after). The first period was
between 2010 &2015, while the second one was from 2016 to 2021. Moreover,
Capital budgeting policies will be evaluated through studying the techniques and
methods of capital budgeting such as net present value (NPV), internal rate of return
(IRR), payback period (PB), modified internal rate of return (MIRR), and
profitability index (PI) that the UK companies were adopted.
288
Decision-makers such as managers at UK companies were identifying different

types of investment projects that had been implemented by their companies in the
last decade. The investment strategy was represented in future projects and
long-term investments especially acquisitions and mergers. There are main factors
that affect capital budgeting such as the availability of funds, capital structure,
management decisions, working capital, government policy, earnings, and political
stability. Several techniques could be used to reach the final decision, such
as NPV, IRR, and PB. According to Schall et al. (1978), most firms use payback,
accounting rate of return, internal rate of return, and net present value as a capital
budgeting techniques. In addition, Oblack and Helm (1980) mention that most
multinational firms adopt accounting rate of return, internal rate of return, net present
value, payback period, and profitability index as reliable methods for capital
budgeting decision.
The sample comprised of 150 UK companies (listed companies of FTSE 100 &
other 50 company from UK), who are active companies, having a registered office
address in different regions of the UK (England, Scotland, Wales, Northern Ireland).
The sample was selected from different sectors of different firm sizes. Table 1 below
show the industry of the firms, number of selected companies, responding
companies, and their percentage.
Table 1. Industry, companies’ number & percentage, responding companies & percentage
No. No. of Responding Co.
Industry Companies’ %
of Co. Responding Co. %
Agriculture 1 1% 1 100%
Chemical industry 3 2% 1 33.3%
Clothing 3 2% 2 66.7%
Construction 4 3% 1 25%
Financial Services &
30 20% 7 23.3%
Insurance
Food Industry 26 17% 5 19.2%
Machinery and
6 4% 2 33.3%
Equipment
Media 8 5% 1 12.5%
Medical Industry 7 5% 1 14.3%
Mining 8 5% 0 0%
Petroleum & Gas
8 5% 1 12.5%
Industry
Software & Computer
10 7% 2 20%
Services
Support Services 16 11% 8 50%
Telecommunications 2 1% 1 50%
Travel & Leisure 10 7% 3 30%
Other 8 5% 0 0%
Total 150 100% 36
Source: Own work, 2022.
289
On March 15, 2022, the questionnaire was sent to the selected companies and
their financial managers. The responsibilities of financial managers include
collecting and using available funds in effective ways to achieve targeted financial
goals. Those managers are responsible for setting and implementing the company's
financial policies, and they also participate in the implementation of the company's
overall objectives, through the development of strategies, plans, and conducting of
control activities. Therefore, it can be said that they are familiar with the activity and
performance of the company as a whole. The participation of these executives and
financial managers in this study provides the required information and contributes to
conveying an objective picture of the impact of Brexit on the performance of
companies in order to give the research reliable scientific evidence. A cover letter
was written at the top of the page of survey to the respondents that outlines the
study’s objectives and assures for participants about the study’s safeguarding of
confidentiality.
A follow-up reminder was sent out to non-respondents through emails on March
30, 2022. On April 15, 2022, 36 out of the 150 questionnaires were received.
Consequently, 36 completed questionnaires were returned. The respondent’s
analysis gives a net response rate of 24% (36 completed questionnaires out of 150).
The response rate is acceptable compared with more recent UK-based surveys
(e.g. 19.09% was achieved by Alkaraan, 2020; 19.60% was achieved by Abdel-
Kader & Luther, 2008). 62% of the respondents are financial managers, 14% are
financial controllers and working in the financial department, and the remaining 24%
are chief executive officers. Most of the respondents have a finance and accounting
background and a years of experience in that domain.
The data and methodology are aligned with previous studies such as (Alkaraan,
2020; Northcott & Alkaraan 2007; Abdel-Kader & Luther, 2008; Harris, Emmanuel,
and Komakech, 2009), where previous studies collect their data through a survey and
depending on the annual reports of the studied firms. Previous studies included in
their surveys many questions about the capital budgeting practices and decisions.
Indeed, we follow the same strategy in our study, by sending a survey to the selected
companies and through access the annual reports of these companies.
However, the important factor in this methodology was the study of the impact
of the political factor such as Brexit on capital budgeting policy for UK firms, where
the managers were asked about the impact of Brexit on their capital budgeting policy.
It was important to show the impact of the political factor, since political stability
and government policy are a main determinants of the capital budgeting policy.
5. Findings
After receiving the questionnaire of the UK companies who were filled by the
financial managers and executives, we convert the results into charts and tables for
analyzing and processing. Then we use the collected data to start the regression
analysis in order to understand the consequences of the political factors such as
Brexit on the capital budgeting policy, through analyzing the responses of UK
companies during the period (2010-2021).
290
The results show that the applicants’ age was between 32 & 52 years, where the
average age was 42, which means they have a lot of experience in their domain and
position. Also, 53% of the respondents were males, while 47% of the respondents
were females. In addition, the last academic degree for the respondents were divided
as follows: 25% holding a Bachelor’s degree; 58% holding a Master’s degree, and
the remaining 17% holding a PhD Degree. These statistics indicate that all of them
have an academic degree and have a finance and accounting background with many
years of experience. Furthermore, the respondents’ companies were divided into four
countries as follows: 50% from England, 19.4% from Scotland, 16.7% from Wales,
and the remaining 13.9% from Northern Ireland. It seems that the
large number of respondents were from England, while the smallest portion from
Northern Ireland.
In addition, the results show that a combination of capital budgeting techniques
is implemented by most companies in evaluating their financial performance, as
shown in the table below. Table 2 shows the number of the UK companies that were
adopting the capital budgeting techniques over the studied period in order to analyze
their future projects and investment where most firms adopt these five techniques
(NPV, IRR, PB, MIRR, Prof. Index). It was necessary to mention the impact of the
Brexit Deal on the UK companies in order to know its consequences on the Firms’
decisions regarding capital budgeting policy especially when entering any new
project or investment where some questions have been added in the survey to detect
the firms’ response to Brexit impacts.
Table 2. Descriptive statistics

Before Brexit [2010-2015] After Brexit [2016-2021]
Techniques No. Mean St. dev. Techniques No. Mean St. dev.
NPV 34 4.77 0.93 NPV 30 4.33 1.5
IRR 31 4.43 1.41 IRR 28 4.12 1.68
PB 16 2.67 2.03 PB 21 3.32 2.01
MIRR 5 1.56 1.40 MIRR 7 1.76 1.60
Prof. Index 4 1.43 1.27 Prof. Index 6 1.67 1.51
Prior research findings such as (Pike, 1996; Abdel-Kader & Dugdale, 1998)
indicate that financial managers prefer IRR over NPV. In contrast, the current study
ensures that the NPV technique has enjoyed greater loyalty from the managers of
different UK companies compared to IRR, confirming with the findings of the survey
(Alkaraan, F. 2020). Moreover, we can notice that the other techniques such as
Payback period, MIRR, and Profitability Index were used as a secondary technique
before Brexit. But after 2016, when the UK started its referendum to leave the EU
and in the next years reaching to 2021, it seems that UK companies start depending
more on those methods especially payback period believing that Brexit will bring
additional uncertainty and risks in the coming years, where they should consider the
impacts of the Brexit related laws on their capital budgeting policy.
291
Figure 1. Disrtibution of capital bidgeting techniques

used by UK companies before and after Brexit
40
30
20
10
0
NPV IRR PB MIRR Prof. Index
Before Brexit [2010-2015] After Brexit [2016-2021]
The results of Figure 1 aligns with the findings of Holman and Pramborg (2009)
when they investigate the Swedish firms’ use of capital budgeting techniques for
Foreign Direct Investments through a survey. The results show that the use of net
present value (NPV) method decreases with the political risk where the use of the
Payback method increases with the political risk. This type of behavior might partly
explain why respondents find that alternative methods such as the payback method,
modified internal rate of return, or profitability index are frequently used despite
their theoretical drawbacks. This means that during uncertainty periods managers
seek to use different methods in order to understand all the surrounded atmosphere
while developing their capital budgeting policy.
Moreover, we have included direct questions about Brexit in the survey sent to
the UK companies in order to discover the impact of Brexit on capital budgeting
policies. The results show that 63.9% of respondents were taken partially into
consideration the impacts of Brexit, where 22.2% were considering totally the
impacts of Brexit on their capital budgeting policy from all its aspects, where the
remaining companies 13.9% were not considered the impacts of Brexit during
developing their capital budgeting policies. Figure 2 below shows the distribution of
the consideration of the impact of Brexit deal during the development of capital
budgeting policies for UK companies.
Figure 2. Consideration of the impact of the Brexit during developing capital
budgeting policy of UK Companies
292
Moreover, the survey takes into consideration the risks and opportunities of
Brexit during developing their capital budgeting policies. The results seem similar
to the previous question in Figure 2, which is logical, since when developing your
capital budgeting policy, you should be alert for the risks and opportunities of the
surrounding factors especially, if it is a political factor. For example, Holmen and
Pramborg (2009) consider that the political factor is one of the important factors
during developing the capital budgeting policy.
Moreover, the results show how brexit had changed the capital budgeting policy
for UK companies. Figure 3 below shows the results’ distribution, where 72.2%
mention that political factors such as Brexit require more time and effort to develop
the capital budgeting policy taking into consideration the Brexit-related laws. Also,
22.2% mention that while developing their capital budgeting policy, they take into
account the impact of Brexit while engaging in new investment projects. Others
8.3% mention that Brexit imposed new conditions and criteria for mergers and
acquisitions. The remaining 5.6% believe that Brexit has not changed their capital
budgeting policy.
Figure 3. How Brexit had changed the capital budgeting policy for UK companies
Also, managers were asked about how brexit affected their capital budgeting
policy, whether positively or negatively. The results show that 44.4% cannot
determine the imapct of Brexit on their policy specifically, while 36.1% mention
that Brexit has a positive impact on their position and performance, while 19.4%
mention that Brexit will leave a negative impact on their performance. Figure 4
below shows the distribution of Brexit’s impact on the capital budgeting policy for
the UK companies.
Figure 4. How Brexit affected capital budgeting policy for UK companies
293
For those who consider that Brexit will have a positive impact on their companies,
they believe that Brexit will bring a lot of privileges and advantages when it is
applied. For ecample, 53.8% of them believe that Brexit will bring less EU restriction
and more freely trade with the non-EU markets, where they will be allowed to trade
freely with other markets all over the world. Moreover, 46.2% believe that Brexit
will help them and give them the chance and opportunity for growth and involving
them in new projects outside the EU. Figure 5 below shows the the positive impacts
of the Brexit on the UK companies.
Figure 5. Positive impacts of Brexit on capital budgeting policy of UK companies
On the other side, some managers consider Brexit to have a negative impact on
their companies for many reasons. For example, 57.1% believe that Brexit will
increase the level of unpredictable and volatile for UK business, while 42.9 %
believe that Brexit will create a tariffs in face of the UK exports and products. Figure
6 below shows the negative impacts of Brexit on the UK companies.
Figure 6. Negative impacts of Brexit on capital budgeting policy of UK companies
As a result of all I have mentioned before in the tables and figures, it appears that
Brexit will cast its shadow over the UK companies, as it will have its repercussions
and impacts on UK businesses. Many managers have stated that Brexit will have an
impact on where UK companies should take into account the impact of Brexit on
their companies’ performance.
294
6. Conclusions
The paper sheds light on the impacts of political exits on the capital budgeting
policies, taking Brexit as a practical case. The paper linked the political uncertainty
of Brexit and linked it directly to the capital budgeting policy of UK companies.
The studied period divided into two stages, before (2010-2015) and after Brexit
(2016-2021).
The study data was collected through a survey which was sent to the UK. The
apllicant’s respondent age was between 32 & 52 years, where the average age was
about 42. Furthermore, 53% of the respondents were males and 47% of the
respondents were females. Also, the academic degrees were divided as follows: 25%
holding a Bachelor’s degree; 58% holding a Master’s degree and its equivalent, with
the remaining 17% holding the PhD Degree.
In addition, the results show that a combination of capital budgeting techniques
is used by most companies, but the financial managers prefer NPV over IRR in the
normal situation while they rely more on additional techniques mainly payback
period during uncertainity period. The results show small decreases in the use of
NPV and IRR method with the political uncertainty, where the use of the Payback
method increases with the political uncertainty.
Also, the results show that 63.9% of respondents were taken partially into
consideration the impacts of Brexit while developing their capital budget policy,
while 22.2% were considering totally the impacts of Brexit on their capital budgeting
policy, where the remaining companies 13.9% were not considered the impacts of
Brexit at all.
Moreover, managers were asked about how brexit affected their capital budgeting
policy, whether positevly or negatively. The results show that 44.4% can’t determine
its impact, while 36.1% mention that Brexit has a positive impact, and the remaining
19.4% mention that Brexit will leave a negative impact on their performance.
So, it is obvious that Brexit will leave its impact whether (positive or negative)
on the UK companies, as it will have its consequences on UK businesses and trade
movement. These indicators support the H1 Hypothesis, which ensures that the
Brexit deal has a direct impact and changes the capital budgeting policies.
Finally, there are two main limitations to this study. First, the time constraints,
which prevent us from giving the respondents more time, because the deadline was
(one month from sending the survey). Second, many companies did not respond to
the survey, which prevented us from providing a comprehensive picture of the topic.
Acknowledgment
I would like to thank my supervisor, Professor Victor Dragotă, who helped me
through completing this paper. I am thankful for his guidance, feedback, and
comments. All opinions expressed are those of the author, and any remaining errors
are mine.
295
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298

June 16-17, 2022
Economic Liberalization, Privatization and Globalization

Hodge-Podges: Ethiopian Manufacturing Firms Retort
from Marketing Perspectives
Mohammed AHMED1*, Abebe Ejigu ALEMU2, Habtamu ENDRIS3
DOI: 10.24789788367405072-027
Abstract
This study has been focused on examining examine the dynamics of liberalization,
privatization, and globalization in relation to export performance for Ethiopian privatized
manufacturing firms since 1991. To achieve these objectives, cross-sectional data was
collected from 114 fully privatized manufacturing firms through key informant approaches
and structural equation modelling (SEM) was used. This model identified liberalization,
privatization, and globalization as independent variable under competitive priority
mediating role for export performance. The model tells that all the predicting variables
(LPG) in the hypothesized model were significant at P< 0.05 and this shows that economic
liberalization, privatization, and economic globalization affect export performance under all
competitive priority. The finding shows that LPG stimulates export performance under firm’s
competitive priority an intervening role. The competitive priority of firms comprises cost,
flexibility, and quality priority. Those measures confine arouses export performance in terms
of both quantitative (market share, profit) and subjective measures (export satisfaction)
indicators. The extent of law-and-order commitment towards financial and non-financial
incentives) and the overall trade openness use as liberalization indicator.
Keywords: Economic Liberalization, Privatization, Globalization, Manufacturing

Retorts, Export.
JEL Classification: M10, M31, M40, M50.
1 Arba Minch University, Arba Minch, Ethiopia, [email protected].

2 National University, International Maritime College Oman, Mekelle University, College of business
and Economics, Mekelle, Ethiopia, [email protected].
3 College of business and Economics, Arba Minch, Ethiopia, [email protected].
© 2022 M. Ahmed, A.E. Alemu, H. Endris, published by Sciendo. This work is licensed under the Creative
1. Introduction
In today's corporate environment, marketing theories have been in state of flux
and have been influenced by a variety of factors. The global market is currently
equivocated due to irregularities in a variety of business contexts. From a
marketing point of view, among other things, government political ideology in this
case, the commitment and willingness toward economic liberalization, intention
towards privatization of state-owned enterprises from unescapable influence of
globalization considered as a business shifter (Donahue, 1989). Those variables are
prominent, which govern the business in both developing and developed nations
Boycko et al. (1993). Liberalization, privatization and globalization (LPG) are
powerful forces that expressively change structural and/or operational marketing
strategies (Fuerst, 2010). Regardless of its effect, experts in different countries have
varied levels of comprehension and sympathy for those principles. Because the
concepts are muscularly aligned with the government's ideological and political
inclination (right or left-wing orientation), the government's political and ideological
orientation, commitment to liberalize the economy, privatization commitment, and
understanding of globalization differ.
Because of the change in advancement of technology, we are living within, which
is the so-called economic globalization, international marketing has endured a
metamorphic change. International marketing desires economic integration more
than ever before. The overall marketing system in a global market scenario, the
firm’s strategy, competition among nations, and even competition among firms
become volatile. In the Ethiopian context, the easiest and somewhat less risky
international marketing entry strategy is exporting. Exporting is one of the market
entry strategies and the internationalization approach. Exporting continued the most
popular marketing entry strategy adopted by the firm especially in the developing
economy. It provides a high degree of flexibility and cost effectiveness through
quickly penetrating new international markets (Samiee, Chirapanda, 2019).
Government intervention in the economy has endured substantial change since
the beginning of the 1980s (Fuerst, 2010). The Keynesian welfare state has been
evacuation in the developed democracies of the Organization for Economic
Cooperation and Development (OECD) to other parts of the world (Potrafke, 2020).
In the international competitive stage, ownership structure and measures both in the
home and host nation expressively stimuli its export performance. Private and public
owned firms have different success factors in the international market stage. Public
owned firms encounter continuous performances problem. The performance
problems are due to deprived motivations unenthusiastic managerial behavior,
leaving managers considerable discretion to pursue their personal agendas rather
than focus to the assigned responsibility. State-owned enterprises progressively
privatized to the private sector to eliminate the existing problem of public firms
and strengthen competitiveness in a competitive environment (Leykun, 2020).
The principal characteristic of public owned firms in Ethiopia dominated by
inefficient and mostly managed by politically affiliated individuals rather than well-
oriented professionals. The political economy was apt for the monopoly position,
300
while others depended on excessive government subsidiary Boycko et al. (1993).

Instead, private owned enterprises have upright management commitment,
follow-up, and better business performance profiles due to egoistic nature of
individual for your private business. Furthermore, study by (Rodríguez, 2007)
evidence that organizational as well as national economic policy is closely tied to
organizational growth, international marketing competitiveness and performance of
privatized firms.
Regarding the political economy, between 1974 and 1991, Ethiopia was governed
by a socialist political ideology under a stern centralized political system. This
ideology strongly contended that government policies and strategies are high degree
of rigidity and stringency. The system creates economic distortion and market
inefficiency in all sectors of the economy, including the manufacturing sector. After
two decays, strategically and ideologically different opponents ruling partly came to
power, Ethiopian People Revolutionary Front (EPRDF) presumed different policy
adjustment and macro-economic reforms including privatization of inefficient state
owned enterprises (SoEs). Even the nation starts to privatize those state-owned
enterprises, still as compared other African countries, with regard to adoption of
privatization policies, Ethiopia is considered as a late starter in market reforms
(Carter, 2013).
The other paradox with regard to reform is that the motive behind economic
reform and privatization which was implemented mainly not by own initiatives, but
rather due to international pressure like donors and debtors (Ismail, 2018; Carter,
2013). On the other hand, large accommodated public debt leads to national budget
deficit (Ismail, 2018) poor performance of state-owned firms in terms of production
efficiency, marketing, and poor growth prospects of SoEs (Jesiah, 2014). For
instance, the then government, EPRDF (currently changed to prosperity party PP
since 2019) which took power in 1991, the government support with policy and
strategy for the implementation of structural economic policy adjustment program.
The program was led by the World Bank and the International Monitory Fund (IMF).
The principal objectives of the program were predominantly center on privatization
intended to improve the use of scares public recourses, enhance firms operating and
dynamic (Verick, 2006).
Decays after 1991, in 2004, state-owned enterprises in Ethiopia account for 72%
of the total manufacturing value added, 62% of the gross value production, 57% of
the manufacturing labor forces, and 64% of wage and salaries (Winters et al., 2004).
After a Capel of years’ Privatization policy adjustment expedition, the process was
problematic in its implementation. For example, most of the privatized firms were
sold to the single-family owned enterprises (W/yohannes, 2015). In the early stage
of the privatization process, there is a problem of selection, which public enterprises
were first privatized for whom it transferred. The government simply focus merely
on transfer ownership from public to the private owners irrespective of the structural
and operational wellbeing of the private firms. Because of this, most of the public
owned firms privatized in 1990s were to one or two dominant private owners, and it
creates private monopoly. Furthermore, the privatization process is riddled with
301
corruption and malpractices. This circumstance forces the government to reconsider

the privatization procedure and modalities, and forced to renationalization of some
privatized companies before.
Changing an organizational structure as well as government orientation is vital
due to the change in dynamic business environment due to globalization.
Globalization crafts an opportunity on one hand and threats in the other pole, but it
is up to the firms capability to adapt their organizational structure and strategy
accordingly (Rodríguez, 2007). Globalization helps to the firm to improve
productivity and uses its unique competence through gasping global market
(Asongu, Nwachukwu, 2017, Items et al., 2016).
As export is the easiest and the most popular marketing entry strategy in the
internationalization process, the Ethiopian export sector, however, lacks dynamism
relative to other countries even in the same continents. The structure of Ethiopian
export in terms of firm, product, and destination countries has remained stable and
relatively unbending as compared to countries with similar stage of economic
development Brülhart & Schmidheiny, (2018).
Firstly, Ethiopia, characterized by law rate of firm’s entry in to exporting, and
secondly, the average life span of a given firm product - destination connection is
significantly below the international average. Because of lack of vitality and
dynamisms in the past Capel of decays since 1991.
Brülhart & Schmidheiny, (2018) suggest that the Ethiopian exports lack
dynamism because of an excessive foreign exchange and certain government
intervention through forcing firms to maintain export link even at an operational loss
due to political advantage. However, between 2009 and 2016, the average production
in manufacturing sector reached to fivefold and average sales rises by 600 percent.
Still, the average value of manufacturing export per firm, while increasing between
2009 and 2013 has subsequently declined. These rises enquiry about the potential
reasons why manufacturing exports growth are insignificant and lack of
determination.
From the world economic experiences, the business environment is rapidly
changing due to the advancement of technology. Advancement of technology has
also expressively affected the world international trade pattern. Globalization
improves the free trade condition and the limitless transaction alters the dynamics of
international spare of competition. It is also supported by the international trade
theories adopted to the fast-changing nature of production process led to
enhancement of technological capability (Fischer, 2012).
The exporting firms which have superior technological capability, in the global
market can sheltered a better resources utilization by enhancing process innovation
and can achieve higher differentiation to the user in diverse market environment
(Yu, Richardson, 2015).
The firm’s export performance was the most widely studied and researched but
least understood and argumentative area in international marketing. The problem
302
among researchers was a different degree of conceptualization, operationalization,

and measurement of export performance constructs. Thus mostly, the conclusion
leads to inconsistency and conflicting results (Chitauro, 2021). In addition to this,
most of the studies focus on the internal/ organizational factors that affect export
rather than macro environmental factors. Therefore, in this research, liberalization,
privatization and globalization as a macro business environment which affect
the export performance of the Ethiopian manufacturing sector. Subsequently, the
influence of LPG on the export performance of the firm’s still unexploited area
of research.
Then, the way how to manage the dynamics of marketing environment, national
economic policy with respect to ownership structure of firm matters the success of
the business irrespective of the level of development. In this research, therefore,
investigate the effects of LPG as a multiple effect on international market
competitiveness and firm’s export performance with a particular interest in
privatized manufacturing firms in Ethiopia.
3. Hypothesis of the Study

Hence, national policy and international business environment make
organizational resources control and overall structural changes and make up of
firms, it’s necessary for firm’s international market competitiveness and export
performance. Given that, these opportunities are more likely to enhance firms export
performance. Then, the hypotheses of the study can be stated as:
H1: Firms Liberalization measures (Law and order, Incentive schemes, and trade
Openness) do not have a positive and significant effect on firm’s competitive
priority.
H2: Privatization measures (operational, organizational and structural measures) do
not have a positive and significant effect on the firm’s competitiveness priority.
H3: Globalization (Global market opportunity, global market threat and global
market uncertainty) does not have a positive and significant effect on firm’s
international competitiveness priority.
H4: Liberalization measures (Law and order, incentive schemes, and trade openness)
do not have a positive and significant effect on firm’s export performance.
H5: Privatization measures (operational, organizational and structural) do not have
positive and significant influences on firm’s export performance.
H6: Globalization (global market opportunity, global market threat, and global
market uncertainty) does not have a positive and significant effect on firm’s
export performance.
4. Research Methods
The researcher used a mixed research approach and data collected from 114 fully
privatized manufacturing enterprises with random proportional sampling techniques.
Those firms diverse in terms of their degree of production and marketing capacity,
level of economic strength, and competitiveness Foreign Policy, (2001, 2003),
303
(Sciences, 2014). The key informant technique Campbell et al., (2017) was used to
collect data. The total sample size was determined by using the sample size
determination formula developed by (Cochran, 1963). The total sample size for the
total number of firms included under investigation was calculated at 95% degree of
significance as, 114 firms proportionally. The unit of analysis in this research is the
manufacturing firms and primary data collected at the firm level.
4.1 Variables
Firm-level export performance studies, (Samiee, Chirapanda, 2019) use three
way categorization, that is economic (sales related, profit related, market share
related), non-economic (market related, product related and miscellaneous), and
generic measures (degree of satisfaction, perceived export success and degree to
which export objectives have been fulfilled). Other options are to divide (export)
performance in to the three dimension of effectiveness, efficiency, and adaptability
(Weinberg et al., 2001). The other sales-related measures, profit-related measures
(Chitauro, 2021). All these measures can be dignified either objectively or
subjectively, however, measuring export performance both objectively and
subjectively is preferable. The multidimensionality of the concept and the choices
for objective and subjective proxies clearly recur in this study. This entire factor
taken in to account the researcher identify the research variables as shown in
Table 1 below.
Table 1. Research Variables
No Expected
Research variables Indicators Label
items sign
Law and order LaO (-)
Liberalization Incentive schemes InsS (+)
Trade openness TrdO (+)
Ownership measure Om (-)
Independent
Privatization Structural measures Sm (-)
variables
Operational measures Om (+)
Global market opportunity GmO (+)
Globalization Global market threat GmT (-)
Global market uncertainty GmU (-)
Export
Esat
satisfaction
Subjective
Perceived
Measures
Predicted Export export PexpP
variables Performance success
Market share MakS
Objective
Financial
Measures FinPerf
performance
Cost CotP (-)
Mediating Competitive
variables Priority Flexibility FlxP (+)
Quality Quatp (+)
Firm age Fage (+)
Control variables
Management commitment MgtC (+)
Source: Author’s own calculations.
304
To establish the relationship between variables, structural equation modeling

(SEM) was used based on the assumption supported by the theory. Structural
equation modeling is a combination of factor analysis and linear regression (Monroe,
2020). It helps to justify the acceptance and rejection of proposed hypothesis by
analyzing Structure Equation modeling tries to justifying the acceptance or rejection
of proposed hypothesis by analyzing the direct effects and indirect effects of
mediators on the relationship of independent variable and dependent variable. The
unobserved factors were correlated with the explanatory variables in the model. To
achieve the structural equation modeling, this study applies a methodology used
in the previous research (Paiva et al., 2008). They recommended four-step data
analysis, which were (a) Testing the assumption of multivariate analysis,
(b) Carrying out an explanatory factor analysis (EFA) with Varmax rotation to
examine the underlining dimension of the liberalization, privatization and
globalization construct, (c) Appling confirmatory factor analysis (CFA) to test the
measurement model extracted, (d) measuring the relationship between variable.
To perform multivariate analysis, first expected to test the major assumption
related to sample size requirement, scale of measurement to the variables, normality,
multi-collinearity of data (Hair et al., 2012). Regarding the sample size, as suggested
by (Hair et al., 2012), adequate observation between 100 and 200, then in this
research the sample size taken was 114 which is in the acceptable range and fairly
adequate. The normality of the data measure based on the skewness and kurtosis
of the study variables that is within the acceptable range (+1), suggested by the
distribution symmetry (Paiva et al., 2008), (Egger, Walker, 2019). The correlation
among the variables were checked and found less than 0.9 which indicate there is
no multi-collinearity problem (Hair et al., 2012). Those basic assumptions of the
multivariate model were tested and ensured that there is no statistical violation to
perform the analysis.
5. Findings
As explained, privatized export-oriented firms taken for this study. The
descriptive study displays a summary statistic on the variables used, and the
manufacturing categories are as presented (Table 2).
Table 2. Descriptive Statistics
Types of manufacturing firms with respective categories
Valid Cumulative
Frequency Percent
Percent Percent
Food and Beverage Industries 50 43.9 43.9 43.9
Textile and wearing appeals 17 14.9 14.9 58.8
Chemical and chemical products 9 7.9 7.9 66.7
Nonmetal minerals manufacturing 11 9.6 9.6 76.3
Furniture and home Appliances 9 7.9 7.9 84.2
305
Types of manufacturing firms with respective categories

Valid Cumulative
Frequency Percent
Percent Percent
Tanning and dressing skins, leather
8 7.0 7.0 91.2
manufacturing
other, like batteries motor vehicles
10 8.8 8.8 100.0
bodies and rubber, plastic products
Total 114 100.0 100.0
From the table most of the cases, 50 from the food and beverage industries
and the textile and wearing appeals represent 17 out of the overall samples
respondents. These two types of manufacturing firms account for around
58.8% of the respondents in the study.
5.1 Exploratory factor analysis

To identify the dominant indicators as a requirement of the study, exploratory
factor analysis (EFA) was used. Exploratory factor analysis with Varmax
rotation was used because it helps to assess the unidiamintionality of the construct
(Psomas et al., 2013). Exploratory factor analysis analyzed interrelationship among
items on the measurement scale, and during the validation process, items with
a factor loading of less than 0.5 were deleted (Talib et al., 2013). The reliability
of the instruments was measured using the Cronbach’s alpha coefficient
(Posner, 2006). It is the most commonly used technique to measure internal
consistency or homogeneity of scale (Talib et al., 2013). The alpha value of each
factor were identified as Lib =0.890, Priv =0.882, Glob =0.863, ComPrio =0.889
and ExpPerf =0.819. These alpha value exceeded the minimum acceptable level
of standard set, which is 0.7 (Posner, 2006). The result is summarized in the
table below.
Table 3. Instrument Reliability
Cronbach’s Composite Average Variance
Rho. A
Alpha Reliability Extracted (AVE)
CompPrio 0.889 0.905 0.928 0.722
ExpPerf 0.819 0.921 0.939 0.755
Glob 0.863 0.912 0.944 0.850
Lib 0.890 0.915 0.931 0.772
Priv 0.882 0.947 0.958 0.852
306
In this study, the slow parsimonious normed fit index for evaluation of the
measurement model, during the estimation of the measurement model, an
examination of the modification indices and standardized residuals exposed an
opportunity for a better model fit. The convergent validity and discriminate validity
were establishing by using confirmatory factor analysis. Convergent validity
evaluated for the confirmatory factor analysis based on (1) factor loading (k), which
is factor loading of all indicators should be more than 0.5 to be acceptable, (2) with
regard to the composite reliability (CR), should exceed 0.70 and then (3) the average
variance extracted (AVE) by every construct should be greater than 0.50 (Hair et al.,
2012). The factor loading (k) for all value are were above 0.5, the composite
reliability (CR) of every factor greater than 0.7 and the average variance extracted
by every constructs is more than 0.5, which indicate a sound convergent validity of
model as shown table (3). CR is a favorable indicator of convergent validity,
considering the actual factor loading (k) instead of assuming that every item is fairly
weighted during composite load determination. Composite reliability of all latent
constructs is not within the acceptable limits but also exceed the benchmark of 0.7,
it indicates measure of latent constructs is internally consistent. Discriminate
validity of constructed measured based on the method designed by Fornell and
Larcker (1981), as proposes, the squared correlation between any two construct
should be less than the variance extracted by either of the individual constructs.
The KMO measures the sampling adequacy, which should be greater than 0.5 for
a satisfactory factor analysis to further process. A very close to 1 indicates that,
patterns of correlation are relatively compact, and so factor analysis yields distinct
and reliable. The acceptable value is greater than 0.5as acceptable, but value below
0.5 lead to more data collection or think about the variables, which will be included
in the model Kaiser (1974). However, values between 0.5 and 0.7 are good, but
values above 0.9 are excellent. For this data, the value of 0.882 indicate that, the data
is good, and then the factor analysis is appropriate. With respect to Bartlett Test of
sphericity, which measure the strength of relationship between variables, from the
data, it is significant associated with probability is less than 0.05 at a standard level
of significances. The test for these data is 0.000 less than 0.05; it shows the
significance of factor analysis.
Table 4. Correlation Matrix
CompPrio ExpPerf Glob Lib Priv
CompPrio 0.850
ExpPerf 0.168 0.869
Glob 0.077 0.717 0.922
Lib 0.653 0.097 0.038 0.879
Priv 0.923 0.923 0.923 0.923 0.923
307
5.2 Confirmatory factor analysis (CFA)

The structural model shows the relationship between constructs, and this
relationship helps to construct theoretical and logical reasoning. Logical
reasoning helps to for judging the structural model in which endogenous
variables determination coefficient (R2). Like multiple regression coefficient,
the model quality should be based on the path coefficient’s direction and
significance level (Chin, 1998).
The indigenous determination coefficient (R2) shows the level of latent
construct’s explained variances and measure the regression coefficient’s
goodness of fit against the empirically obtained manifest items (Backhouse et
al., 2003). The coefficient of determination is a normalized term that can have an
assumed value between 0 and 1. Structural analysis and the picture depicted
in fig (1) was present and helps to test hypotheses of the study and show the
influence of liberalization, privatization, globalization on competitive priority
and export performance. The figure laydown the projected standardized path
coefficient and the variance explained by the model. With regard to model fit,
statistical measures test the measurement model presented in table (5) similar
to the hypothesized model.
Table 5. Path Coefficient
Original Sample Standard T Statistics P
sample (O) Mean deviation (|O/STDEV|) Values
CompPrio -> expPerf 0.456 0.462 0.126 3.630 0.000
Glob -> CompPrio 0.198 0.198 0.072 2.733 0.007
Lib -> CompPrio 0.418 0.420 0.062 6.777 0.000
Lib -> expPerf 0.121 0.120 0.063 1.909 0.057
Priv -> CompPrio 0.446 0.447 0.077 5.804 0.000
Priv -> expPerf 0.402 0.401 0.116 3.473 0.001
The overall structural model depicted that, an acceptable fit for the data
and the model explained that 77.1% of the variances in the dependent
variable, export performance of manufacturing firms explained by the
detailed explanatory factors (LPG). The summery results of structural model
analysis are show the standard regression coefficient of structural parameters
that enable us to adopt on the validity of the hypothesis.
308
Figure 1. SEM
Source: Author’s own elaboration.
The individual path coefficients represent the standardized Beta coefficients

ensuring from the least-square method of estimation. In partial least square, goodness
of fit for path coefficient can tested by asymptotic t-statistics. Paths, which are
insignificant and contrary to the hypothesized direction, do not support rather paths
that show hypothesis direction, which is empirically support, the proposed
relationship between variables.
Table 6. Total effect
Original Sample Standard
T Statistics
Sample Mean Deviation P Values Decision
(|O/STDEV|)
(O) (M) (STDEV)
CompPrio -> expPerf 0.456 0.462 0.126 3.630 0.000 Rejected
Glob -> CompPrio 0.198 0.198 0.072 2.733 0.007 Rejected
Glob -> expPerf 0.090 0.089 0.037 2.410 0.016 Rejected
Lib -> CompPrio 0.418 0.420 0.062 6.777 0.000 Rejected
Lib -> expPerf 0.311 0.313 0.067 4.656 0.000 Rejected
Priv -> CompPrio 0.446 0.447 0.077 5.804 0.000 Rejected
Priv -> expPerf 0.606 0.610 0.068 8.879 0.000 Rejected
From the relationship shown in table (6) besides examining the coefficient of
determination (R2) indicators of all endogenous variables, the change in R 2 also
indicates whether an independent latent variable has considerable influence on the
dependent variables. Similarly, the outmoded partial F-Test, Cohen (1988), settled
the effect size f2. Contrarily to the F-test, the effect size f2 do not refer the sample at
all, rather, to the basic population of analysis, so that, no degree of freedom needs to
be considered.
309
6. Conclusions
The goal of this study is to look at the effects of dynamic macroeconomic
variables (liberalization, privatization, and globalization) on competitiveness and
export performance. Economic liberalization, the privatization of state-owned firms,
and globalization all have a positive and significant impact on a company's export
priority and performance. Economic liberalization, privatization, and globalization
have a favorable and considerable impact on competitive priorities (cost, flexibility,
and quality). International shoppers, on the other hand, are quality-conscious and
adaptable in their purchasing habits. Our findings suggest that in the current
globalization period, privatized exporting enterprises and countries with more
liberalized economies are significantly more likely to be satisfied in terms of export
satisfaction, market share, and profit.
Law and order, government incentive schemes, and general market openness all
play a role in the overall market performance in the international market. In
comparison to other incentive schemes, incentive schemes have the highest loading.
In the Ethiopian context, the global market opportunity, the global market threat, and
the global market uncertainty as indicators for global marketing, an opportunity
cannot be exploited due to fear of challenges, and data shows that manufacturing
firms in export are more affected by challenges than the benefit received from the
opportunity.
Acknowledgment
The researcher acknowledges Arba Minch University for their endless support.
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312

June 16-17, 2022
Growth of Developing Countries in Global Value Chains,

Focusing on Apparel Industry – A Literature Review
Armela ANAMALI1
DOI: 10.24789788367405072-028
Abstract
Trade liberalization and the economic openness of developing countries around the globe
have placed value chains at the centre of discussions on the international dimension. This
occurs in almost all value chains and their activities, from ancillary activities to the core
activities of firms. The forms of entering a destination country are conditioned by the firm’s
internal motivations, the socio-economic picture of the host country, the nature of the
industry, etc. The apparel manufacturing industry is one of the typical industries where
products are produced in international networks within GVCs. The main purpose of this
paper is to assess the level of integration of apparel manufacturing firms into global value
chains and their growth within them. Offshore outsourcing for Textile and Apparel Industry
(TAI) firms has as its main reasons the reduction of costs and the increase of efficiency. This
study provides a theoretical overview of the factors that promote (hinder) the improvement
of subcontractors within the global value chains in the clothing industry. The method used in
this paper focuses on a systematic review of existing literature and also excludes the
subjectivity of researchers while we have been pursuing the keyword literature.
Keywords: Offshore outsourcing, global value chains (GVCs), apparel industry, and
value chain improvement.
JEL Classification: D12, F63, L16.
1. Introduction
The global organization of chains is the construction of a system of successive
economic ties with other countries in the form of direct investments, joint ventures,
licensing for the production of products, outsourcing, etc. GVCs for the textile and
apparel manufacturing are costumer-led supply chains. The leading firms are clients,
such as retailers, manufacturers of well-known brands, and popular trademarks
(Gereffi, 2002). These clients coordinate global apparel manufacturing between
1 University “Aleksander Moisu”, Durrës, Albania, [email protected].
© 2022 A. Anamali, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
end-consumer markets and the industries of developing countries. These chains are
typically labour-intensive industries and are very important to developing countries
(for example, agro-food industry, footwear, furniture, and the like) (UNIDO, 2005).
The barriers that a country encounters to get involved in any GVC are based on
unique knowledge and skills that not everyone can acquire. This isolates competing
firms based solely on the price of the activity. In the apparel manufacturing GVCs,
the activities with the highest added value are design, branding, and marketing. All
of these activities are largely based on the knowledge that large clients have
(Kaplinsky, 2005). The conditions for the integration of a developing country in the
apparel GVCs are meeting the requirements of foreign customers in terms of quality,
production capacity, delivery time, compliance with various social and
environmental standards, distance, and tastes between developing countries and
major export markets. Many developing countries are hyping themselves as
destinations in certain industries based on their advantages, such as low-cost, skilled
labour force, or information technology infrastructure (Farrel, 2006; Popescu, 2010).
Small developing countries find it difficult to integrate into all GVCs. There are
several arguments related to this issue, such as: moment of inclusion, nature of global
demand, competitiveness, geographical proximity, priority sectors of the country's
economy, cultural differences, capacities, etc.
These last years have shown that globalization, seemingly an ideal integration
strategy for developed countries and especially those developing ones, turns out to
be a challenge. This is due to the problems that the young 10-year-old is manifesting
strongly. The COVID-19 pandemic and the stalemate that plagued global value
chains empowered the adaptation of communication and information technology to
the transformation of production processes, distribution systems, and sales
(Rodríguez-Sánchez et al., 2020). In addition, many articles are questioning the
phenomenon of globalization and the return of activities to their countries of origin
or near shoring. This is especially true for the manufacturing industry, as in the case
of the apparel industry. In the beginnings of this globally embraced strategy, toward
the integration of firms and countries into global value chains, it seemed as if the
benefits would be reciprocal for both developing and developed countries. The truth
is different. The World Development Report (WB, 2020), although promoting such
GVC participation as a development strategy for the latter, acknowledges that
purchasing firms in developed countries reap higher profits while supply firms
in developing countries are squeezed as a consequence of participation in GVC,
(WB, 2020).
Research Question
The apparel industry is one of the industries which have had a great expansion
under the trend of globalization. This is for a number of reasons which have been
elaborated on throughout the paper. At the same time, various studies show the
challenges that developing countries face in staying within the chain. The paper,
therefore, conducts an extensive review of the literature to answer a question that
314
arises today more than ever: “What makes developing countries successful within
the global value chains in the apparel industry?”
2. Methodology
The purpose of a research paper is to review or synthesize existing knowledge,
analyze existing circumstances or problems, provide a solution to problems, explore
and analyze more general issues, build or create procedures or systems, explain new
phenomena, and offer new knowledge or a combination of them (Collis, Hussey,
2003). The research methodology in this article consists of and has as a reference
source the literature review, related to the Apparel Industry as one of the typical
industries where the products are produced in international networks within the
GVCs. Studying the varied literature related to this industry has helped to build a
very clear summary of all the authors and the key issues that have been addressed in
our study. To achieve the main goal of this paper, the following objectives have been
set:
(i)theoretical overviews of the factors that drive (hinder) the improvement of
subcontractors within the global value chains in the apparel industry
(ii)forms of improvement within global value chains
(iii)potential links between domestic producers and foreign customers in
production networks
To provide a rigorous, transparent, and reproducible synthesis of the literature, in
this article, we have used the method called systematic review (Gomezelj, 2016).
The most appropriate and similar items to the purpose and objectives of our paper
were selected according to a process that allows the identification of existing
research to examine the value and relevance of the research topic (Becheikh et al.,
2006).
3. Growth within GVCs: transition to higher value-added activity

Growth within GVCs is a matter of importance for developing countries. The
growth of firms within them implies an increase in added value by domestic
production and economic growth for the country. According to (UNIDO, 2004;
Kaplinsky et al., 2002), improvement within the GVCs may occur in the following
ways:
- process improvement (addition of new product lines, reduction of faults,
shortening of delivery time, etc.);
- product improvement (quality improvement, introducing a new product on
time, etc.);
- functional improvement (increasing added value through a new combination
of activities within the firm or carrying out activities that require greater skills
and knowledge);
- cross-sectorimprovement (transition to market segments where products are more
technically sophisticated and have a higher added value).
315
Figure 1. Improvement forms within global value chains
Source: Adapted by Authors from the Fernandez-Stark, Bamber & Gereffi scheme (2011).
Textile and Apparel Industry (TAI) includes three basic operations: pre-packaging
(design, categorization, marking (brand marking) and cutting), packaging (sewing),
and post-packaging (advertising, distribution, and sales). All of these processes have
different ratios in terms of capital and labour. Pre-packaging represents the stage
requiring the highest capital intensity in the apparel sector, where quality and
precision are key elements of production (Abenarthy, Volpe, Weil, 2004). The
packaging phase in the apparel sector, no matter how modern the production process,
continues to be performed by hand work; thus this production phase is more likely
to be outsourced to low-cost countries.
Firms in the TAIs of developing countries are integrated within the GVCs
thanks to intensive work with a low level of knowledge. The activities with the
lowest value in the apparel GVCs are their production (CMT- cut, make, trim). In
these types of contracts, the customer is the supplier of raw materials and indirect
materials. The contract of outsourcers following their agreement signed with
clients defines: the production and distribution according to the client's request
and the fee on the performed service. The outsourcer is not responsible for any
activity other than those contracted. Upgrading outsourcers to CMT activities can
take place in three modes: process, product, or function.
Process improvement in apparel GVCs is achieved through the application of
new technologies or the reorganization of existing production systems. Technology
improvement occurs in most cases at the modelling or cutting stage. The sewing
process still remains a labour-intensive activity, although there are studies that
recognize process and product improvement thanks to technology transfer
(Humphrey, Schmitz, 2002).
Product improvement involves switching to higher value-added product lines,
which are more difficult to produce due to differences in technical characteristics
and materials used. The ability of the outsourcer to produce products with a higher
added value is strongly related to the level of improvement of the production
processes.
Improvement is functional when a business moves toward more complex tasks
within a GVC. Functional improvement refers to the transition to functions such as
product design, self-supply of raw materials, introduction to the market with its own
brand, and product marketing. Functional improvements come in several forms:
316
- Apart from production (CMT-cut, make, trim), performing direct procurement of

raw material or distribution of the produced product;
- ODM- original design manufacturing;
- OBM- original brand-name manufacturing.
Process or product improvement does not imply improvement within the GVC,
toward higher value-added activities. Process or product improvement is the
improvement that occurs within the same functional node (e.g., improvement of
cutting activities) and efficiency gains within that particular function (process
improvement), and/or the production of products with a higher value added within
the same product category (product improvement).
Firms in developing countries involved in global manufacturing networks and
GVCs (where TAI is often the number one industry) are expected to improve the
skills, knowledge, and technology used. All of the above factors are important to
improve productivity and business growth (UNIDO, 2004).
Functional improvement requires organizational changes, product distribution,
raw material procurement, etc. Functional improvement is directly related to the
capacity of the outsourcer (supply firm) to carry out more complex activities. The
role of the client in this regard is decisive, as it determines to what extent functions
are delegated to the outsourcer. Accomplishing functional improvement is also
related to the size of the domestic market.
An important factor in the improvement within the GVC is the nature of the
demand. If the outsourcing firm produces for low-income markets, the product is
standard, and the need for process/product improvement is low. Demand from high-
income countries is increasingly sophisticated, with a special emphasis on product
differentiation, quality standards, etc. The forms of development that emerge from
these different requirements (criteria) have a significant impact. The sophisticated
demand in high-income countries has increased entry barriers and favoured the
consolidation of GVCs.
In addition to the client, manufacturing firms play an important role within the
industry through the creation of clusters for the distribution of orders, technology,
knowledge, etc. Building sustainable inter-firm relationships within TAIs in
developing countries helps improve processes within firms. Moving further towards
a comprehensive approach that constitutes a comprehensive analysis (financial,
quality, profitability, competitiveness, etc.) of the activities carried out within the
GVCs enhances the information, awareness, and cooperation between them.
317
Figure 2. Link between domestic producers and foreign clients

in production networks
Source: Adapted and simplified by authors, according

to the Kaplinsky & Readman scheme (2000).
Both approaches, clustering of firms and integration within the chain, underline
the importance of improvement within the GVC. Improvement is a necessity in
staying competitive and growing in the market (Humphrey, Schmitz, 2002). The
pursuit of cluster-level strategies for improvement varies considerably by
circumstances and industry (Xiaofen, Renyong, 2006).
An important factor for a sustainable growth of firms in the toll manufacturing
industry is the environment where firms operate divided into two dimensions: the
general environment and the environment within the industry. The general
environment encompasses the political, legal, socio-cultural, technological,
demographic, global factors that can affect the activity of the firm. While the
competitive environment consists of other factors that affect the profitability of the
organization, such as customers, local market, business associations, other firms in
the industry, etc. (Miller, Dess, 1996).
Local and national initiatives (sometimes in collaboration with international
agencies) aim to improve skills in specific sectors and industries so that they can
meet the demands of international markets. Firm improvement comprises both
technology upgrades and free market access. Complementary efforts at the local and
national levels are needed to stimulate these two conditions (Humphrey, 2004).
Government incentives play a central role, including regulations on export
processing zone (EPZ)2, reduced profit tax rates, and subsidizing land rents,
buildings, and fees for other services (WB, 2011). Market distance (geographical
position) can serve the benefit of firms, delayed in integrating into global supply
chains, when they are closer than early-involved competitors.
2 EPZs are special zones that are isolated from the domestic economy. In these zones, investors are
not allowed, or only in a limited quantity, to supply domestic consumers as production is export-
oriented. EPZs are a legal framework for export production where governments typically offer a
package of incentives such as tax breaks, duty free imports, infrastructure provision, lower tariffs
for public utilities such as water and electricity, and land and factory subsidies (WB, 2011).
318
Lack of regional transport networks, poor quality, high costs, and common delays
hinder regional integration and impose significant additional costs that constrain
regional and international trade. Ideally, investments through a regional fund and
changes in regulations to improve intra-regional transport infrastructure and logistics
processes will be central preconditions for increasing regional trade in textiles and
apparel (WB, 2011).
Education remains a priority, both in terms of basic education for workers
employed in manufacturing firms, but also in improving firms throughout the value
chain. Education in vocational high schools and branches demanded by industry
increases the capacity of firms to move towards other activities.
Regional integration is important not only in relation to end markets, but also in
relation to regional production networks. This can increase added value within the
region and the competitiveness of the apparel sector. Timeliness and flexibility have
become central criteria in clients' decisions. Customers are increasingly hiring
vertically integrated suppliers or located in regions that have a competitive textile
sector. Greater access to low-cost financing is crucial in increasing the capacity of
re-exporting firms (WB, 2011).

The main reason for offshore outsourcing for firms in western TAIs is the
reduction of costs and the increase in efficiency. In summary, studies rank the main
factors of offshore outsourcing as follows (EMCC, 2008; CBI, 2014):
Costs in the destination country: Outsourcing to a specific destination starts
with estimating the level of costs such as labour costs, raw material costs, energy
costs; etc. The main item is labour costs due to the fact that the apparel industry is
labour-intensive.
Access to production factors in the destination country: The selection of
a destination is not only based on the level of costs, but also on the capabilities of
the supplying firms in the country in carrying out certain activities within the GVC.
The decision in most cases constitutes a competitive strategy for foreign clients
(ordering parties).
Timeliness and flexibility: Timely delivery and production flexibility have
become indispensable conditions for western firms in the apparel industry. Almost
all apparel market segments are increasingly shortening the product life cycle and
reducing the volume of quantity launched in the market. The ability to quickly
change the product confection process is critical to adapt to customer requirements.
Short distances: Countries near major markets are increasingly coming to the
forefront for western apparel companies. The main reasons are the launch of
the product as soon as possible, the reduction of transport costs, and the management
of GVCs with strategic providers in geographical proximity to western markets.
In the latest CBI study (2014), moving towards key market segments is a
particularly important element related to the decision on the company’s allocation.
Timely delivery (according to the just-in-time basis) favours business models
319
oriented towards a faster delivery where production is close to the main markets
in these segments.
The reconfiguration towards new styles and models has been accompanied by the
establishment of a reward for shorter distribution cycles, improved production
capabilities, and supply chain management, including apparel production and the
material supply and finishing process.
At a global level, buyers and intermediaries around the world are increasingly
turning to larger suppliers that can easily provide materials, coordinate distribution
(logistics), and foster creative development in countries that can allow faster
(shorter) cycles in distribution (Staritz, 2012). This has resulted in the consolidation
of the supply chain. Leading buyers have moved from the supply of many small, old-
fashioned firms - cutting, manufacturing and sewing structures to close relationships
with a small number of strategic providers, thus managing production between
multiple factories and international countries, sharing together financial liabilities,
providing greater value-added services and ultimately ensuring greater benefits from
the apparel and textile trade. These international networks also serve as an important
source of employment and manifest a variety of effects in the domestic labour
markets. This industry usually serves as a springboard for the industrialization of
developing countries with limited capital that are export-oriented, mainly due to
intensive work in production structures. As such, this industry, in particular the
apparel sector, is contributing to generating the necessary employment. Large clients
have moved from supplying very small, old-fashioned firms with traditional
activities (cutting and sewing), to close relationships with a small number of strategic
providers. The success or failure of offshore outsourcing is the timely response of
large customers, thus managing production between multiple factories and
international countries, sharing financial liability, providing greater value-added
services, and ultimately providing greater benefits from the apparel and textile trade.
5. Conclusions
Global value chains have expanded thanks to trade liberalization and advances
in communication and information technology. Foreign companies are choosing
to grow by doing less and outsourcing more. Researchers consider both services
and custom manufacturing activities within the GVCs, embodied in the value of
net exports of some industries in developing countries (textile and apparel
manufacturing industry, mineral extraction and fuel processing industry,
production of communication and information technology equipment, ICT services
industry, etc.).
The international services market today represents the fastest-growing segment
in the international market. It is also one of the few promising sectors in the global
economy, where a number of developing countries currently have a competitive
advantage (Suri, 2005). The revolution of trading services has brought about a
dramatic expansion of offshore outsourcing of services, allowing firms to take
advantage of lower production costs in foreign countries (Liu et al., 2011).
320
The improvement of companies in the apparel industry is limited due to the

improvement of production technology and the increase in produced quantity.
Despite the fact that companies have a relatively long experience in the apparel
industry, they still continue to carry out activities with low added value.
Not all developing countries have similar developmental characteristics. Small
countries under cost pressure can no longer continue to follow old strategies in
terms of low value-added activities, so they need to resize their industrial
development strategies.
States need to look at the new global conditions (post-COVID-19), as firms are
increasingly accepting near shoring as a potential strategy for carrying out
production chain activities. This is due to new restrictions and rising costs.
Today, ICT and process automation are at the heart of global value chains. The
tailoring industry, although characterized as a labour-intensive industry, does not
rule out the possibility (especially in small developing countries) of seeking
improvement within the chains through the improvement of the technological
infrastructure.
Limitations of the Study

The objective indicators are the financial data of the firms, which are missing in
this study. Analysis of financial data, combined with other factors, can yield new
and more consistent results.
Another important constraint or outcome would be to assess the degree of
integration of apparel firms into global value chains and the growth within them
during the COVID-19 period. Analysis and results during the pandemic years may
be part of further research.
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322

June 16-17, 2022
Digital Strategies’ Use

in Lebanese Pharmaceutical Companies
Layal HAMADE1
DOI: 10.24789788367405072-029
Abstract
Digitalization is inclining as a communication tool between various parties. However, its
use by pharmaceutical companies is limited and a restricted number of countries apply
digital strategies in pharmaceuticals. The objective of this research is to study the Lebanese
pharmaceutical companies’ perception of the use of digital strategies, and the impact on
margins and relationship with clients. To achieve the study purpose, a qualitative study is
conducted by interviewing 14 respondents from 14 pharmaceutical companies, local and
multinational. The results showed that pharmaceuticals mainly use email marketing,
WhatsApp, web conferences, and social media marketing. However, pitfalls exist, including
employee’s and client’s resistance and legal restrictions. Additionally, the results revealed
that pharmaceuticals support the use of digital tools as they can improve the relationship
with physicians and enhance their sales margins.
Keywords: Pharmaceutical, digital, marketing, physicians, communication.
JEL Classification: M31.
1. Introduction
The expression "digital marketing" has recently advanced from a particular term
portraying the marketing of items, through the use of digital tools, to a broader word
illustrating the process towards utilizing digital innovations. It is used to attract
clients through accessing customers' needs, market products and services,
maintaining long-lasting relationship with customers, and enhancing sales (Kannan,
Li, 2017).
The use of digital communication channels in drugs has been restricted because
of healthcare professionals’ and staffs’ refusal to accept change and the limitations
forced by regulation particularly in Lebanon (Parekh, Kapapura, 2016). The
adjustment of the marketing position itself is mandatory due to the constraints and
crises that affected it like cost expansion, financial slumps, expanded joblessness,
1 Bucharest University of Economic Studies, Beirut, Lebanon, [email protected].
© 2022 L. Hamade, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
and organizations' cutting back. These reasons shed light on the importance of
exploiting digitalization to ease and coordinate pharmaceutical work, upgrade
their communication with their clients, decline their costs, and accomplishing
patient fulfilment with the serious rivalry the Lebanese market is confronting (Bala,
Verma, 2018).
Although extensive data is available supporting the use of digitalization in
pharmaceuticals; however, limited data and research is available in Lebanon. The
purpose of this study is to investigate the opinion of Lebanese pharmaceuticals
about the use of digital tools and its impact on sales margins and the relationship
with clients. This research will highlight the importance of digitalization for
pharmaceuticals to differentiate themselves and maintain their growth.
e-Detailing
e-Detailing Definition and Characterization
The expanded use of the web among individuals making it easier for healthcare
communication and interaction by various touch points between doctors,
pharmaceutical representatives, hospitals, and pharmaceutical organizations is called
e-Detailing (Vijayabanu et al., 2018). Another definition, according to Banerjee and
Dash (2011), e-detailing is characterized as the utilization of the online channel and
data innovation to promote pharmaceutical items. It is the use of the Web as the way
of communicating pharmaceutical products to doctors.
Most pharmaceutical officials see e-detailing as a key way to improve
pharmaceutical representatives' traditional way of marketing; however, there is solid
understanding among doctors that e-detailing will never displace conventional
detailing (Alkhateeb, Doucette, 2009).
Types of e-Detailing
Virtual/Interactive e-detailing: Virtual e-detailing is an online system used for
detailing products that doctors can access anytime. It is composed of product data
regarding side effects, symptoms, diagnostic analysis, and case studies. The aim is
to assist doctors with going through the data whenever it may suit them. In the end,
physicians can emphasize their needs as far as free product samples, pharmaceutical
representative visit, most recent publications, test reports, and so on (Banerjee, Dash,
2011). Regarding the duration of virtual e-detailing, it is set to be four to eight
minutes by Alkhateeb and Doucette (2009), 10 minutes by Montoya (2008),
5-15 minutes by Trucco and Amirkhanova (2006).
Video e-detailing is characterized as face-to-face computer-based video
conferencing between a doctor and a pharmaceutical representative. Physicians
conduct video conferencing using a preconfigured and preloaded PC and web cam
(Banerjee, Dash, 2011). This permits the representation and introduction of the
required data in a fast and helpful manner. Moreover, specialists can plan the
gathering whenever the timing is ideal and be in charge of span. A visit of this sort,
as a rule, goes on for around 10 minutes (Balkanski, Getov, 2019). This framework
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encourages doctors to pose inquiries and may explain questions with the assistance
of the Web interaction (Banerjee, Dash, 2011). According to AlKhateeb and
Doucette (2009), this type of e-detailing is shown to be most effective with
physicians who live in rural areas or physicians who cannot see pharmaceutical
representatives at their clinics.
E-detailing by portal for physicians: These are entrances which are accessible
to specialists and can be utilized to indicate the product details to the specialists and,
furthermore, provide sponsorship promotion of the item. Instances of such entries
are Doctors.net.uk, detaildirect.com, and ommedica.net (Vijayabanu et al., 2018).
This gateway gives information with respect to the time spent by doctors, their Web
propensities, and areas of interests (Nalini et al., 2017).
Scripted e-detailing: Doctors can see an arrangement of intelligent sessions
through the Web and intranet. They cannot have an immediate collaboration, yet
they can contact through email or phone (Nalini et al., 2017). The specialist and
pharmaceutical representative converse with one another on the telephone or through
Internet-based phone lines (IP phones) and peruse web-based data at the same time.
The visual association is missing, which renders the strategy to some degree less
customized than the past one (Balkanski, Getov, 2019).
Advantages of e-Detailing
According to IMS Health (2015), 3.2% of the absolute pharmaceutical industry
investments in 2014 were in the digital promotional tools, while 59% of it was in
e-detailing. In spite of the solid development rate (+37,2% from 2013 to 2014),
e-detailing is as yet a negligible advancement instrument. In information distributed
as to year 2015, IMS Health (2016) reveals that digital channels weight expanded to
3,8%, expanding 15% from 2014.
The main reasons behind the adoption of e-detailing are its convenience and ease
of use, its time saving benefit, its synergism with traditional detailing tool, and its
compatible quality and quantity of information (AlKhateeb, Doucette, 2009). In
addition, Gonul and Carter (2010) stated that the use of e-detailing by physicians and
pharmaceuticals allows them to connect at a convenient time and time span for both
parties. On the other hand, Trucco and Amirkhanova (2006) state that e-detailing, a
cost-effective communication tool, assists pharmaceuticals in product launching. It
has the ability to communicate with hard-to-reach physicians and has a synergistic
effect with traditional detailing. This assists in filling physicians’ free time at their
convenience and in post-launching stages through re-positioning products,
especially for physicians who work in distinct areas. In addition, Montoya (2008)
proposes that e-detailing enhances the time efficiency of pharmaceutical
representatives, decreases the cost of using traditional detailing tool, and positively
impacts the prescribing behaviour of physicians.
QuintilesIMS (2016) addresses the several benefits of e-detailing stated by UK
and Spanish physicians. Their study shows that these benefits include the ease to
organize appointments, its suitability and convenience to fit in physicians’ daily
schedule, its time-saving characteristic, and the advantage of downloading
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information necessary to keep physicians updated. Balkanski and Getov (2019) state
that e-detailing provides the advantages of low cost per visit, greater customer reach
especially for physicians with limited access, extensive organized data available for
specialists, synergist effect with detailing strategy, higher acceptance by physicians
due to its flexibility and customization, and faster access to data.
e-Sampling
By definition, e-sampling is an online strategy used by specialists to order
samples online through filling a form using their laptops, computers, or mobiles
(Kumar, Panigrahi, 2014). The change to e-sampling has transformed the process of
sampling delivery to physicians, where physicians embed their sample demand
through contacting the manufacturer (Puschmann, Alt, 2001). Moreover, they can
contact drug organizations' sites and pharmaceutical representatives, which in return
will have the chance to check the physicians’ product preferences and customize
their messages when detailing with physicians to understand the need behind the
drug sample (Kumar, Panigrahi, 2014).
e-Mail Marketing
When you send a business message by email to a rundown of potential clients,
the procedure is called Email Marketing. Email marketing incorporates conveying
mass messages with promoted materials, distributing and circulating electronic
newsletters, distance education, and other promotional messages by means of email.
Mass messages are the most prevalent type of email marketing. The issue with this
type of advertising is the potential to have your messages seen as spam. This is
probably going to happen on the off chance that you send your messages to
beneficiaries who have no enthusiasm for your items or benefits and have not
communicated enthusiasm for getting messages from you (Venugopal et al., 2012).
E-newsletters are created to attract and maintain loyal customers by sending them
updated information once a month about the company products, events, and offers
(Schwarzl, Grabowska, 2015). E-newsletters can be a basic or as complex as you
normally like and might incorporate content, designs, commercials, links, or any
blend of these components (Wright, Bolfing, 2001).
Distance courses offered by email is the last email marketing tool to talk about.
These courses might be either offered for an expense and transform into an earning
source, or they might be made accessible for nothing. The hypothesis behind offering
these courses for nothing is that they frequently contain unobtrusive promotion
asking guests to put resources into the items and services offered by your business.
Regardless of whether you charge for your email correspondence courses or offer
them for nothing, care should be taken to guarantee that the data contained in these
courses is totally precise (Venugopal et al., 2012).
Moreover, E-mail marketing is a promotional tool used by pharmaceuticals to
send medical and promotional information to doctors through using physicians’
email list that pharmaceuticals have collected and available in their database or
through referring to third parties as healthcare portals (ZS, 2014). According to
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Jawaid and Ahmed (2018), a study done on 718 physicians shows that when they
seek to update their medical information, only 4.59% of the participants use
marketing emails. Furthermore, marketing emails are the least to affect the clinical
practice and prescription behaviour of physicians with only 8% considering emails
as influential.
e-Continuing Medical Education (e-CME)

Likewise, another marketing communication tool available to pharmaceutical
companies to promote their products is electronic continuing medical education, or
e-CME. Webinars that are live and interactive chat tools such as presentations, talks,
classes, and workshops sent over the Internet are considered one of the types to
provide e-CME to physicians (Buxton et al., 2012). According to Wutoh et al.
(2004), web-based CME has been shown to be as effective as traditional CME in
providing physicians with the necessary information to maintain their knowledge
level and professionalism.

As pharmaceuticals are facing the new trend of digitalization and as digital
strategies are not applied in most countries including Lebanon, the aim of this
research is identifying what digital tools are used by pharmaceuticals and its effect
on their clients. Research questions to be investigated:
• What is the perception of Lebanese pharmaceuticals regarding the use of digital
tools to communicate with clients?
• Do digital strategies affect the pharmaceutical companies’ margins/sales
performance?
• Does the use of digital marketing tools affect the building and maintaining of
a relationship with physicians?
4. Research Methods
Qualitative research through in-depth, face-to-face, semi-structured interviews
with pharmaceutical marketing managers were conducted between February 2021
and April 2021. The sampling method was non-probability sampling that included
14 companies divided equally between local (SADCO, Benta Pharma Industries
(BPI), Codipha, Omnipharma, UPO, Arwan Pharmaceuticals, and Pharmamed) and
multinational companies (Sandoz, Pfizer, AstraZeneca, Novartis, Eli Lilly, Sanofi,
and Procter & Gamble). 14 respondents, one from each company, answered open-
ended questions, and each interview took 20-30 minutes. Content analysis was the
method used to analyse data collected.
5. Findings
RQ1: What is the perception of Lebanese pharmaceuticals regarding the use of
digital tools to communicate with clients?
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In Lebanon, pharmaceuticals are not adopting e-detailing, e-sampling, and

e-DTCA (Table 1). E-DTC is used by Lebanese nutraceutical products only, and
social media marketing is adopted to build awareness about the company in general
and stay engaged with customers rather than marketing pharmaceutical products,
as law regulation forbids such acts. On the other hand, pharmaceuticals focus mainly
on their sales personnel to communicate with physicians and pharmacists.
Table 1. Type of Digital Channel Used by Lebanese Pharmaceuticals

Type of digital channel Number of Respondents
E-detailing 0
Email marketing 14
Web conferencing 14
WhatsApp 14
E-sampling 0
E-DTCA 0
Social media marketing 14
Source: Generated by Author.
The use of digital channels to communicate with healthcare practitioners has

some advantages and disadvantages. According to respondents, the main advantages
of digital tools are that it fits better the schedule, saves time, and can be used as a
complement to face-to-face discussion. On the other hand, the main disadvantages
include healthcare practitioners and employees’ resistance to adopt new technology
(Table 2).
Table 2. The Advantages and Disadvantages of Digital Channels

Digital Channel Advantages Number of Respondents
Better fits in the schedule 13
Saves time 12
Discussion at ease at home 5
More educational 3
Easier to ask questions 7
Freedom to speak what’s in mind 8
Complements face-to-face discussion 14
Digital Channel Disadvantages
Mistrust information 2
Employees resistance to use 9
Clients resistance to use 11
Legal restrictions 14
Increase in marketing cost 7
Lebanese pharmaceuticals use digital tools for several reasons. Although they do
not adopt e-detailing and e-sampling; however, most of them believe that such
strategies will help them communicate with clients in rural area, record data, and
promote their products (Table 3).
328
Table 3. Use of Digital Tools

Web
Email WhatsApp e-Detailing e-Sampling
Conferences
Send
12 - - - -
announcements
Taking
10 14 - - -
appointments
CME credits - - - - 14
Alternative to
traditional - - - - 14
conferences
Send reminders 12 14 - - -
Check
- 14 - - -
availability
Send
promotional - - 14 - -
messages
Communicate
with clients in - - 14 11 -
rural areas
Recording - - 12 14 -
RQ2: Do digital strategies affect the pharmaceutical companies’ margins/sales

performance?
Lebanese pharmaceuticals use IMS (Innovative Medical solutions) to access their
products’ sales data versus competitors. Additionally, IMS provides pharmaceuticals
with sales per Lebanese region. To access the impact of digital tools,
pharmaceuticals check their sales and market share before and after the adoption of
any innovative or new way of marketing communication. Table 4 represents the
pharmaceutical opinion on the effect of digitalization on sales margins.
Table 4. Digital Tool Impact on Margins/Sales Performance
Respondent Impact on margins/sales performance
12 Positive impact
0 Negative impact
2 No change
RQ3: Does the use of digital marketing tools affect building and maintaining
relationship with physicians?
Table 5. Digital Tool Impact on Clients’ Relationship
Respondents Impact on Clients’ Relationship
14 Positive impact
0 Negative impact
0 No chance
329
The more the contact points with clients are enhanced, the better the end result.
Compared to the implementation of traditional tools, digital marketing improved the
relationship with physicians (Table 5). The continuous contact with them improved
the profit margin due to the long-term relationship with various clients. E-detailing
can be a promising tool to engage with clients on a continuous basis and to prolong
the relationship with pharmacists and physicians. Thus, overcoming any barrier,
whether economic, social, or environmental.
6. Conclusion
The main communication strategy used by Lebanese pharmaceuticals to
communicate with physicians is personal selling. Adding to this traditional way of
marketing, email marketing, WhatsApp, web conferences, and social media are
adopted. However, as online marketing for medications is prohibited in Lebanon
(Haddad, Salem, 2013), social media is only used to build awareness about the
company. Despite that a lot advantages go along with digital use; from fitting work
schedules to its synergistic effect with pharmaceutical representatives’ visits;
however, barriers exist that limit the use of digitalization. The main barrier is clients’
and employees’ resistance to adopt a new way of communication.
Lebanese pharmaceuticals expressed their opinion that e-detailing and e-
sampling can assist in communicating their promotional messages to their clients,
especially those in rural areas. Moreover, the attempt to use digitization helps in
building a long-term relationship with physicians due to contacting them through
several tools according to their convenience and thus improving pharmaceuticals’
margins. Thus, adoption of digital tools to communicate with healthcare practitioners
can increase sales and build and maintain relationships with clients.
Limitations for this research exist. More pharmaceutical companies should be
interviewed, and to complement this qualitative approach, a survey targeting
healthcare practitioners should be analysed quantitatively to access their opinion in
adopting digitalization. Furthermore, the COVID-19 and the Lebanese economic and
social situation can affect research results and raise the question whether companies
and staff are willing to keep on using digitalization when face-to-face interaction
becomes easier to apply.
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332

June 16-17, 2022
Triggering Factors for Engaging Consumers as Key Players

in the Economic System in the Zero-carbon Global Economy
Anișoara MIRCEA (NEIS)1*, Adrian TANȚĂU2
DOI: 10.24789788367405072-030
Abstract
The fact that the world has become aware of climate change and that once temperatures
rise above a certain level there is no way back to normal has not been a success for
politicians, academics, or scientists. The current article explores the triggering factors
which enable the involvement of final consumers as main actors of the economic system to
the zero-carbon global economy. This study is intended to capture, analyze and present
results on the perceptions of ordinary citizens on what they know and can do about climate
change. Today, scientific literature exists, plenty of business studies or high education
programs related to zero-carbon economy. Mainly, the companies are guided about the
steps to follow to measure the Corporate Carbon Footprint, the Product Carbon Footprint,
climate reporting, and the path to become climate neutral, reduce or avoid their emissions.
The method foreseen is based on questionnaire. The main research question is how we should
address each citizen as a final consumer to concentrate on the energy saving measures,
energy efficiency, self-supply of green energy, own carbon footprint, advantages,
disadvantages, and financing possibilities in the region/area where he lives. The results
show that incorporating the carbon neutral principle in formal and adult education,
presenting the regional specifics and the local strategy, providing easy-to-use carbon
emission tools, communicating on transparent platforms, the technologies, financing
facilities are factors which may have a higher impact on consumers, encourage and motivate
people to participate in climate protection. The findings of the study contribute to the
understanding of main factors that influence the consumers to reduce their impact on climate
change and contribute to a zero-carbon global economy.
Keywords: carbon footprint, climate change, final customer, global warming, green
energy, net-zero carbon economy, sustainable products and services.
JEL Classification: D12, E91, Q01, Q42.

© 2022 A. Mircea (Neis), A. Tanțău, published by Sciendo. This work is licensed under the Creative Commons
1. Introduction
Our society's biggest challenge to stop the global warming caused mainly by the
increase of the carbon dioxide levels is amplified these days by the war in Europe
having the consequence of increased prices of the energy, food limitations in poor
countries, and redirecting funds for military expenses. If focusing on sustainable
energy consumption used to be an abstract fancy requirement, the actual crisis in
Ukraine shows us that it is even economically a must to go for green energy, with all
its positive consequences.
Considering the “Habit 2: Begin With The End In Mind” (Covey, 1989), which
says “to determine the projection in the future on what is considered to be the final
expectation”, it is in our perspective that the final-customer will mainly choose to
use and invest with priority in sustainable energy and in any kind of products and
services produced sustainable if we want to stop the global warming.
This is the reason to choose as the main objective for this article to identify if the
final customer has the knowledge (education) and the instruments to be able to
become one of the main actors in our ambitious net-zero carbon global economy.
The idea for this research came from a practical situation: the challenge of
installing a new heating system for a renovated house in Romania. Being confronted
with a variety of offers for different products or installation services, the questions
arose: where to start, what really suits the house in this region, where to get this
information, who can advise which is the best option from an economic and
sustainable point of view? The problem is whether it is an individual question or
much more general and usually concerns the end customers.
Looking at the existing regulation, checking the literature, and a plenty of studies,
they conducted to the conclusion that the companies and countries are the ones
addressed to measure the Corporate Carbon Footprint, the Product Carbon Footprint,
provide climate reporting and the path to become climate neutral, reduce or avoid
their emissions. The main regulations and protocols are referring to the companies
and countries: the Kyoto Protocol (1997) which encourage both countries and private
companies to reduce emissions; the Paris Agreement (United Nations Climate
Change, 2015) which aims to limit the rise in global temperatures below 1.5°C and
defines how countries submit their plans for climate action known as nationally
determined contributions (NDCs) and the long-term low greenhouse gas emission
development strategies (LT-LEDS)).
The end customer, the ordinary citizen, is not directly involved in defining this
process or deciding which path to take.
Certainly, politicians are supposed to represent him, and they in turn work to
enact regulations and control their application; companies are the ones that offer
sustainable products and services, banks and financial organisations that ensure
funding, and so on. But citizens are nowhere directly involved. Do citizens feel that
334
they are well educated/informed/prepared to choose sustainable products and

services? Such a dilemma is what the current paper will try to bring to light.
There are complex studies and the analysis of some related to the final consumer
revealed technical concepts such as "Consumer Behaviour in the Electricity Field",
which analyses behavioural on energy consumption (Tantau et al., 2021),
sociological ones like “relation between the cultural dimensions of Hofstede's model
and the consumption of renewable energies” placing emphasis on cultural
characteristics and the need to define renewable energy projects based on cultural
values of the customers (Pelau, Pop, 2018). Some authors “recognise the need for
the scientific community, conservation practitioners, and climate change advocators
to combine objective with subjective arguments to overcome their barrier of
engaging people with climate change” (Gallardo et al., 2017) and others state that
“Knowledge isn’t only power” but can also mean survival when it comes to climate
change (Rood, 2022).
Back to the question: Why do people not want to act to protect nature and the
future of their children? A look at Maslow's motivational model (McLeod, 2018)
shows that the people with the main deficiency needs fulfilled will be less motivated
to act, while the ones where the self-actualization needs are reached are the ones
ready to proceed in a sustainable way. Remaining within the psychological
perspective, the study of Walsh (2011) where his model conducts to values chain
framework redefinition to consider that “self-actualization and sustainable
development are one and the same”.
Education is one of the main self-actualization needs, a reason why we will cite
the study from Australia: “Education for sustainability in business education
programs: a question of value” (Sidiropoulos, 2014), which provides a very good
analysis of the importance of sustainability in the tertiary business education system.
In the fourth chapter of her research paper, Prof. Sidiropoulos presents the gradual
inclusion of sustainability topics in Economics with the effect on the environment
and society, in Marketing and the importance of creating green products, creating
brand image and brand value based on ethical behaviour and the importance of
volunteering activities and “doing good” for the community and the environment.
We have identified psychological and sociological models, technical concepts
and projects, the importance of education, but a concept of how exactly the final
consumer/citizen is directly involved in sustainable activities is not easily found in
the consulted studies.
The need for education in the sense of sustainable development was identified,
but only for a small group of consumers, i.e. those participating in some form of
education (Ntona et al., 2015).

The current paper serves to get a first overview of what ordinary citizens know
about sustainable products or services, their carbon footprint, or the reasons why we
should take action against global warming. The survey used was not designed to be
100% scientific, and the degree of representativeness is not necessarily significant.
335
The questionnaire is not intended to be answered by people who are qualified in the
field of sustainable and/or green energy. What is the questionnaire and its results? It
is an x-ray of what people in our local area think about the carbon footprint, green
energy, and related education, climate change mitigation/adaption or carbon
emissions. We believe the answers are just a starting point for our future work to
understand the reasons why end-users are not adopting new sustainable technologies.
Surely, the next steps will be research papers, which will bring much more scientific
and solid documentation to find motivational factors for each of us as end consumers
to think and act sustainably.
Our world today is working more and more with modern concepts like people-
planet-profit, and there is a move away from separation, competition and conflict,
which are being replaced by unity, connection, and collaboration. The best example
of unity, connection, and collaboration comes from the IT sector and is the way
companies have started to work with Microsoft 365, where everything is in the cloud,
everyone participates in projects, is connected online from anywhere via the Internet
and contributes to the projects they are involved in.
The main research question is what pain points we should approach in order to
identify the triggers that can be used to encourage and motivate every citizen in their
role as end consumer to participate in climate protection and achieve a zero-net
carbon target.
The hypotheses we started from are:
(1) If people are better educated, then they know a lot more about climate, carbon
footprint, global warming, and what they should do to prevent it.
(2) If people live in urban areas, then they have more access to information and
will do more to protect the climate.
(3) If there is a defined strategy at central/local level, then residents will try to
follow it and contribute to climate protection.
4. Research Methods
The research method is the survey method, a quantitative research method
for data collection.
The instrument of the survey method is the online questionnaire with
21 questions, 10 of them are closed-ended questions, 10 mixed, and the last one
is an open-ended question. The addressed questions are structured on following
categories: 11 multiple choice questions, 8 rating scale questions, 15-point Likert
scale question and one final open question used to collect critic or missing ideas.
To obtain responses to the questionnaire, the target group is 150 people and the
collection data method used is a combination of “snowball sampling” and
"haphazard sampling”.
We chose this method because the questionnaire is a quick, efficient, and
inexpensive way to collect large amounts of information from many people. The
respondents can answer whenever they find time, they are not bound by a time limit,
but a major disadvantage is that they can postpone or forget to answer.
336
5. Findings
Even though the number of the respondents was quite small (31), they are
represented mainly by high educated people (90% bachelor, master, or PhD). There
are 52% women and 48% men in the majority from Europe (58% East and central
Europe, 36% from West Europe). From the age perspective, we had 48% in the
category 31-45 years, 39% in the category 46-59 years, 10% are 18-30 years old, and
3% from the category over 60.
We did a correlation between the answers provided by the respondents by
different questions to identify and comment on the validation or invalidation of the
hypothesis we wanted to check.
(1) If humans are better educated then they should know a lot more about climate,
carbon footprint, global warming and what they should do to prevent it
This hypothesis was invalidated as the respondents, even they are identifying the
main reasons for climate change (Figure 1), they do not know how to calculate their
carbon footprint (71% - Figure 3); the participants identify as one of main reasons
for climate change the transport and vehicles, but they continue to commute mainly
by car from one location to other (74%). For sure, it can be determined by a bad
infrastructure, but without having any measurements tools for the final consumers
are the consequences not tangible. It is important to note that end-users did not rank
electricity generation among the top 5 causes of climate change, even though we use
the most fossil fuels to generate electricity.
Figure 1. Climate Change reasons identified by questionnaire participants
Source: Graph produced with Google Forms (not editable).
337
Figure 2. Transportation used by respondents
Figure 3. Carbon footprint impact

12. Do you know/use any tool to measure your/your
family carbon footprint?
I don't know
Yes 6%
23%
No
71%
Source: Graph produced with Excel based on the answers of the participants.
(2) If people live in urban areas, then they have more access to information and
will do more to protect the climate
The invalidated hypothesis as shown in Figure 4 shows that people in small towns
or in the countryside use hybrid electricity most often, even if they do not know the
climate protection strategy of the local authorities.
People in big cities are partly aware of their cities' strategy, but use hybrid
electricity less.
338
Figure 4. Corelation strategy awareness versus home area of the participants
(3) If there is a defined strategy at the central/local level, then residents will try
to follow it.
Validated hypothesis just in case the strategy is properly communicated. This is
visible in the answers the participants were giving to the question where people
should the people learn about climate change and protection (Figure 5). Traditional
education systems, local authorities, and free of charge learning platforms are in top
as strong agreement. Interesting is the information that people are not expecting
climate protection to be legally enforced, and even more clear is the importance the
people are giving to non-profit organizations and universities (24 answers having
strong and agree selected).
Figure 5. Learning sources related climate change and protection
339
Figure 6. Legend in the order of appearance (from left to right)
In Figure 7 we observe that 38,7% of the final consumers are aware of the
advantages of sustainable energy, 25,8% see the important role of the financial help
from the authorities, and there is a 22,6% regulation need when it comes to
installation of sustainable technologies.
It can be concluded that the final customer expects a certain control of installed
technologies so that people do not buy inefficient solutions, even though they are
green because this would be a costly and inefficient investment for all parties in the
medium and long term. The same conclusion comes from related incentives which
the people are interested to obtain (depending on the defined strategy).
Figure 7. Climate protection technologies
6. Conclusions
Communication should be appropriate and tailored to each type of consumer, and
there should be programmes that are better presented and aligned with local,
regional, or country strategies. It is not enough to educate people and communicate
them the strategy if there is no visibility of what it brings for them. Important is to
target people who have an impact on carbon emissions (it will not be the same to talk
about electricity savings with the shepherd who uses a lamp or with an end-consumer
having a fully digitised house).
340
The return on investment, the advantages, and disadvantages of switching to

sustainable energy, but especially the consequences of not doing so, should be
presented to people, especially those who have the financial resources to decide to
make investments in sustainable energy.
It does not matter the level of training, the area/region, the level of salary of the
final consumer, the important thing is that everyone can participate according to their
power, eventually on a voluntary basis for the ones with reduced revenues.
Important is to give the people the instruments to measure their carbon
footprint, to have the platforms to monitor and compare their results with similar
end-consumers in the same or different regions, and to teach/educate them to use
all these tools.
It must add value to the life of the final consumer. To have accurate and complete
information on all aspects involved (activities to be done, professionals and
regulation authorities that can be contacted, advantages, and disadvantages of
switching to sustainable energy, the impacts and savings produced, and positive and
negative consequences).
Universities and non-profit organizations are expected to play a big role in this
information and communication process.
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https://unfccc.int/resource/docs/convkp/kpeng.pdf.
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dreamers/docs/Maslows-Hierarchy-of-Needs.pdf.
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sciencedirect.com/science/article/pii/S1364032115001215.
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between the cultural dimensions of Hofstede's model and the consumption of renewable
energies, Energy Policy, 2018, pp.160-168, ISSN 0301-4215, https://doi.org/10.1016/
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342

June 16-17, 2022
Investigating Environmental Awareness of Young Adults

in Romania
Cristina-Andreea NICOLAE1, Mihai Ioan ROȘCA2*
DOI: 10.24789788367405072-031
Abstract
Nowadays, sustainable living is not an option anymore, but an obligation. The green
industry, consisting of eco-friendly products and services, has evolved significantly in recent
years. As a result, green consumer behaviour has received considerable attention from
companies, marketers, and researchers. Many consumer studies have confirmed that the
majority of people are aware of environmental problems and their interest in green products
has increased. The popularity of this topic in today’s society is a consequence of changing
consumer habits, increased ecological awareness, and the shifting state of the environment
in the pandemic context. Therefore, the main goal of this paper is to highlight and analyse
Romanian consumers’ attitudes towards the environment and their green buying behaviour.
The article explores the importance of environmental protection for respondents and
investigates their ecological behaviour, focusing on the consumption and buying of green
products. The paper also discusses how consumers perceive the price of organic products.
The main variables analysed are socio-demographic characteristics of respondents,
including gender, level of income, and education. In terms of age, this study focuses on
Romanian consumers aged 18 to 35 years. In total, data were obtained from 472 respondents,
through a convenience sample. An online survey was promoted on social media channels and
email. Data analysis revealed that women and families with children are more likely to buy
green products. We hope that this research can foster the growth of green marketing efforts
in the Romanian context. The findings presented offer practical insights for market
segmentation approaches and educational initiatives that can encourage local demand for
green products and increase the environmental responsibility of Romanian citizens.
Keywords: green products, sustainability, environmental protection, green

marketing, consumer behaviour.
JEL Classification: M31, Q56.
1
© 2022 C.-A. Nicolae, M.I. Roșca, Initial First Name, Last Name, published by Sciendo. This work is licensed under
1. Introduction
During the 1990s, considered the “Earth decade” (McDaniel and Rylander, 1993,
p. 4), people started to question the impact of their consumption habits on the
environment. As this preoccupation intensified, a major debate arose regarding
the connection between marketing and the environment. On the one hand, the
marketing discipline was considered the villain because of its role in stimulating
unsustainable levels of consumption and demand. At the same time, it was also
considered that marketing could become the hero of the situation, by raising
awareness of social and green issues.
This phenomenon of embracing environmental problems gave birth to a relatively
new concept in the marketing industry, which evolved under different names, for
example, “ecological marketing” (Henion and Kinnear, 1976), “environmental
marketing” (Peattie, 1995), or “sustainable marketing” (Fuller, 1999). According to
Peattie (2010), these three forms of marketing represent the progress of the
interaction between marketing and the environment over time, each phase having
different implications for the marketing discipline and its role in society. Nowadays,
specialists refer to it as “sustainability marketing” (Kumar et al., 2013), a concept
considered to be the final stage in the development of green marketing, which
combines economic, social, and environmental components. According to
Armstrong and Keller (2016), this new domain of marketing can be described as
“socially and environmentally responsible marketing that meets the present needs of
consumers and businesses, while also preserving or enhancing the ability of future
generations to meet their needs” (p. 490).
These shifts in the marketing paradigm have put environmental protection and
green products in the spotlight. Today, these two concepts are strongly related to
consumers’ buying and consumption behaviour. As a result, studies on green
consumption have become very popular. Unfortunately, this topic is not sufficiently
discussed when it comes to Romania, with very few studies concerning people’s
level of ecological awareness and behaviour. Considering that the country has
different purchasing habits and socio-economic context, it is necessary to understand
this topic from the perspective of Romanian consumers.
Therefore, the main goal of this paper is to understand the attitudes and behaviour
of Romanian consumers aged between 18 and 35 years regarding environmental
protection and green products. By touching on an underexplored topic of research at
the local level, we hope that the findings presented will offer valuable insights for
market segmentation strategies and educational initiatives that can encourage local
demand for green products and increase environmental responsibility of Romanian
citizens.
The present paper has the following structure. First of all, it offers a thorough
review of the literature on the topic, focusing on both local and international papers.
After that, the methodology incorporated for data collection is presented. The next
section of the paper discusses the key data obtained. Finally, the paper concludes
with a summary of findings and suggestions for further research.
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As the current state of the environment is changing dramatically, a paramount
global shift can be observed: consumers are paying more attention to their
environmental impact and are actively engaging in different types of green actions,
while companies are trying their best to act in a sustainable way. Many
environmental specialists have confirmed that if people do not act green,
environmental degradation will worsen (Sun et al., 2021). This is true at both the
local and global levels. When looking broadly at current environmental problems in
Romania, the country is facing many issues, with the most critical being air pollution,
deforestation, and waste management. For example, in February 2022, the capital of
Romania recorded a spike in air pollution; thus air quality sensors indicated “values
that exceeded the maximum limit by as much as 700%” (Marica, 2022). This news
comes as no surprise, after the latest report from the European Environment Agency
which highlighted that Bucharest is one of the cities with the worst air quality in
Europe (Euronews, 2021).
It could be argued that some of these issues could be resolved or improved by
enhancing public awareness of environmental protection. However, in contrast to
Western countries, the green market in Romania is still developing. For example,
Liobikiene et al. (2016)’ s cross-cultural study highlighted that Romania, together
with Bulgaria, Italy and Lithuania, are the countries with the lowest consumption
levels of green products in the European Union.
With regards to the current literature on the topic, there are limited studies
available concerning consumers’ green behaviour; therefore, this research area needs
improvement. According to Nagy and Dabija (2020), Romania could become a key
market for green products, but “the lack of information concerning the benefits of
green consumption and the high prices compared to traditional products represent a
factor which discourages the purchase of green products” (p. 9). In their study
regarding the environmental responsibility of young people in Romania, Kardos et
al. (2019) highlighted that consumers’ lack of information is a key barrier to “green
responsible behaviour” (p. 1). Therefore, local policymakers and marketers need to
do more to raise the ecological awareness of the public.
It is important to mention that this lack of information is not only affecting
consumers, but also researchers and specialists in the industry who do not have
access to enough data on the green market in Romania. At the moment, there is no
official Government data available regarding the real size of the organic market.
Therefore, national statistics are missing, with no information on supply or demand.
This type of information could be of great use to those interested.
On the other hand, there are other local studies more optimistic regarding the
green behaviour of Romanian consumers. For example, in their study, Petrescu et al.
(2017) mentioned that Romanian consumers tend to have strong positive attitudes
towards the consumption of green products. To add more, Dabija et al. (2018)
mentioned that Romanians “have started to understand the negative impact of
conventional products on the environment” (p. 181). The authors added that
Romanians are very similar to those living in Western Europe regarding their green
345
consumption levels, despite “limited access to infrastructure, limited assortment of

products, and less opportunities to buy green products online” (Dabija et al., 2018,
p. 182).
All in all, although local studies tend to address diverse green topics, their number
is low. Moreover, most of these studies tend to focus on secondary data analysis,
instead of collecting primary data. To conclude this chapter, the literature review
findings highlight that more research is needed on this topic.

The main goal of this paper is to investigate the attitudes and behaviour of young
adults (aged between 18 and 35 years) from Romania regarding environmental
protection and green products. By investigating this topic, important information
regarding their buying and consumption behaviour will be discovered. In order to
achieve this goal, the following research questions are proposed:
• How important is environmental protection for Romanian consumers?
• What is their purchasing behaviour for green products?
• What are their attitudes towards the price of green products?
Although the number of green marketing studies concerning younger generations
is increasing, most of the available studies tend to focus on teenagers (Lee, 2008) or
students (Pagalea and Vlad Uta, 2012). At the time of the research, no local study
concerning people aged between 18 and 35 years was found. It is worth highlighting
that researchers tend to use different names to classify this age cohort. For example,
some authors considered them “young adults” (Petry, 2002), while other papers
called them “millenials” (Onorato et al., 2018).
There are various reasons why this age group was chosen. First of all, young
adults tend to be the more informed and concerned about social and environmental
problems, as well as more open to new ideas (do Paço et al., 2013). Second of all,
“recent studies indicated the fact that young consumers, either Millennials or Zers,
prefer green products” (Nagy and Dabija, 2020, p. 1). Last but not least, they
represent a target consumer group for the development of the green market, due to
their increased purchasing power. Considering these arguments, it is both relevant
and necessary to investigate this age cohort.
4. Research Methods
The current study is part of a larger national research that took place during
December 2020 and January 2021. An online survey distributed in Lime Survey was
used to collect data, using convenience sampling. Online surveys offer multiple
benefits, including “speed, cost, quality of response, no interviewer bias, and data
quality” (Malhotra et al., 2017, p. 274).
Although the original data set contains a larger sample of Romanian consumers
aged 18 years old or older, the file was split in order to analyse only those aged
between 18 and 35. Therefore, the final sample resulted in a total of 472 respondents.
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To add more, the original study includes more items and questions. Due to the page
limit, only specific variables were chosen.
The current paper explores the importance of environmental protection for
respondents and their ecological behaviour, as well as their attitudes toward buying
and consuming green products. These variables are analysed in connection with key
socio-demographic characteristics, including gender, level of income, education, and
presence of children. Data analysis involved both univariate and bivariate
procedures, implemented with the help of SPPS, version 20.0.
5. Findings
Before discussing the key results of the study, the socio-demographic
characteristics of the sample are presented below.
Table 1. Socio-demographic characteristics of the sample (N = 472)
Variable name Frequency Percentage
Gender
Female 361 76.5
Male 111 23.5
Marital status
Not married 369 78.2
Married 103 21.8
Presence of children
Yes 142 30.1
No 330 69.9
Area of residence
Urban 413 87.5
Rural 59 12.5
City of residence
Bucharest 213 54.9
Other 259 45.1
Income level
Below 1.500 RON 132 28.0
1.501 – 3.000 RON 110 23.3
3.001 – 4.500 RON 105 22.2
4.501 – 6.000 RON 64 13.6
6.001 – 7.500 RON 22 4.7
7.501 – 10.000 RON 22 4.7
Above 10.000 RON 17 3.6
Occupation
Student 187 39.6
Employed 255 54.0
Entrepreneur 15 3.2
Unemployed 15 3.2
Education level
Secondary school or less 6 1.3
Highschool 136 34.5
Professional diploma 8 1.7
Undergraduate studies 217 46.0
Postgraduate studies 78 16.5
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As shown in Table 1, most respondents are females (76.5%), while the rest of
23.5% are males. Regarding marital status, almost 80% of the respondents are not
married, while the remaining 20% are married. The majority of respondents have no
children (69.9%) and live in the urban area (87.5%). There is almost an equal split
regarding location, with 54.9% of the sample living in Bucharest, while the rest
living in other cities. When it comes to income level, most respondents are earning
between 1.500 RON and 4.500 RON, a total of 45.5% respondents. Less than 5% of
the respondents are earning over 10.000 RON each month. Regarding occupation,
54.0% of the respondents are employed, while almost 40% are students. When it
comes to education level, the majority of survey participants have either finished
undergraduate or postgraduate studies (62.5%), underlying a high education level
across the sample. From the total sample, 34.5% of respondents only finished high-
school, but this is not a surprising result considering that the respondents’ age varies
between 18 and 35.
5.1 Environmental Protection and Green Behaviour

In the beginning, respondents were asked to rate how significant is environmental
protection for them on a 5-point scale (1 = Unimportant, 5 = Very important). The
distribution of responses can be observed in Figure 1 below.
Figure 1. Level of importance given to protecting the environment (N = 472)
0%
2% Unimportant
32% 25%
Somewhat important
Important
Fairly important
41% Very important
Most respondents (73.3%) considered the environment to be either “very

important” or “fairly important” for them. Interestingly, no responses for option
“unimportant” were recorded. Overall, there is a favourable appreciation of
environmental protection for Romanian consumers. The correlation analysis
revealed no significant relationship between level of attention given to
environmental protection and demographic characteristics (p > 0.05).
In order to understand general green behaviour, respondents were asked to
mention if they have taken any activities to protect the environment recently. From
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the total sample, over 70% of respondents answered affirmative to this question. The
most mentioned green activities were recycling (233 answers), avoiding plastic
(206 answers) and choosing sustainable transportation (173 respondents). At the
other end of the scale, the least mentioned green activities were diet change
(99 answers), reducing water consumption (118 answers), and buying green products
(122 answers). Surprisingly, from the total sample, less than 26% of respondents
mentioned they have bought green products in order to protect the environment over
the last half year. According to the latest report from Eurostat (2022), only 2% of
Romanians are eating the daily recommended portions of fresh fruits and vegetables,
the lowest daily intake across the entire European Union.
It could be argued that the level of perceived difficulty can affect environmental
behaviour, as Romanian consumers tend to engage in lighter environmental
activities, such as recycling, in order to not feel guilty for not participating
in more difficult tasks which have a higher impact, such as diet change
(Green-Demers et al., 1997).
The relationship between different behaviours was examined with the use of
Spearman’s rho (ρ) correlation coefficient. The strongest correlation was found
between reducing energy consumption and reducing water consumption (ρ = 0.28,
p < 0.01). To add more, a significant correlation, of low intensity, was identified
between choosing sustainable transportation and buying second-hand items
(ρ = 0.21, p < 0.01), discussing environmental issues with the others (ρ = 0.19,
p < 0.01) and diet change (ρ = 0.17, p < 0.01). These correlations may be explained
by what psychologists call “the spillover effect”, “in which involvement in one form
of pro-environmental behaviour increases the propensity of consumers to engage in
others” (Peattie, 2010, p. 213). This result is consistent with Biswas et al.’s (2000)
study, which found a strong connection between recycling and buying recycled
products. Future studies could investigate this topic further.
With regard to demographics, there was a low, negative correlation between
gender and avoiding plastic (ρ = -0.18, p < 0.01) and buying green products
(ρ = -0.14, p < 0.01). This means that high levels of one variable are correlated with
lower levels of the other variable. In this case, the gender variable was coded 1 for
female and 2 for male in SPSS. Therefore, it can be argued that women are more
likely to buy green products and avoid using plastic compared to men. Moreover,
data analysis revealed that there is a significant positive correlation between
education level and buying green products (ρ = 0.13, p < 0.05). Thus, high levels of
education are associated with high levels of buying green products. These results
match those presented in previous research (Tsakiridou et al., 2008).
5.2 Understanding Purchasing Behaviour of Green Products

This section presents the key results regarding the green behaviour of
respondents, more specifically frequency of consumption, monthly amount spent,
and perceived price of green products.
349
As shown in Table 2 below, when it comes to frequency of consumption, almost

80% of respondents declared that they buy green products either “a few times a year”
or “a few times a month”.
Considering the monthly amount spent on green products, around 85% of the total
sample mentioned that they spend 300 RON or less. Both the frequency of
consumption and the amount of money spent are quite low, therefore there it is no
surprise that most respondents (71.7%) perceived the prices of green products as
either “high” or “very high”.
Table 2. Purchasing characteristics of green products (N = 434)
Variable name Frequency Percentage
Frequency of consumption
Less than that 8 1.8
A few times a year 132 30.4
A few times a month 203 46.8
A few times a week 91 21.0
Monthly amount spent
Below 150 RON 234 53.9
151 – 300 RON 135 31.1
301 - 450 RON 31 7.1
451 - 600 RON 18 4.1
Above 600 RON 16 3.7
Perceived price of green products
Very high 52 12.0
High 259 59.7
Medium 116 26.7
Low 7 1.6
Very low 0 0
A moderate, positive correlation was identified between amount spent on green

products and level of income (ρ = 0.33, p < 0.01). Therefore, the more money people
have, the more they will spend on green products. Furthermore, the frequency of
consumption tends to be higher for respondents who have children, 33.8% of them
mentioned they buy green products “a few times a week” compared to 15.1% of
those without children. The chi-square value of χ2 = 21.371 indicated that presence
of children influences frequency of consumption for green products.
5.3 Willingness to Pay More for Green Products

In one of the questions of the survey respondents were asked to mention
the maximum percentage they would be willing to pay to buy green products. The
collected responses were grouped into three categories to reflect consumers’
willingness to pay more for this type of products: “a little more” (below 25%),
“more” (between 25% and 70%) and “a lot more” (above 70%). The results are
presented in Table 3 below.
350
Table 3. Respondents’ willingness to pay more for green products (N = 434)

Category Frequency Percentage
A little more (<25%) 278 64.1
More (25% - 70%) 144 33.2
A lot more (>70%) 12 2.8
Around 23% of the total sample mentioned that they would be willing to pay 20%
more for green products, making this the most mentioned answer. The highest
percentage mentioned was 100%, picked by 9 respondents (only 1.9% of the total
sample). Data analysis revealed that there is a significant, negative relationship
between gender and willingness to pay more (ρ = -0.24, p < 0.01). Therefore, it could
be argued that women are more likely to pay more for green products compared
to men.
6. Conclusions
Overall, it can be concluded that Romanian consumers in the age group
analysed tend to value environmental protection and engage in actions to protect it.
However, when it comes to buying green products, the frequency of consumption
and the amount spent tend to remain low. Future studies should look into the main
motives that restrict Romanian consumers from buying and consuming more
ecological products. Maybe consumers lack awareness of these products or do not
trust their quality.
The present study is not without limitations. For instance, the paper did not
consider the barriers that might impact green buying, while, due to the sampling
method and the instrument chosen for collecting data, the study findings cannot
be generalized. Research concerning Romanians’ green behaviour should be
further explored, by focusing, for example, on different research methods or other
types of variables.
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352

June 16-17, 2022
Effect of Vaccination Campaigns on COVID-19 Awareness

among Romanian Population: A Case Study
Luminița NICOLESCU1, Alexandra-Mihaela BARBU2*
DOI: 10.24789788367405072-032
Abstract
The area of social marketing to promote health awareness and prevention is attracting
considerable interest due to the health crisis caused by the emergence of COVID-19. Over
the past two years, the epidemic has proved to be a problem of economy, education, and
inequality, as well. Due to the requirement to raise public awareness and persuade the
audience of the dangers and the need to limit its spread, the current challenges posed by the
pandemic have led to several strategic decisions in countries around the world. This work
aims to assess the influence that official national and international information campaigns,
part of the strategic plan, had on the initial attitude of the Romanian population toward
receiving the COVID-19 vaccine. After seeing four vaccination campaigns conducted both
in Romania and at an international level, respondents would have a better understanding of
the topic at hand, namely the way these campaigns improved awareness of COVID-19. More
research is being conducted on the influence of a wide range of psychological factors on
increasing (or reducing) the willingness of participants to be vaccinated against COVID-19.
The research is based on a literature review and an analysis of quantitative data collected
from online surveys distributed between March and April 2022. The results showed that the
participants were more willing to vaccinate if they received their information from official
sources and tended to trust more the information transmitted through international
campaigns. There was also a significant change in willingness to vaccinate once they found
out that the vaccine was safe and effective.
Keywords: social marketing, vaccination campaign, COVID-19, Romania, health

awareness.
JEL Classification: M31, M38, M39, I12.

© 2022 L. Nicolescu, A.-M. Barbu, published by Sciendo. This work is licensed under the Creative Commons
1. Introduction
Since time immemorial, long before the contemporary days, and in ancient times
when they were known as plagues, the pandemics have been caused by the
contracting of different bacterial or viral infections, with expansion across continents
and multiple countries. Their appearance has caused trials of desolation and death
through the centuries and to this day, with the current pandemic caused by the
influenza virus SARS-CoV-2, the coronavirus that has caused the pandemic named
COVID-19. A pandemic is classically defined as “an epidemic occurring on a scale
that crosses international boundaries, usually affecting people on a worldwide scale”
(Porta & International Epidemiological Association, 2008, p. 179).
Despite the well-developed theoretical plans, one can see the constant agitation
caused by the unprecedented events in the general public. In addition to the already
existing problems related to global warming, the refugee crisis, malnutrition, and the
way they affect us all, there is also the health crisis caused by the appearance of the
COVID-19 pandemic. Over the past two years, the pandemic has shown that it is not
only a sanitary crisis, but also a problem of economic, educational, and inequality,
among others.
The reason for such crises is a lack of knowledge and awareness of the problem.
Therefore, we must take into account the concept of common good and think about
ways to influence people’s behaviour to achieve this.
Fortunately, there is an approach for such a scope: Social marketing. It helps to
develop campaigns that can change or maintain behaviour for the benefit of a group
or the society as a whole. It is, indeed, undeniable that the term social marketing has
become a well-established component of the marketing lexicon at universities,
government agencies, or NGOs.
The purpose of this study was to provide an assessment of the influence that
official national and international information campaigns had on the initial attitude
of the Romanian population toward receiving the COVID-19 vaccine. More research
is being conducted on the influence of a wide range of psychological factors on
increasing (or reducing) the willingness of participants to be vaccinated against
COVID-19.This work offers one of the first investigations into the way the social
marketing techniques used in the campaigns impact the behaviour of the Romanian
population.
2. Problem Statement – Theoretical Considerations
2.1 Social Marketing as a Concept

The concept of social marketing was formalized in Kotler and Zaltman's 1971
article, which established the discipline of social marketing. In the article “Social
marketing: an approach to planned social change”, social marketing was formally
defined as the “design, implementation, and control of programs calculated to
influence the acceptability of social ideas and involving considerations of product
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planning, pricing, communication, distribution, and marketing research” (Kotler,

Zaltman, 1971, p. 5).
The consolidation led to the establishment of the obvious limits of the field.
According to Andreasen, social marketing techniques could only be applied to the
“analysis, planning, execution, and evaluation of programs designed to influence the
voluntary behaviour of target audiences in order to improve their personal welfare
and that of society of which they are a part” (Andreasen, 1994). The above emphasis
helped identify whether social marketing, as compared to conventional methods, was
the best solution to a certain problem. In the 21st century, the field has adapted to the
actual world issues connected to the environment, public health, human rights, or
policy changing. Kotler and Lee observed the change, stating that the early social
marketing approaches “were those focused on family planning, tobacco and
HIV/AIDS”. However, they now approach more modern topics such as the
enhancing of financial well-being” (Kotler, Lee, 2019, n.p.).
In other words, social marketing keeps its essence through all the different
definitions. It is society-oriented, usually aiming at the well-being of the target
audience while seeking to influence via techniques that are also used in commercial
marketing.
2.2 The Ethical Dimensions of Social Marketing

Social marketing aims to improve society. Since improvement implies the idea
of good and positive development, it is intriguing to learn who and what decides if a
change brought about by a campaign is beneficial or harmful. Unfortunately,
determining what is ethical in social marketing is rarely straightforward. In most
circumstances, there is not a clear distinction between good and wrong.
Although there are many sophisticated, but essential, ethical theories to examine
when studying social marketing, the ones that are the easiest to analyse when it
comes to understanding what “beneficial” might be, are the deontological and
teleological approaches. Kant is credited with inventing the most well-known
formulation of deontological ethics. Kant's moral model is premised on his belief
that humans have the unique capacity to reason. The moral worth of an action,
according to Kant, is decided by human will, which is the only thing in the universe
that can be regarded good without limitation (Kant, 1993, p. 15). On the other hand,
for the teleologists (or utilitarists) the only thing that counts is the character of the
outcome, be it good or bad. The contradictions between the two theories lead to
questions such as how can someone establish the appropriate goal, while keeping an
ethical view of it.
However, whilst marketers struggle to develop solutions that help society, these
efforts might have unintended, unethical implications. Stigmatization, victim
blaming, coercion, and the use of financial incentives, to name a few ethical issues,
are all more likely to occur among social marketers (Eagle, Dahl, 2015, p. 187). Such
ethical issues may arise from the environment, approach, methodology, and
outcomes of interventions, and they typically bring into question social marketing's
“social fairness”.
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One of the specific areas of social marketing that pose ethical concerns are those
relating to targeting. A fundamental strategy for marketers is to “select target markets
they can best affect and satisfy” (Kotler, Lee, 2008, p. 10). When used in social
marketing, this method may result in the exclusion of some groups of the intended
audience since they are hard or costly to engage (Brenkert, 2002, p. 15).
In the end, what is good for one target audience may be bad for another. The
benefits to society cannot simply be based on a universal code of ethics, because it
does not exist. It is up to the social marketer and their own set of values what the
campaign is intended to accomplish.
2.3 Social Marketing Tools

Social marketing tools are used develop and promote campaigns that will act like
behaviour changers or behaviour keepers. Generally, marketers make use of the
traditional marketing mix, a proper organizer tool that ensures a basic framework for
a successful campaign. Kotler and Zaltman were aware that the 4Ps can also be
applied to social causes. They argue that “to the marketer, the success of a campaign
depends on the proper development of product, promotion, place and price
considerations” (Kotler, Zaltman, 1971, p. 12).
However, apart from the four Ps of commercial marketing (product, place, price,
and promotion), social marketing proposes the integration of another 4 Ps, relevant
for the particularity of this field: publics, partnership, policy, and purse strings
(Weinreich, 2010). First of all, the social product is important, as we state what and
whose behaviour we are trying to change. Furthermore, the social place is a
significant factor. It is vital to assess the place where behaviour will thrive (or not)
and where it should be promoted to reach the targeted audience. Another of the Ps is
the social price. It refers to the “costs” that someone must pay in order to change
behaviour. The last of the four commercial Ps refers to social promotion. It is crucial
to determine which channels of communication to use to reach the target audience
and ensure long-term demand for the product/idea/behaviour that is being sold.
To conclude, effective communication will be the key to changing the public's
perception of an issue from one of ignorance to one of emotional attachment, or from
one of pessimism to one of optimism. The application of commercial marketing
techniques to social problems is the emphasis of social marketing. The only way to
do so effectively is to understand what your audience wants and needs and cater to
them campaigns with engaging messages.
2.4 The COVID-19 Health Crisis and the Intention to Receive the Vaccine –
An Overview
The coronavirus pandemic (COVID-19) overtook the world in two years, and
became one of the world's most serious public health concerns. As of April 15, 2022,
more than 11.4 billion doses were administered in 184 countries (Bloomberg, 2021).
In Romania, 16.8 million doses were administered (Bloomberg, 2021). Regardless
of the fact that most countries launched public vaccination in early 2021, acceptance
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rates varied greatly depending on regional progress. It is also important to examine

the impact of official national and international information campaigns on the
Romanian population's initial attitudes toward taking the COVID-19 vaccination.
More research should be done on the impact of a variety of psychological factors on
individuals' willingness to be vaccinated against COVID-19.
2.5 The Four Campaigns – A Brief Presentation

1. The initial COVID-19 vaccination campaign, which began in Romania on
27 December (as in all of the EU countries) under the name of “RoVaccinare”
On December 27th 2020, The Romanian National Coordinating Committee for
COVID-19 Vaccination (CNCAV) began the first phase of the most important
public health campaign in Romania – the Official vaccination strategy against
COVID-19 (the “Strategy”). Its goal was to get positive messages about the
vaccination and the benefits it will bring to the general public as early as possible. It
also defined the principles, vision, and method of action for the delivery of
COVID-19 vaccinations in Romania.
2. The GAVI’s Global Campaign “Vaccines work”
The GAVI’s Global Campaign “Vaccines Work” campaign is based on
cooperation with countries to support and maintain regular vaccination against
COVID-19 and to restore regular vaccination. The campaign is developed by
experienced journalists from all over the world, aiming to provide scientific
explanations on the facts behind vaccines, COVID-19 and human health, verified by
expert review teams.
3. “Împreună învingem pandemia! Ce conține vaccinul? – “Together we defeat
the pandemic! What does the vaccine contain?”
The creative concept of the communication campaign is based on the question
"What does the vaccine contain?" It comes up with an emotional approach, where
vaccination is not just about statistics, but it is also seen as a way to get back to
normal. In a video posted on his official social media page, the prime minister offers
an answer to this question and invites members of the Government, as well as
Romanians, to come up with their own answer.
4. UNICEF “I vaccinate for you”
According to their official website, the campaign illustrates some of the
consequences of the pandemic on children's lives as a result of quarantines that kept
them confined and isolated for months. Three spots address commonplace
difficulties that children have noticed have altered, such as going to school, visiting
grandparents, and playing in the streets with their friends.

The purpose of this study was to provide an updated assessment of the influence
that official national and international information campaigns had on the initial
attitude of the Romanian population toward receiving the COVID-19 vaccine. This
research is one of the first to look into how social marketing tactics were employed
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in campaigns to reach Romanians. The respondents would have a better

understanding of the topic at hand, namely how these campaigns attempted to
increase health awareness regarding the COVID-19 pandemic and the benefits of
taking the vaccine, after seeing four vaccination campaigns that were conducted both
in Romania and on an international level, and would respond to our questionnaire
accordingly.
4. Research Methods
Data were collected following the survey method. A Google forms surveys was
distributed via social media platforms such as Instagram, Facebook, and WhatsApp.
The online questionnaire was selected because it allowed for swift, thorough,
and elevated data gathering and analysis. Data from fully completed questionnaires
was retrieved and statistical analysis was performed. A sample of 85 participants
completed the survey between March 25 th - April 11th 2022. No personally
identifying information was acquired, and data were collected anonymously.
4.1 Research instrument

The questionnaire consists of 16 questions structured into four sections (see the
Annex). The first section included five questions about sociodemographic
characteristics (age, gender, level of education completed, and whether the
respondents suffer from chronic disease or not). The second section measured
the attitudes of the participants towards the COVID-19 vaccine (if they did not
receive it, then why not) and their intentions of receiving the COVID-19 vaccine
using one closed-ended question and two questions with a five-point Likert scale.
The next section used five questions with a five-point Likert scale to determine the
influence that official national and international COVID-19 information campaigns
had on the initial attitude of the Romanian population towards the vaccine. The last
section consists of three five-point Likert scale questions to measure the Romanians’
opinions after watching the campaign.
The variables considered were measured as follows:
1. Factors of influence in vaccine hesitancy included six items including
“I was/am not sure about long-term side effects of the vaccine.” A five-point Likert
scale was used to collect responses, ranging from strongly disagree (1) to strongly
agree (5). A higher score suggests that the issue has a bigger impact on people's
unwillingness to get vaccinated against COVID-19.
2. Sources of information were measured with four items that explored the
respondent's level of trustworthiness in the information sources about the vaccination
process that are widely available for the population, such as the vaccination
campaigns of international organisations (UNESCO, the United Nations, and the
World Health Organisation). The response format was a five-point Likert scale from
very untrustworthy (1) to very trustworthy (5). A higher score denotes a higher level
of confidence in the sources.
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3. Importance of getting vaccinated had three items such as “Protecting family,

friends and vulnerable members of your community”. The response format was a
five-point Likert scale from not at all important (1) to very important (5). A higher
score suggests that this aspect is more important in making the decision to be
vaccinated.
The relationship of the respondents with each vaccination campaign was
considered by looking at the following aspects:
4. The level of familiarity was measured by one item which explored the level of
familiarity and exposure to each campaign. The item was measured on a five-point
Likert scale from not at all familiar (1) to very familiar (5). A higher score indicates
a higher degree of popularity of that specific campaign.
Four variables were assessed for each campaign to identify which had a better or
worse effect on the target audience and which remained with them the longest time.
A five-point Likert scale was used to collect responses, ranging from strongly
disagree (1) to strongly agree (5).
5. The accessibility of the message: The purpose of an accessible message is to
convince the intended audience. The message should be tailored to the degree of
knowledge and potential reaction of the audience (“The message was accessible and
straightforward”).
6. The positivity evoked by the message: The purpose of a positive message is to
elicit a moderate to positive response from the audience (“The approach was
believable and evoked positive, hopeful emotions”).
7. Importance of the campaign motivators was measured by five items which
explored the elements of persuasion that were used in the campaigns: if people can
come back to the normal life preceding the pandemic, then this might be seen as a
strong motivator. The items were measured on a five-point Likert scale, ranging from
not at all motivating (1) to very motivating (5).
8. The change in the likelihood of getting the vaccine after having been exposed
to the campaigns was assessed by five items to determine the impact of the
campaigns on one's vaccination intentions. The items were examined on a 5-point
Likert scale, ranging from strongly disagree (1) to strongly agree (5).
5. Findings
This section presents the main results of the survey.
Demographic data
Table 1. Demographic characteristics of the sample
Number
Category Variable %(n)
of respondents
18-20 years old 5 5.88
21-29 years old 46 54.12
30-39 years old 15 17.65
Age
40-49 years old 14 16.47
50-59 years old 4 4.71
60 years or older 1 1.18
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Number
Category Variable %(n)
of respondents
Male 42 49.41
Female 43 50.59
Gender
Prefer not to answer 0 0.00
Other 0 0.00
High School 13 15.29
Bachelor's Degree 37 43.53
Level of education completed
Master's Degree 16 18.82
Ph.D. or Higher 19 22.35
Urban area 76 89.41
Residence
Rural area 9 10.59
Yes 16 18.82
Suffering from chronic disease
No 69 81.18
Source: Created by authors.
Of the 85 Romanian participants, 42 were men and 43 women. Most of our

participants were between 21 and 29 years of age (n = 46), many had a university
degree (n = 76, considering the Bachelor’s, Master’s, and Ph.D. or higher). At the
time the study was conducted, 76 participants lived in urban areas, while only 9 lived
in the rural areas. Additionally, a small number of respondents suffered from chronic
disease, which means 16 out of a total of 85 respondents. Participants over the age
of 50, those who lived in rural areas, and those who had a chronic disease
were underrepresented in our sample compared to the overall survey respondents
(see Table 1).
Initial attitude toward getting vaccinated against COVID-19
Table 2. Initial attitude toward getting vaccinated against COVID-19
Initial attitude toward getting vaccinated against COVID-19 n
I was determined to get vaccinated 44
I was not sure. 30
I was determined not to get vaccinated. 11
As it can be seen from Table 2, the initial acceptance of the COVID-19 vaccines
was substantially high, in comparison to those that were determined not to get
vaccinated or were not sure about their decision. In fact, 44 participants (37.5%)
responded that they were determined to get vaccinated against COVID-19, whereas
only 30 participants (25.5%) responded that they were not at all likely to get
vaccination, and 11 participants (9.35%) were not sure about their decision.
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1. Factors of influence in vaccine hesitancy

Table 3. Factors of influence in vaccine hesitancy
Factors of influence in vaccine hesitancy M
I was/am not sure about long-term side effects of the vaccine. 3.04
I was/am skeptical of the vaccines. 2.35
I did/do not trust the government/medical authorities. 2.13
None of the vaccine options available suit me. 2.12
My medical condition exempts me from getting vaccinated. 1.82
My religion does not allow me. 1.29
As mentioned above, the majority of the participants intended to get vaccinated

even before the promotional campaigns were launched. However, 30 respondents
expressed their reluctance and other 11 stated their determination to not get
vaccinated. Taking into account the mean value of their answer, the respondents
were reluctant mainly due to the uncertainty of long-term side effects of the vaccine
(M=3.04), which led to skepticism (M=2.35). The factors that least influenced the
vaccine hesitancy were religion (M=1.29) and preexistent medical conditions
(M=1.82) (see Tables 2 and 3).
2. Sources of information
Table 4. Sources of information on the vaccination against COVID-19
Sources of information about the vaccination process M
The vaccination campaigns of international organisations 3.91
(UNICEF, the United Nations, and the World Health Organisation).
Official information from the competent authorities (The 3.81

Government, the National Committee for Special Emergency
Situations, The National Coordinating Committee for COVID-19
Vaccination Activities, European Medicines Agency, etc.).
The vaccination campaigns of national organisations (the Romanian 3.58
Government).
Medical professionals on social media. 3.53
The majority of the respondents have high trust in official campaigns, national
or international, as can be seen from the high values of the mean for each item
(3.91, 3.81, 3.58, and 3.53), (see Table 4). The vaccination campaigns of
international organisations ranked first as trustworthy sources of information, with
31 respondents ranking them as trustworthy, while 35 ranked them as very
trustworthy. The official information from the Romanian competent authorities is
the second most preferred source of information, with 32 respondents marking it as
trustworthy and 29 as very trustworthy. The third source ranked, again, quite high in
the respondent’s level of trust (28 ranked it as important, while 25 ranked it as very
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important). On the last place, although with a high score, the information of medical
professionals on social media does not seem to elicit as much trust (only 28 found it
trustworthy, and 18 very trustworthy).
3. Importance of getting vaccinated

Table 5. Factors of importance for the vaccination against COVID-19
Importance of receiving the vaccines M
Protecting family, friends and vulnerable members of your 4.40
community.
Getting back to 'normal'. 3.93

Doing your part to end the pandemic. 3.85
As it can be seen, the importance of receiving the vaccines was positively and
significantly correlated with innate human prosociality. The most important reason
was to prevent harm to those who are less fit. Therefore, protecting family, friends
and vulnerable members was the highest ranked (M=4.4), with 61 respondents
considering it very important. Returning to the life before the pandemic was the
second most important factor (M=3.93), while the moral responsibility of
contributing to reach the end of the pandemic ranked last (M=3.85).
4. The level of familiarity with each vaccination campaign

Table 6. The level of familiarity with each vaccination campaign
Level of familiarity with each vaccination campaign M
RoVaccinare 4.22
Împreună învingem pandemia! Ce conține vaccinul? -Together we 3.46
defeat the pandemic! What does the vaccine contain?
UNICEF’s “I vaccinate for you” International Campaign 2.71
The GAVI’s Global Campaign “Vaccines work” 2.11
The most popular vaccination campaigns were the national ones, given the fact
that all respondents are Romanian. The first place is occupied by the RoVaccinare
campaign (M=4.22). Its popularity might be brought by the fact that it is the first
campaign of this kind to be carried out in Romania so far. What made it so
revolutionary is that its message could be reached by the target audiences via
multiple channels (social media, radio, television). The second most popular
campaign was “Together we defeat the pandemic!” (M=3.46). It was a continuation
of the former “RoVaccinare”, but this time the approach was a more emotional one.
It was also done in partnership with UNICEF, which might have made it so popular.
The least popular campaigns were the international ones, an understandable fact,
362
given that they are in English and are not tailored specifically for the Romanian
people, but at a larger scale.
5. The accessibility of the message

Table 7. The accessibility level of each message
The accessibility of each message M
The GAVI’s Global Campaign ‘Vaccines work' 3.64
Împreună învingem pandemia! Ce conține vaccinul? -Together we defeat 3.61
the pandemic! What does the vaccine contain?
UNICEF’s ‘I vaccinate for you’ International Campaign 3.60
RoVaccinare 3.59
According to the respondents, the most accessible message was the one
transmited by GAVI. (M=3.64). The GAVI’s spot that they watched on the safety of
vaccines offer indeed clear, simplified data as to why vaccines are viable and do not
represent a danger for health. The second most accessible one, Impreuna invingem
pandemia, is quite similar to what the GAVI’s campaign tries to convey. Here, the
benefits of the vaccines are also explained, but from a rather emotional point of view.
6. The positivity evoked by each message

Table 8. The positivity evoked by each message
The positivity evoked by each message M
Împreună învingem pandemia! Ce conține vaccinul? -Together 3.53
we defeat the pandemic! What does the vaccine contain?
The GAVI’s Global Campaign “Vaccines work” 3.51
UNICEF’s “I vaccinate for you” International Campaign 3.46
RoVaccinare 3.40
As it can be seen, the most positive message were considered to be the ones
whose title inspire a sense of togetherness and are accompanied by positive
affirmations. For example, the campaign which ranked first (Împreună învingem
pandemia! Ce conține vaccinul? - Together we defeat the pandemic! What does the
vaccine contain? – M=3.53) implies that only a population that unites towards the
same goal will be able to reach its scope. Unfortunately, the last campaign to evoke
positivity was RoVaccinare (M=3.4). This probably might be due to the fact that a
simple word is not enough to convey a message if it is not put next to a verb or a
pronoun so that we can see who is included or not.
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7. The importance of the campaign motivators

Table 9. Importance of the campaign motivators
Importance of the campaign motivators M
Coming back to the normal life preceding the pandemic. 3.98
The information is transmitted via healthcare officials. 3.84
The same vaccines will be given both in Romania and in the EU. 3.67
Empathy for people that cannot get the vaccine (due to chronic illnesses 3.64
or not fitting in the age range).
Officials affirm they will get vaccinated. 3.09
Table 9 shows that the most effective incentive depicted by the campaign was
“coming back to the life preceding the pandemic”, with more than half of the
respondents (n = 45) ranking it as “very important”. They also considered as
“important” or “very important” the fact that healthcare officials were the ones who
transmitted the information. The fact that we receive the same vaccines as our fellow
EU members represented another motivator that ranked high in the sample.
Unfortunately, the mistrust of the Romanians in the Government and the general
skepticism when it comes to the representatives of power in our country caused the
motivator “officials affirm they will get vaccinated” to rank last.
8. The change in the likelihood of getting the vaccine after having been exposed
to the campaigns
Table 10. The change in the likelihood of getting the vaccine
after having been exposed to the campaigns
The change in the likelihood of getting the vaccine
M
after having been exposed to the campaigns
I kept my previous opinion (to get vaccinated). 3.88
I changed my opinion toward getting vaccinated. 2.80
I did not follow the vaccination campaigns. 2.45
I kept my previous opinion (not to get vaccinated). 2.32
I changed my opinion toward not getting vaccinated. 2.06
Table 10 shows that most of the respondents who intended to get vaccinated
before being exposed to the campaigns, remained constant with their option, with 32
respondents strongly agreeing, and 12 agreeing. It can be seen that there is a tendency
to adopt a pro vaccination attitude after being informed, showing that campaigns
have reached their purpose (M=2.8). 12 respondents have stated that they “strongly
agreed”, and other 8 “agreed” with the idea to get vaccinated. Unfortunately, there
are respondents who kept their reluctance towards getting the vaccine, or even
364
changed their initial attitude and turned against it. This can be caused, once again,
by the expressed distrust that Romanians toward the authorities and any information
that is given by them.
6. Conclusions
The current study looked into the primary motivations underlying Romanians'
COVID-19 vaccination practices after being exposed to both national and
international vaccination campaigns and demonstrated the potential for shaping
public communication campaigns by studying the emotional and social origins of
vaccine behaviour. The perception that vaccination helped safeguard vulnerable
members of the community and one's own health was found to be the most effective
motivator in this study. Furthermore, the Romanian's decision to get immunized
is influenced by their level of respect on health authorities or the information
provided by government authorities.
The novelty in this study stems from being the first to assess the effects that a
social marketing campaign could have on the population depending on multiple
factors such as: the source of the information, the transmitter of the information and
how this information can influence the behaviour of the target audience (in a negative
or positive way). A high positive emotional response could also be witnessed when
it came to the campaigns whose titles evoke a sense of community and are
accompanied by positive affirmations. The lessons learned would be helpful for
understanding what Romanians would be truly influenced by and tailor future
national vaccinations campaigns accordingly.
One limitation is that the study included individuals who were recruited from a
small cohort and had a higher percentage of respondents who identified as living in
an urban area, had a higher education than high school, and were less likely to have
a pre-existing disease that would prevent them from getting vaccinated.
References
[1] Andreasen, A.R. (1994). Social Marketing: Its Definition and Domain. Journal of Public
Policy & Marketing, 13(1), http://www.jstor.org/stable/30000176.
[2] Bloomberg. (2021). More Than 1.2 Million People Have Been Vaccinated: COVID-19
Tracker. Bloomberg.com. https://www.bloomberg.com/graphics/covid-vaccine-tracker-
global-distribution/.
[3] Brenkert, G.G. (2002). Ethical Challenges of Social Marketing. Journal of Public Policy
& Marketing, 21(1), 14-25. https://doi.org/10.1509/jppm.21.1.14.17601.
[4] Eagle, L., Dahl, S. (2015). Marketing Ethics & Society. (p. 187). Sage Publications.
[5] Kant, I. (1993). Grounding for the Metaphysics of Morals (J. W. Ellington, Trans.; 3 rd
ed.). Van Haren Publishing.
[6] Kotler, P., Lee, N. (2008). Social Marketing: Influencing Behaviors for Good (3rd ed.,
p. 10). Sage Publications.
[7] Kotler, P., Zaltman, G. (1971). Social Marketing: An Approach to Planned Social
Change. Journal of Marketing, 35(3), 3. https://doi.org/10.2307/1249783.
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[8] Lee, N., Kotler, P. (2019). Social Marketing: Behaviour Change for Social Good (6th ed.).
SAGE Publications.
[9] Lewis, B., Lewis, J. (2014). Health Communication: A Media and Cultural Studies
Approach. Macmillan International Higher Education.
[10] Porta, M.S. & International Epidemiological Association (2008). A Dictionary of
Epidemiology. Oxford University Press.
[11] Weinreich, N. (2010). Hands-On Social Marketing: A Step-by-Step Guide to Designing
Change for Good (2nd ed.). SAGE Publications.
Appendix: The four analysed vaccination campaigns
“RoVaccinare” campaign - Dr. Valeriu

Gheorghita’s (the campaign’s The official GAVI platform
coordinator) message
Source: Source:
https://www.youtube.com/watch?v=x1JjoS https://www.gavi.org/vaccineswork/about
lWMwE
“Împreună învingem pandemia! Ce

conține vaccinul?” -Together we defeat UNICEF’S Vaccination campaign
the pandemic! What does the vaccine against COVID-19
contain?' Publicity spot – A
grandmother’s message
Source:
Source: https://www.youtube.com/watch?v=yHm67
https://www.youtube.com/watch?v=- uRK0q0
hW59-f68Bs
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June 16-17, 2022
All Aboard: Towards Digitalisation.

Romania and Its ICT Sector
Alexandra-Maria DANILEȚ1
DOI: 10.24789788367405072-033
Abstract
The ongoing pandemic context has highlighted the need to adopt information
technologies in all socio-economic activities in order to improve the efficiency of the
workflows of various institutions, business organizations and other categories of entities, as
well as to build a high-performance digital infrastructure adapted to the current demands of
the knowledge society. The COVID-19 pandemic has, to some extent, led to an increase in
the rate of adoption of ICT technologies at national level and beyond, generating a
significant increase for all hardware and software components, i.e., products and services
offered by ICT companies. Therefore, we consider it of great interest to highlight the
performance achieved at national level in the area of digitalization and the role and position
of ICT companies at national level in reshaping the way economic and other activities are
carried out.
Keywords: digitalization, information technology, performance, digital economy.
JEL Classification: M15, M21, O33.
1. Introduction
The business environment and the society as a whole have experienced many
changes in the last decades due to the development of technology. In the same time,
the needs and individual’s preferences have evolved and become more complex. As
a result, the strategies of business decision-makers have undergone major
reconfigurations in order to respond effectively to the demands/needs of their
customers . Within this framework, the adoption of information technologies
becomes a necessity for business organizations to carry out innovative activities in
order to perform and to be competitive in a business environment where the
competition is increasing. Thus, a digital strategy, which involves more than the
acquisition of IT equipment and software, but also the optimization of some
1 ”Ștefan cel Mareˮ University of Suceava, Suceava, Romania, [email protected].
© 2022 A. Danileț, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
processes through the use of digitalization, can have the expected effects on the
activity of organizations. The challenge is higher when we take into consideration
the human resources that needs to be prepared in order to use all the technology, so
how will the integration of such tools improve companies' activities/processes?
What is the role of the ICT sector in developing and implementing such solutions in
the digital economy?
2. Research Methodology
The aim of this research is to give an overview of how business organizations in
Romania have incorporated information technologies in their workflow, highlighting
the importance of the ICT sector in implementing digital solutions. As a subsidiary,
we propose the following objectives:
O1. To explore the benefits of digitalization in the long-term development and
progress of both companies and society as a whole.
O2. To analyse the progress made in the area of digitalization by business
organizations in Romania in comparison with those in the European Union.
O3. To highlight the role of the ICT sector in the digital economy.
The research included a qualitative, and therefore theoretical, component and a
quantitative dimension. On the one hand, it consisted in the analysis of the existing
literature on the topic addressed in this research, and on the other hand, it implied
the analysis of statistical data available on the online tempo platform of the National
Institute of Statistics and the Eurostat database. The research included all four
components that refer to the use of ICT by business organizations, i.e., internet
connectivity, e-business, e-commerce and website and social networks, as they are
available in the databases mentioned above. For each component a selection of
indicators was made, based on criteria such as: availability of data for both Romania
and the EU, existence of data for several years and the importance of the indicators
for this research. Subsequently, we considered presenting some aspects related to the
activity carried out by companies in the ICT sector at national level, whose
contribution in the adoption of information technologies is essential (in fact, the
activity carried out by such companies is conditional, i.e., based on software and
hardware tools).
The concern of business organizations to run efficient operations and achieve
high performance has contributed to the reconfiguration of their business models and
strategies. At the same time, the increasing global presence of companies and the
changes in technology have, to some extent, forced the increasing use of information
technology tools.
All the changes that have taken place in the last decade and are still in progress
in business and not only, highlight the development of what we call the digital
economy. The digital economy involves digital infrastructure, efficient management
systems and content creation (Coates, Holroyd, 2015). In this new framework for the
368
development of socio-economic activities, information becomes digital (bits),

communication takes place through digital networks and the internet becomes the
basic component (Tapscott, 2015). These issues have also become of real interest to
governments due to the impact on society, economic development and long-term
progress. Therefore, the policies adopted aim to strengthen the infrastructure needed
to operate/function digital technologies, more specifically to provide the
connectivity component, the basic element of a digital ecosystem (Vagadia, 2020).
Regarding the digital economy, a number of its characteristics are mentioned in
the literature such as digitalization and use of ICT tools/equipment,
adoption/implementation of new processes/methods for business development,
codification of knowledge, repositioning of information as an essential asset in the
organizational infrastructure (Sharma, 2005).
According to EIB (2020), economic entities that incorporate digital technologies
in their workflows are more efficient and perform better than non-digital ones. At
the same time, digital companies are distinguished by management practices that
promote and support innovative activity and higher efficiency in production
processes and other operations carried out by an enterprise. At the same time, EC
(2016) points out that the use of ICT tools has significant benefits for both SMEs
and MNCs. Among the most obvious benefits we mention: a more efficient
allocation of resources, increased product quality, reduction of waste and scrap,
improved performance, improved innovation infrastructure through the development
of partnerships/collaborations, etc. A study carried out under the initiative of the
OECD (2011) highlights the need to make investments in the development of an
efficient ICT infrastructure. According to the same study, such investments have
positive effects on work productivity and, at the same time, contribute to high
resource efficiency. In addition, they also have a direct impact on the development
of networks and the enhancement of innovative processes, in the sense that the use
of such tools allows companies to develop new processes, new ways of working and,
therefore, new products/services. Moreover, digital technologies have a significant
contribution to make in the development of IT/digital platforms which in turn
encourages/facilitates partnerships/collaborations between different entities. Such
ecosystems encourage creative and innovation processes as well as organizational
processes that will reflect on a company's innovative capacity (BCG, 2019).
The interest in adopting new technologies, i.e., innovative activity and the
adoption of new business practices can be found in the strategy implemented at
management level (OECD, 2004). Inevitably, the results achieved in terms of the
use of ICT tools will be influenced by the decisions taken by the management of
the companies, by the vision of the managers towards all that represents the
digitalization processes for the success of the company. As the interest in and need
for the adoption of such tools grows, the ICT sector becomes essential for the digital
economy. In addition, digital technologies produced by companies in this field have
expanded at a faster rate globally than any other disruptive technology, with effects
on many market segments (Coates, Holroyd, 2015).
369
ICT companies are an essential part of the digital economy; in this respect Jordan
(2020) shows that to some extent companies such as Apple, Microsoft, Google and
Facebook are a component of the digital economy. Their activities focus on the
development of ICT products, ICT infrastructure but also information and electronic
content, highlighting the connection between information, communication and
technology. The use of ICT products/services can be supported by a number of
arguments that clearly highlight the benefits for companies: they have a significant
impact on reducing operating or day-to-day costs, improve productivity, facilitate
decision-making, improve customer relations and encourage the implementation/
development of new strategies (Turban et al, 2004).
Charan (2021) emphasizes that we are experiencing a reconfiguration of what
represents the competitive advantage for companies in the digital economy. Thus,
according to the author the core/underlying elements of a business organization's
competitive advantage are built around what are computing/artificial intelligence
platforms and machine learning algorithms. Digital technologies are, to some extent,
forcing business decision-makers to reconfigure their business strategy/model,
which may entail a radical change in the way they do business, a rethinking of value
chains or a transition to running operations globally. At the same time, it may foster
the creation of digital businesses, improve the current business model or even replace
it (Westerman et al., 2014). In this regard, we recall Bounfour (2016) who mentions
a new type of economic entity called digital enterprise that has at its core data,
including the way it is processed in order to achieve the firm's performance (more
precisely the way data is monetized). At the same time, Laudon (2020) refers to the
digital firm as an organization whose relationships with stakeholders are digital (ICT
technologies connect the firm with its partners) and whose core processes are carried
out through digital networks. Similarly, Turban et al. (2013) refers to e-business
when they mention companies in which a significant part of the activities is carried
out through e-business processes (using digital technologies, the internet to
accomplish a task; for example, in the recruitment process, the firm may post
information about available jobs on its website). There are companies where only a
small part of the processes is e-business, but there are companies that do all their
business online (e.g., in the ICT sector).
4. Findings
In describing the aspects related to the research topic on the business environment
at national level, we have chosen a comparative approach with the situation in the
European Union. In order to analyse the use of ICT in enterprises, we have
considered the four components available on the Tempo Online platform of the
National Institute of Statistics, i.e., Eurostat, as follows: internet connectivity,
e-commerce, e-business and aspects related to websites and social networks. For
each perspective we selected the indicators for which data were available both for
Romania and for the EU average. Regarding Internet connectivity we analysed
2 indicators: the share of firms out of the total number of firms, excluding the
financial sector (with more than 10 employees) that have access to the Internet
370
and the share of employees out of the total number of employees using computers
with access to the World Wide Web. As regards Internet access of companies
in Romania and the European Union, the figure below shows the situation for the
period 2012-2019.
Figure 1. The enterprises with internet access in Romania and EU
100% 96% 96% 97% 97% 97% 97% 97% 97%
83% 85% 88% 84% 85% 86% 83%
79%
80%
60%
40%
20%
0%
2012 2013 2014 2015 2016 2017 2018 2019
UE România
Source: Author's elaboration after https://ec.europa.eu/eurostat; http://statistici.insse.ro.
The available data show that, on average, in the European Union, approximately
97% of the firms in the sample analysed have access to the internet; in practice,
we can see that from 2014 to 2019, this indicator has maintained its value. Regarding
Romania, we find that the share of firms with internet access has increased in 2019
compared to 2012, but a broader analysis places Romania in last place in terms
of the analysed aspect, being the only country at EU level for which less than 90%
of companies have internet access. Regarding the use of computers with internet
connection in the workplace, Figure 2 shows the data available for the period
2012-2021.
Figure 2. Persons employed using computers with access
to World Wide Web in Romania and EU
100%
80%
53% 54% 56% 58%
60% 46% 46% 48% 49% 50%
44%
32% 34% 31% 35% 38%
40% 26% 28% 29% 30% 28%
20%
0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
UE România
As we can see, the share of employees using computers with internet access has
been evolving favourably both in the European Union and in Romania. However,
the situation at national level is lower than the EU average, with Romania ranking
371
last in this respect as well. As far as the e-commerce component is concerned, we

have analysed indicators showing companies that have recorded online sales and the
turnover obtained from online sales. Regarding the share of companies that have
obtained revenues from online sales, we show in the figure below the progress
registered in the period 2012-2021:
Figure 3. Enterprises with e-commerce sales

UE România
100%
80%
60%
40%
16% 16% 17% 19% 20% 20% 19% 20% 21%19% 22%
20% 10% 8% 8% 8% 9% 9% 12% 13%
7%
0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
According to the available data we found that the share of companies that register
online sales has shown an upward trend both at national and EU level. At the same
time, we note that from this perspective, Romanian firms perform less well than the
EU average. Regarding the turnover obtained from online sales, Figure 4 shows the
evolution of this indicator between 2012 and 2021.
Figure 4. Enterprises' total turnover from e-commerce sales

100%
UE România
80%
60%
40%
20% 20%
20% 14% 13% 14% 15% 16% 18% 17% 18%
8% 7% 9% 7% 12% 9%
4% 6% 6% 8%
0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
A comparative analysis of the data shows that the growth rate of the indicator for
firms at national level was higher than at EU level. Thus, at national level the
indicator increased by about 125% in 2021 compared to 2012, while at EU level it
increased by about 40%. However, the position of the domestic firms is lower than
the average for the European Union. As regards the e-business component, we have
analysed companies that purchase cloud computing services used over the internet
and companies that have ERP software package to share information between
372
different functional areas. As regards companies purchasing cloud computing

services, Figure 5 shows the progress achieved in the period 2014-2021:
Figure 5. Enterprise who buy cloud computing services used over the internet
100%
80%
60% 41%
36%
40% 24%
18% 19% 16%
20% 5% 7% 10% 14%
0%
2014 2016 2018 2020 2021
UE România
According to the figure above, we can see that the share of companies that have
purchased cloud computing services has evolved favourably for both Romanian and
EU companies. At the same time, we note that the value of the indicator recorded for
the European Union as a whole is higher than that recorded at national level.
Therefore, a positive pattern can be observed with respect to this component in the
behaviour of business organisations operating on the EU market. With regard to the
use of specialised software for running activities within organisations, the figure
below shows the situation for firms using ERP (enterprise resource planning)
software:
Figure 6. Enterprises who have ERP software package to share information

between different functional areas
100%
80%
60%
34% 38% 36% 36% 38%
40% 24% 20% 29%
21% 22% 22% 23%
15% 17%
20%
0%
2012 2013 2014 2015 2017 2019 2021
UE România
Source: Author's elaboration after https://ec.europa.eu/eurostat, http://statistici.insse.ro.
The share of EU firms using an ERP software package is much higher than for
national business entities. Thus, in 2021 the amount of the indicator analysed is more
than double that of the national market. The last aspect analysed concerns the website
and social networks component which highlights the presence of companies in the
373
online environment. As far as companies owning a website are concerned, Figure 7

shows the situation for Romania and the European Union.
Figure 7. Enterprises with a website

100%
90% 78%
74% 76% 76% 76% 77% 77%
80% 70% 72% 73%
70%
60% 51%
44% 45% 45% 44% 47% 46%
50% 42% 42%
36%
40%
30%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
UE România
Regarding the number of companies with a website, we note that this indicator
has shown a favourable evolution. The progress recorded at national level is
significant; the growth rate of the indicator for Romanian companies is higher than
the EU average, but the level is lower. With regard to social media, the figure below
shows the evolution of the share of the number of firms that own a website and use
social media in the period 2014-2021:
Figure 8. Enterprises that have a website and use any social media
90%
70% 53%
42% 46%
50% 34% 39%
31% 30%
21% 25% 25%
30% 16% 19%
10%
2014 2015 2016 2017 2019 2021
UE România
Both for firms operating on the national market and for those operating on the
EU market, we observe a sustained growth rate throughout the period covered by the
research. Moreover, we note that at national level the value of this indicator almost
doubled in 2021 compared to 2014, which indicates the interest of companies
operating on the Romanian market for the online environment.
Progress towards digitisation could also be seen in the development of the ICT
sector which is making major contributions to the technological progress in the
374
national market. In this respect, we have analysed the evolution of the number of
companies in this sector (we have included those entities with CAEN codes in
classes 261, 262, 263, 264, 268, 465, 582, 61, 62, 631, 951 according to OECD,
NACE Rev 2, 3 digit), the turnover obtained as well as the investments made. As
regards the number of business organisations operating at national level in this field,
the data available on INSSE's online tempo platform show a significant increase.
Thus, in 2019 at national level there were 26,032 companies in this sector, more than
25% more than in 2015. Regarding the performance of these companies, we report
the evolution of turnover and investments made in the period 2015-2019:
Figure 9. The revenues and investments regarding the ICT sector from Romania (lei)
2019 89.598.491.128
7.951.445.206
2018 79.525.043.311
6.574.557.552
2017 70.826.502.507
6.066.303.595
2016 65.329.883.614
6.294.609.698
2015 60.743.274.095
4.969.186.341
0 30.000.000.000 60.000.000.000 90.000.000.000 120.000.000.000
Revenues Investments
Source: Author's elaboration after http://statistici.insse.ro/.
The highlighted data indicate a strong performance for ICT companies, with a
favourable evolution for both indicators during the period under review. Thus, the
turnover increased in 2019 by about 13% compared to the previous year and by about
48% compared to 2015 (the first year included in the analysis). Regarding the
investments made by the companies in this sector, we note that these increased in
2019 by 20% compared to the previous year and by 60% compared to 2015. This
suggests a high interest in the development of activities carried out on the domestic
market which will have positive effects on the national economy.
5. Conclusions
According to the highlighted information, we find that the contribution of
information technologies in the long-term performance and development of business
organizations is a major one, representing a basic element in the strategies of
successful companies. Technological progress in this area is due to the contribution
of the ICT sector in the development of software, hardware, IT platforms and other
digital solutions that are constantly being offered to individuals and business
organisations. The solutions given by these digital architects represent a fundamental
issue for the sustainable development of business organisations.
375
The progress achieved by Romania in the digitalisation sphere is limited

compared to the EU situation. Although the ICT sector is developing, being one of
the most dynamic sectors of the Romanian economy, the use of specific information
technology tools is still limited in the activities of business organisations, compared
to the EU average. We can state that this aspect is highly influenced by the lack of
digital competences and also appropriate strategies on national level.
Acknowledgment
This paper has been financially supported within the project entitled "DECIDE-
Development through entrepreneurial education and innovative doctoral and
postdoctoral research", project code POCU/380/6/13/125031, project co-financed
from the European Social Fund through the 2014-2020 Operational Program Human
Capital.
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377

June 16-17, 2022
Digitalisation: Connecting Businesses to Consumers

Edi-Cristian DUMITRA1*, Cristian STANA2,
Claudiu POPA3, Ciprian MANEA4
DOI: 10.24789788367405072-034
Abstract
The current paper aims to identify the role of digitalisation in business development and
business communication, as the use of digital technologies is important in the daily activities
of both companies and individuals. Digitalisation is defined as the use of technology in
business processes and operations, which stands as a key element in developing new business
models and achieving high efficiency on the market while helping businesses to stay
connected with consumers' needs and demands. As follows, the paper highlights the
importance of digitalisation by overviewing previous studies and connecting them to the
current business environment and the new consumers' behaviour, reshaped by the current
social situation. The paper also exposes several points of view on how digitalisation has been
used for business development and how digital technologies can be implemented in marketing
strategies and business communication. Meanwhile, since the current economic environment
has been strongly impacted by the COVID-19 pandemic, the usage of digital technologies
represented an important strategic step for businesses to continue their activity and overcome
the output of the crisis, keeping both companies and individuals connected. Therefore, the
paper shows the necessity to integrate digitalisation in business development and business
communication, as the main key to implement new business models and to benefit from the
advantages determined by using digital platforms as instruments for building and
maintaining a good relationship with consumers and the target audience.
Keywords: digitalisation, digital technologies, business development, business

communication, social media, marketing strategy.
JEL Classification: D23, M20, M31, O33.

2 Valahia University of Târgoviște, Târgoviște, Romania, [email protected].
3 Valahia University of Târgoviște, Târgoviște, Romania, [email protected].
4 University Politehnica of Bucharest, Bucharest, Romania, [email protected].
© 2022 E.-C. Dumitra, C. Stana, C. Popa, C. Manea, published by Sciendo. This work is licensed under the Creative
1. Introduction
As the COVID-19 pandemic had a strong impact on the economic environment
globally, many businesses and governments had to overcome themselves to keep
their economic activities on track with the development of the situation. Therefore,
digitalization has been strongly used for continuing their activities and to improve
the business procedures and business models by digitalising the business
environment, especially while adopting social distancing for reducing human-to-
human transmission of the virus. Meanwhile, economically, these actions lead to
reductions in consumption and unfortunately to the elimination of businesses in some
cases (Gregurec et al., 2021).
For a better understanding of the context, the evidence of the most incumbent
firms across industries are based on digital processes and operations, while there is
a new demand created for digital technologies, that will redefine business models
and business plans, so organizations will be able to improve and to keep up with their
competitors for providing a long-term value for costumers, highlighting the fact that
digitalisation and innovation represents a pair of instruments that must be
implemented simultaneously (Parida et al., 2019).
Meanwhile, the current state of the economic environment determined new
customers’ behaviour and their relations with the business environment. Therefore,
digitalisation is also used for connecting businesses with the target audience and to
achieve a long-term collaboration with the clients by maintaining a good relationship
with them.
Overall, the paper aims to show, by an overview of the scientific literature, that
digitalisation is a strong instrument used in both business development and business
communication, especially in the current social and economic context in which
the Internet of Things (IoT) and social networking platforms are strongly used every
day by both organizations and individuals in order to satisfy their needs and to
achieve their goals, and since technology and the technological innovation are
vitally important in order to improve the efficiency, leading to sustainable growth
(Jones et al., 2017).
As Brennen and Kreiss (2014) exposed in their paper, digitalisation can be
defined as “the adoption or increase in the use of digital or computer technology
by an organization, industry, country, etc.”, while digitization can refer to “the action
or process of digitizing; the conversion of analogue data into digital form’’
(Parviainen et al., 2017).
In the last period, most businesses tended to implement the latest digital trends
that can improve the accessibility of all processes and operations, while providing
greater efficiency for organizations to incorporate the latest technologies for
increasing their sustainability. Based on that, using the computerized technology
innovations, companies provided a smoother approach to their activities and
operations, while establishing better management for keeping up with the business
379
environment’s needs and customers’ behaviour. At the same time, digitalisation has
been used for developing administrative operations, making it easier for human
resources to complete tasks by designing new communication services to increase
the accessibility of incoming or outgoing information. Thereafter, the role of digital
technology is not too foreign to many organizations that have implemented
digitalisation in their business operational model (Hendriato, 2021).
Meanwhile, in this increasingly digital era, the COVID-19 pandemic also
determined the relationships between organizations and customers to be reshaped
and new business models to be created by companies to overcome the economic and
social impacts of the situation. Organizations in all industries needed the agility to
be flexible and to pivot rapidly for pursuing new business opportunities and to adopt
to the fast-paced global business environment’s development (Parida, 2018). In
addition, current digital technologies have reshaped the way businesses approach
their value proposition and value demonstration by creating new requirements for
business models and business strategies (Ritter, Pedersen, 2020).
Digitalisation seems to be concentrated on data and the large amounts of
information that can be accessed using a computer linked to a network connection,
but this data should be considered exactly what it is: a model of the world that it
describes (Gray, Rumpe, 2015), which should be used by companies to increase their
reach to the targeted audience, while reforming their processes and activities,
facilitating a better development in their production segment, and organizational
management.
At the same time, leading ICT (information and communication technology)
companies have suggested that while using their sector, businesses can have a better
approach to achieve the sustainability goals, while leveraging the mobile networks
to deliver their messages or their services to the targeted audience or the direct
clients. As the literature has already confirmed, ICT relates to sustainable
development, contributing to the achievement of the sustainability goals of the
business environment and, as the current state has proved, to overcome some
difficulties generated by the lack of human-to-human contact while doing business
in the pandemic (Jones et al., 2017).
Parviainen et al. (2017) affirmed in their paper that while companies implement
digitalisation for their activities, both the managerial environment and the
operational environment are subjects of changes at several levels: process level –
adopting new digital technologies for reducing manual steps; organizational level –
creating new services and reshaping new services for offering them in new forms;
business domain level – implementing changes in organizational structures and value
chain in ecosystems; society level – redefining society structures (such as type of
work, fields of work, influencing decision making, etc.).
Therefore, digitalisation and the Internet of Things have changed both economic
and social environments, bringing more value to the activities of both companies and
individuals, generating more economic growth to achieve the sustainability goals
(Jones et al., 2017). By using both, besides the increase in their competitiveness,
companies can also transform their services and products into digital business
380
opportunities, while using the tools provided by IoT for studying consumers’
behaviour and analysing attitudes and consumption to establish a better business
model for their activities (Sestino et al., 2020).

The main goal of this research is to prove that digitalisation is a significant
key for businesses to overcome a crisis and to develop in the current state of the
business environment while improving their processes and activities, especially
the business communication between organizations and the targeted audience by the
marketing strategy.
Therefore, the purpose of the study is to highlight the importance of
implementing modern technologies in both economic activities and business
communication by answering the Research Question: Did digitalisation facilitate
business development and business communication?
4. Research Methods
For answering to the question of this study, the researchers will use in their
investigation the method of reviewing and analysing the previously published case
studies that approached related questions. The case studies have been searched
electronically and selected from a digital database. All the case studies that have
been used for this paper are listed as references.
To state a valid answer, the authors seek to understand the questions about
digitalisation by reading preliminary literature and driving the highlights of the study
cases, focusing on publications between 2008 and 2021.
5. Findings
5.1 Digitalisation and Business Development

Since digitalisation is already impacting organizational processes and the
business environment, companies have elaborated new ways of working,
acknowledging that without implementing the digital technologies, their business
model cannot keep up with the changes in the market (Parviainen et al., 2017).
Firstly, and the most important aspect of digitalisation and the business
development is that after companies understood the benefits of using the digital
technologies as tools for their business model and business strategies, organizations
are able to increase their collaborations, to accelerate their decision making, and to
create and build new products while gaining more visibility across operations and
activities. Thereafter, by implementing the digital approach as their targeted solution,
businesses can make a higher profit and can transform their activities to continue
innovating while using digital technologies for increasing their connectivity with
customers (Hendriarto, 2021).
Secondly, as Parida (2018) demonstrated, in this digital era, the biggest challenge
for the companies to adapt to the current digitalised environment represented
381
the lack of digital skills and culture in organizations. Highlighting the need to focus
on people and culture for achieving the digital transformation, as shown in Table 1,
Parida (2018) identified five digitalization transformation challenges and some
solutions for the exposed aspects. But this does not mean that digitalisation can be
implemented without social or economic impacts. Taking into consideration the
manufacturing industry, the automatization and digitalisation will provide greater
efficiency by using the digital technologies, but at the same time, the labour force
will need to be restructured or reinstructed with new digital skills, as many
workplaces will be reduced due to the replacement of humans with technological
instruments.
The skill revolution will take place because organizations will face a strong
challenge by integrating devices, computers, and the workforce into their economic
activities to achieve higher efficiency and sustainability by using digital
technologies. Meanwhile, the most important aspect is that while applying the digital
technologies, companies cannot develop alone. This is the reason why, while
implementing digital technologies, the microeconomic environment should be
relating to the macroeconomic current situation, and why the governments are also
responsible for creating the necessary infrastructure for digitalisation to be organized
and available for companies to develop sustainable business models.
Table 1. Digitalisation transformation challenges

Challenges Actions to be done for overcoming the challenge
Implementing stimulating the development, spread, and use of the new available
political digital technologies by exploiting the potential of digitalization on
digitalization national level and adapting the infrastructure while creating
agenda framework conditions and instructing the new knowledge
Digital platforms
developing digital strategies and action plans for reducing the
for
number of jobs and implementing new business models
entrepreneurship
Workforce
integrating new skills for increasing the sustainability provided by
requirements
digitalisation while promoting flat organizational structures and
and new skill
more management innovations
development
Digitalization embracing service-oriented business models for staying competitive
forces business in the manufacturing industry while exploiting digital technologies
model innovation for offering advance services
Unrealized value
providing the easiest access for all stakeholders to big data by
of big data
actuators for data collection and networks of low-cost sensors
analytics
Source: Adapted from Parida (2018).
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Thirdly, as Ritter and Pedersen (2020) showed in their paper, digitalisation must
be employed in the business model, because otherwise, a company’s digitalisation
capability will represent just an expense with no returns on the investment. Since
implementing digitalisation requires transition costs, if the digital technologies are
not integrated into the organization’s processes and activities, the company will not
develop its value proposition and value demonstration based on its business plan’s
capabilities. Once again, the integration of digital technologies and workforce is
highlighted as the most important aspect of developing business models based on
digitalisation and customers’ behaviour.
Meanwhile, digitalisation also pushed companies to adopt hybrid business
models that required investments in people skills and corporate culture; reshaping
the organizational culture of companies.
As Sestino et al. (2020) presented in their paper, companies had to implement
digital workplaces characterised by mobile, flexible, and team-oriented working
methods; taking into account at the same time not to neglect employees’
psychological needs for a secure workplace and their attitudes about shifting
from the established corporate culture to a new working environment based mostly
on uncertainty.
One more aspect is that “Digital business strategy is different from traditional
IT strategy in the sense that it is much more than a cross-functional strategy, and it
transcends traditional functional areas (such as marketing, procurement, logistics,
operation, or others) and various IT-enabled processes (such as management,
customer service, and others)” (Bharadwaj et al., 2013). This is especially important
in the context in which digital operations have been predominantly used in the
last two years as the COVID-19 pandemic was impacting directly the global
economic environment and many businesses kept their activities ongoing by using
the digital platforms, social media networks, video conferences, and digital
communication channels.
Therefore, implementing digital technologies in business models represents
one of the key decisions to prosper in the actual business environment and the
economic situation of the market, based on the characteristics determined by the
current digital era.
5.2 Digitalisation and Business Communication

As far as digitalisation and implementing digital technologies helped business
development; it has also removed the traditional supply chain by creating new
intermediates and offering direct access to consumers through the increase in the
social media platforms and mobile devices use (Parviainen et al., 2017).
As follows, it is important to discuss the implications of digitalisation
on business communication and marketing strategies as well. Therefore, over the
last two or three decades, companies understood that a digital functional-level
strategy must be incorporated into the business model (Bharadwaj et al., 2013),
especially when digitalisation can reshape business communication and marketing
383
strategies, due to the increase in usage of the digital technologies by both businesses
and individuals.
Since the digital era determined appropriate levels of information and
knowledge to be the critical key to success, organizations adopted processes and
technology changes for adapting to the world of increased environmental complexity
(Al-Debei et al., 2008), so the need for digitalisation has increased considerably
and its elements have been implemented in business communication as a response
by companies in order to adapt their business strategy to the customers’ new
economic behaviour.
As a result, the business faced a gap between the business processes and business
strategy, a gap determined by the dynamic environment, a high level of competition,
and uncertainty. This gap has been proved important once more in the environment
established by the COVID-19 pandemic in which digitalisation alongside business
communication has played a significant role in developing new business models,
reshaping strategies, and marketing approaches for keeping the activities running
and prospering in the current situation.
The main goal of business communication is to provide a strong connection
between the company and its customers. Thereafter, digitalisation is a crucial
element in developing business communication, considering that nowadays in
business model innovations, the preference to increase brand and corporate
awareness using social media is highly suggested. This is relevant because the social
network users are mostly teenagers and young adults; therefore, companies can
use this to their benefit by attracting fresher and younger potential clients that
can be retained and formed as long-term customers by the marketing strategies
(Hendriarto, 2021). At the same time, companies can increase the sustainability of
their activity by maximizing their profitability, providing a platform for the
consumers to reach the organization and to offer feedback, which can be used
furthermore for improving the products or gaining new consumers.
New customers’ behaviour means at the same time a new kind of consumer that
demands a new way of approaching business activities and processes. In this way,
nowadays many companies are using new digital technologies and platforms for
building a better customer relationship, thinking about implementing in their
operation new social digital platforms, such as: websites, social media accounts, and
marketing strategies to facilitate the interaction with consumers and their target
audience (Ilcus, 2018).
Moreover, Patrutiu-Baltes (2016) exposed some advantages of using digital
technologies in business communication, such: networking; brand development;
reduced costs; global market access; permanent interactivity with customers;
attracting new customers; faster dissemination of information; analysis of direct
competitors; developing a long-term relationship with customers; as well as the
possibility of recruitment in vacant posts.
As presented in Table 2, digital business communication can be used by several
means and tools, each one being helpful in transmitting information to the target
audience. At the same time, some platforms can also be used for several other
384
actions; therefore, the marketing strategy should incorporate more than only one tool
for establishing a good marketing mix and a higher reach within the globalized
economic environment. Business communication is also part of the marketing
strategy of an organization, therefore thanks to digitalisation, companies nowadays
also have access to new tools that can be used by marketing managers to collect data
for identifying gaps or emerging current trends in consumers’ behaviour.
Table 2. Usage of digital business communication

Mean Tools Benefits
Business communication must be adapted for
mobile devices, becoming easier to access and
Mobile devices
reaching a higher audience since individuals are
Direct permanently connected to their smartphones.
communication Should represent business cards for companies
by digital Websites and can provide easier access to data
platforms subtraction.
Can help to improve the brand personality by
Blogs allowing custom communication and long-term
relationships between businesses and customers.
Direct
The most valuable tool for Business-to-Business
communication
communication, helping the direct
between the
Email marketing communication between the company and the
companies and
targeted audience by contacting the consumers
the targeted
that have subscribed to Newsletters.
audience
The largest social network in terms of the
number of users that can connect people
worldwide with the company’s business, is ideal
Facebook for medium and small businesses since it can
reduce the marketing costs by improving the
direct communication between companies and
customers.
Even if it provides a smaller reach, can be used
Digital
for marketing and promotion, generating leads,
communication Twitter
and helping companies to communicate different
using social
information and offers to the targeted audience.
network
Since it is the largest online professional
platforms
network, can be also used to raise awareness,
LinkedIn
improve the company’s image, and for
recruitment of new employees.
Companies should include it in their marketing
strategy to promote their products/services using
Instagram pictures and videos, which can be transmitted in
a user-friendly environment to capture users’
attention.
385
Mean Tools Benefits

Allows to create an online community using
YouTube video materials such as: product presentations,
tutorials, problem-solving situations, etc.
Can increase the trust of the targeted audience
Specialized
using reviews written by customers as “word of
Secondary forums
mouth” publicity.
communication
Sensitive tool that can be used to raise
by digital
awareness and to increase the company’s
platforms Webinars
reputation by determining the targeted audience
to gain more trust in the company’s products.
Source: Adapted from Patrutiu-Baltes (2016).
Digitalisation helped as well in establishing stronger bonds with the targeted

audience, by shifting toward multichannel and multimodal communication,
increasing users’ immersion, developing stronger customer retention and better
consumer experiences. In this digital era, customers can now purchase products and
demand services without leaving their home, by using a mobile device and the
available communication channels, so the customer experience is better because
even the online stores are slowly eliminated and the post-purchase experiences are
sustained by reviews and website visit, improving businesses’ awareness in the
targeted audience using the word-of-mouth. Meanwhile, as speed and
personalization represent the pylons of e-commerce, companies and individuals can
communicate in real-time and agree easily on transactions by direct connections
using social media networks. Also, the targeted audience will increase its trust in the
products and the organization based on the reviews that are easily accessible online.
Therefore, business communication is highly important for business models as
part of the marketing strategy, because it will help the company to develop and to
prosper by keeping in touch with its clients and its targeted audience, but at the same
time increasing the credibility of the stakeholders while communicating the general
impacts of the company and their benefit to the community (Lopez, 2020).
6. Conclusions
As the scientific literature shows, the business model is derived directly from the
business strategy, so for organizations to survive and to be permanently improved,
digital technologies should be implemented in their processes and economic
activities. Moreover, digital technologies are in continuous development; therefore,
it is crucial for companies to adapt to the new digital technologies and to integrate
them into their business strategy for achieving great competitive advantages
(Al-Debei et al., 2008).
Meanwhile, a good marketing strategy can improve business communication in
the current digital era, and by use of digitalisation, companies can also increase their
efficiency and their products’ quality; can integrate records by using digital systems;
can improve response time and client service by increasing the accessibility of
knowledge sharing while implementing better business plans and reducing costs
386
(Ilcus, 2018). While in the past the business communication strategies required
considerable costs, nowadays the digital technologies have helped companies to
increase their reach to the target audience and to reduce their marketing costs,
becoming more efficient in both producing goods or services and promoting them
(Patrutiu-Baltes, 2016).
To answer the Research Question: “Did digitalisation facilitate business
development and business communication?”, as the evolution of digital technologies
created great opportunities for businesses, it also came with complex challenges
(Sestino et al., 2020) in implementing and adapting them to the business strategy,
while reshaping the business environment. But, as Patrutiu-Baltes (2016) also
affirmed, digitalisation helped business communication by enabling multichannel
business communication, accessible and dynamic, with low costs and great
accessibility for adapting to the needs of the targeted audience. Therefore, as the last
years have shown, while the COVID-19 pandemic reshaped the economic
environment and many businesses have been challenged to survive and adapt to the
new conditions of the market, digitalisation has been an important key to maintaining
their economic activity and their contact with the customers while increasing their
visibility to the targeted audience.
Meanwhile, since the pandemic influenced several emerging trends, digitalisation
and the combination of digital technologies in both processes operations and
communication operations helped the business to overcome the outcome of the
COVID-19 pandemic while facilitating a better sustainability for the business
environment (Gregurec et al., 2021), the ICT industry, stressing its vital role played
in driving progress towards the global transformation and the economic growth
(Jones et al., 2017).
So, digitalisation facilitated both business development and business
communication, providing them with the tools to overcome an important crisis of the
current era, emerging a new era for sustainability and economic growth.
References
[1] Al-Debei, M.M., El-Haddadeh, R., Avison, D. (2008). Defining the business model in the
new world of digital business. AMCIS 2008 proceedings, p. 300.
[2] Bharadwaj, A., El Sawy, O.A., Pavlou, P.A., Venkatraman, N.V. (2013). Digital business
strategy: toward a next generation of insights. MIS quarterly, pp. 471-482.
[3] Brennen, S., Kreiss, D. (2014). Digitalization and Digitization [Online]. Available:
http://culturedigitally.org/2014/09/digitalization-and-digitization/, accessed April 2022.
[4] Gray, J., Rumpe, B. (2015). Models for digitalization. Software & Systems Modeling,
14(4), pp. 1319-1320.
[5] Gregurec, I., Tomičić Furjan, M., Tomičić-Pupek, K. (2021). The impact of COVID-19
on sustainable business models in SMEs. Sustainability, 13(3), p. 1098.
[6] Hendriarto, P. (2021). Understanding of the role of digitalization to business model and
innovation: economics and business review studies. Linguistics and Culture Review,
5(S1), pp. 160-173.
387
[7] Ilcus, A.M. (2018). Impact of digitalization in business world. Revista de Management
Comparat Internațional, 19(4), pp. 350-358.
[8] Jones, P., Wynn, M., Hillier, D., Comfort, D. (2017). The sustainable development goals
and information and communication technologies. Indonesian Journal of Sustainability
Accounting and Management, 1(1), pp. 1-15.
[9] Lopez, B. (2020). Connecting business and sustainable development goals in Spain.
Marketing Intelligence & Planning.
[10] Parida, V. (2018). Digitalization. [Online]. Available at: https://www.diva-portal.org/
smash/get/diva2:1191622/FULLTEXT02 [Accessed April 2022].
[11] Parida, V., Sjödin, D., Reim, W. (2019). Reviewing literature on digitalization, business
model innovation, and sustainable industry: Past achievements and future promises.
Sustainability, 11(2), p. 391.
[12] Parviainen, P., Tihinen, M., Kääriäinen, J., Teppola, S. (2017). Tackling the digitalization
challenge: how to benefit from digitalization in practice. International journal of
information systems and project management, 5(1), pp. 63-77.
[13] Patrutiu-Baltes, L. (2016). The impact of digitalization on business communication. SEA–
Practical Application of Science, 4(11), pp. 319-325.
[14] Ritter, T., Pedersen, C.L. (2020). Digitization capability and the digitalization of business
models in business-to-business firms: Past, present, and future. Industrial Marketing
Management, 86, pp. 180-190.
[15] Sestino, A., Prete, M.I., Piper, L., Guido, G. (2020). Internet of Things and Big Data as
enablers for business digitalization strategies. Technovation, 98, 102173.
388

June 16-17, 2022
Economic Policies Adopted in Romania

after the COVID-19 Pandemic. A Study Case:
Comparing Romania with Other EU Realities
Emilia JERCAN1, Teodora NACU2*
DOI: 10.24789788367405072-035
Abstract
As a member of the European Union since 2007, Romania has been one of the countries
that registered one of the highest economic growth in the EU in recent years. However, as in
the rest of the world, the COVID-19 pandemic has caused significant effects and impacted
the economy. This paper aims to analyze Romania's government measures and economic
policies to restart and help reconstruct the national economy. The recovery is continuing
around the world for different realities. So, considering the OECD Economic Surveys,
Romania’s GDP will have grown by 4.5% during 2022-2023 and register a growth of
6.3% in 2021. Our review focuses on the consequences the pandemic had internationally,
especially at the national level, while presenting a comparative analysis of the policies
adopted in Romania and among other EU member states. This paper can be a good
starting point for post-pandemic development policies needed for the swift recovery of the
national economy. A specific consolidation plan can provide Romania with a gradual
reduction of the budget deficit by accelerating the absorption of EU funds, e.g., the
NextGeneration EU or improving the effectiveness of public spending. EU funds such as
NextGeneration with the Recovery and Resilience Facility (RRF) will support the
implementation of investments and reform measures and enable Romania to emerge stronger
from the COVID-19 pandemic. Therefore, the RRF will represent a common European
challenge by permitting a green and digital transition, bracing the Single Market’s economic
and social resilience and cohesion.
Keywords: Economic policies, COVID-19, restarting economy, Romania, EU

Funds.
JEL Classification: F63, I18, F43, P51.

© 2022 E. Jercan, T. Nacu, published by Sciendo. This work is licensed under the Creative Commons Attribution
4.0 License.
1. Introduction
Since 2020, when the COVID-19 pandemic became a reality affecting all the
states of the world, a great concern for the topic has been manifested by scientists
aiming to look at the impact of the pandemic on both developed and emerging
economies.
A large part of the research in the field has been concentrated on the most
transparent consequences of the pandemic, generally to estimate the financial
requirements and needs over the recovery phase of the economies (Carnap et al.
(2020), Chang et al. (2021). While the COVID-19 pandemic has affected different
countries with varying intensity, due to lockdowns in Europe and the rest of the
world, it is clear that it has severely affected the European Union (EU) economies at
multiple levels (national, industrial, at a company level, etc.) (Belhadi et al., 2021;
Ibn-Mohammed et al., 2021), which poses difficult challenges for national
governments. In Romania, the first case of COVID-19 was reported in February
2020, and the government has since implemented a set of measures designed to delay
the progression of the virus while supporting the financial system and the Romanian
people. Among those measures were a national emergency state, social distancing
measures, and the closure of schools and all kinds of entertainment.
An impressive number of measures and plans have also been mobilized at the
European level in order to overcome those unexpected challenges. However, in
agreement with the report on the Global Economic Effects of COVID-19
(Congressional Research Service, 2021), in the early phases of the coronavirus
pandemic, as opposed to the response developed during the 2008-2009 global
economic crisis, the EU countries did not embrace a fully synchronized fiscal policy,
which led to the EU advocating for better coordination among the EU members “in
developing and implementing monetary and fiscal policies to address the economic
fallout from the viral pandemic” (2021). Given the unusual challenges the world was
facing, the EU was also confronting internal disputes over vaccine distribution,
which increased public criticism of government leaders in some EU countries and
prompted renewed business lockdowns and school closures (Chazan, 2021).
After several discussions, the European leaders came to an agreement on July 21,
2020, to assist and support the European economies with the amount of €750 billion
(approx. $859 billion), consisting of a Recovery and Resilience Facility considered
the centerpiece of the NextGenerationEU program, which is to provide funds for
“existing budget priorities to speed up Europe’s recovery from the economic impact
of the pandemic” (European Commission, 2021).
For the most part, the EU members used a combination of national fiscal policies
and ECB bond buying to address the economic impact of the pandemic. Individual
countries adopted quarantines and required business closures, travel and border
restrictions, tax holidays for businesses, extensions of certain payments and loan
guarantees, and subsidies for workers and businesses (Congressional Research
Service, 2021, p. 81).
Being part of the EU since 2007, Romania has benefited from the response to
the COVID-19 crisis at the European Union level. Thanks to loans to national
390
governments or other non-reimbursable funds, designed to mitigate the impacts of

the crisis, support the economies and help compensate for the losses caused by the
pandemic as much as possible. Romania, like the other individual EU members,
developed recovery and resilience plans to support “clean technologies and
renewable energy (...), digital transformation, and education and skills training,
among other areas” (Congressional Research Service, 2021, pp. 81-82).
In September 2021, the EC has approved and “given a positive assessment to
Romania’s recovery and resilience plan, which will be financed by €14.2 billion in
grants and €14.9 billion in loans” (European Commission, 2021).
According to the OECD, before the start of the pandemic, the economic
representation of Romania was considered impressive. “In less than 20 years,
Romania has reduced the gap in GDP per capita to the OECD average by half, from
close to 70% to around 35%. The population at risk of poverty or social exclusion
had fallen to 30% in 2020, from around 50% thirteen years before” (OECD, 2021).
However, the crisis had a considerable negative impact on the economy and the GDP
fell by 3.7% in 2020 before surpassing its pre-crisis level in 2021 (OECD, 2022).
This article focuses on the COVID-19 experience in Romania in the first two
years of the pandemic and on the policies adopted during that period. Therefore,
Romania’s case is analysed as an example of how government measures can
influence the national economy. According to the IMF, “among EU countries,
Romania experienced a relatively shallower overall economic contraction rate of
only 3.9% for 2020. This reflected the easing of lockdown restrictions, including the
rebound in EU trading partners, and growth also continued to be supported by
COVID-19 support measures” (IMF, 2021).
As of 4 April 2022, the total number of confirmed COVID-19 cases in Romania
has reached 2,872.849 million cases, at the same time registering a stable situation
with many new cases not exceeding 3000 cases daily.
Several studies and research have been conducted on the COVID-19 crisis and
its consequences, and according to the Congressional Research Service (2021),
COVID-19 “has affected the $90 trillion global economy beyond anything
experienced in almost a century”.
The International Labor Organization has also raised numerous concerns about
the uncertainties brought about by COVID-19 warning that it could cause “half of
the labor force around the world to lose their jobs (2020)”. All these unexpected
threats and changes have turned COVID-19 into ‘a national security crisis that many
countries also need to address to protect their people’s wealth and well-being. As
such, when and how to restart national economies has stirred debate across the globe
as predictions about COVID’s resilience and persistence vary” (Zahra, 2021, p. 2).
As a response to the economic consequences of the pandemic, governments around
the world provided support to households and firms. As specified by the World Bank
(2021), support to firms was provided “to prevent mass insolvency and bankruptcy
of viable firms facing financial distress and related knock-on effects for the financial
391
sector, to prevent losses of jobs and firm-specific intangible capital, and to reduce
the friction costs of firms temporarily exiting the market” (World Bank, 2021, p. 71).
Admitting that a post-pandemic recovery will include a close collaboration
between the EU member states, the European leaders have agreed on a “financial
package of €1,824 billion, which combines the Multiannual Financial Framework
(MFF) and the newly created Next Generation EU (NGEU) recovery instrument”
(Cătuți et al., 2020, p. 3). According to the authors (2020), the MFF will cover a
standard period during the years 2021 and 2027, while the Next Generation EU is
providing the member states with the means to address the challenges raised by the
COVID-19 pandemic.
Taking into account the fact that the Romanian economy is integrated into the
global economic system, it is right to assume that the COVID-19 pandemic had its
effects on the national economy of Romania. The impact of COVID-19, however,
has been different across several countries and regions, depending on “the level of
development, trade structure, the stringency of containment measures, and
government's capacity to implement policies supporting business and households”
(Khorana et al., 2021, p. 5). To understand these consequences, we will succinctly
analyze the effects the pandemic had on the Romanian economy. Even today, with a
pretty stable COVID-19 situation nationally and internationally, there is still a
significant level of uncertainty about the dimensions and depth of the economic
effects the pandemic has had, influencing “perceptions of risk and volatility in
financial markets and corporate decision-making” (Congressional Research
Service, 2021, p. 26).
The latest research from the EU shows that Romania is currently experiencing a
positive but moderate growth outlook, with the real GDP set to grow at 4.5% in 2022
and 2023. In addition, investments are expected to remain a strong pillar of the
Romanian economy, as they will be supported by the Recovery and Resilience
Facility among other EU funds. In the case of Romania, the RRF will become a very
important instrument for the national economy, as it will provide up to € 800 billion
to support investments and reforms across the EU.
In particular, the Romanian plan forms part of an unprecedented coordinated
EU response to the COVID-19 crisis, to address common European challenges by
embracing the green and digital transitions, to strengthen economic and social
resilience and the cohesion of the Single Market (European Commission, 2021).
In terms of finance and economy, Romania has adopted a set of policies designed
to help the economy restart. Namely, the government has launched a RON 16 billion
scheme (European Commission, 2020), designed to grant support in the form of
direct grants and state guarantees for investment and working capital loans, to
support and be accessible to the SMEs affected by the coronavirus.
Another sector that was affected by the COVID-19 pandemic is the foreign trade
that decreased during the crisis period, and according to Khorana, Zarzoso and Ali
(2021), it was due to the interruption of “economic activity due to lockdowns, travel
restrictions, closure of borders, and other containment measures” (Khorana et al.,
2021, p. 5). Looking directly at the relationship between international trade and the
392
COVID-19 crisis, there are not many studies that were identified (Tudorache,
Nicolescu, 2021, p. 70), however, as reported by Maliszewska, Mattoo, and van der
Mensbrugghe (2020, p. 14) in their study about the likely impact of COVID-19 on
GDP and trade, it is exemplified that the most affected services were international
tourist services and other domestic services. On the other hand, Khorana et al.
(2021), state that “there has as yet been no detailed contextualization of the linkage
between the incidence of COVID-19 and the trade flows within different countries”
(2021, p. 5).
Although there were several initiatives by the Romanian government (Volciuc-
Ionescu, 2020), and the Government has introduced certain facilities for a loan
granted by credit institutions and nonbanking financial institutions to certain
categories of debtors, following the World Bank Group on a study on Competition
and Firm Recovery Post-COVID-19, it is said that the national government has
provided “one of the lowest fiscal stimuli in the EU to mitigate the impact of
COVID-19, reflecting the limited fiscal space” (2021, p. 120). It is, therefore,
necessary for Romania to avoid the increases in debt levels, and one of the ways to
prevent this and lead to a sustainable recovery would be the maximal absorption of
the EU Multiannual Financial Framework and Next Generation EU funds.
In a scenario of 100% absorption of the Resilience and Recovery funds,
Romania’s real GDP growth will, on average, rise by one percentage point per year
between 2021 and 2026. Private and public investment will benefit from the phasing
in of projects financed by EU funds. Exports are set to recover, aided by the gradual
recovery of global trade. As growth recovers, inflationary and current account deficit
pressures are expected to strengthen, requiring an appropriate policy response
(World Bank Group, 2021, p. 122).

The purpose of this paper is to present the impact the COVID-19 crisis had on
the Romanian economy, more specifically to analyze the responses adopted by the
Romanian government to support the economy. One of the main objectives was to
identify and describe the economic situation in Romania, comparing it with other
realities in the EU after the COVID-19 pandemic. Moreover, another objective was
to measure its ranking among different EU countries during the last years. However,
the objective of this paper is not to evaluate the success of the responses of the EU
countries to the pandemic, but rather to analyze some of the imposed measures and
provide practical information to support the current policy efforts and the future
resilience plans. This paper contributes to the existing literature on the field, as it
helps expand the literature on the economic policies adopted in Romania by
examining detailed data provided by the World Bank, the European Commission,
the National Institute of Statistics, etc.
As a case study, we have chosen to compare Romania with six other countries
(Czech Republic, Estonia, Lithuania, Poland, Slovakia, and Hungary), measuring the
health of the country’s economy over future and past periods.
393
4. Research Methods
The research method used in this paper is a methodological review of the
literature that analyses the ongoing process of the economic policies adopted by the
EU after the COVID-19 pandemic focusing on the Romanian situation. The research
method consists of a collection of data from both the Romanian economy and from
different realities of the EU countries. The methodology chosen for this research is
based on a three-step process:
1. The first step consists of a comparison between seven EU countries (including
Romania) regarding the allocation of EU funds based on OECD 2022 Surveys.
2. The second step of this paper consists of describing the most important policies
adopted in Romania after the COVID-19 pandemic, also focusing on the
economic outlook of Romania.
3. The third step regards a comparison between the GDP of seven countries,
measuring the health of a country's economy over future and past periods.
The gathered and selected materials came from different sources such as
academic journals and quantitative data of the EU institutions, the OECD and EU
institutions reports. The criteria used to select material sights at the year of the
publication, therefore, we decided to pick the most recent materials focusing on the
Romanian situation.
5. Findings
Up to this point, 22 EU States can use the EU recovery plans to boost their
economies and assist the recovery from the COVID-19 pandemic. The last three EU
countries to get accepted to the EU recovery plans were Estonia, Finland, and
Romania, on the 29th of October 2021 (European Council, 2022). With
NextGeneration EU (NGEU), the EU aims to demonstrate its capacity to give an
immediate policy response to the pandemic by creating jobs and financing
investments with a sustainable and resilient recovery. Therefore, the RFF the
centrepiece of NGEU will employ 750 billion euros (at 2018 current prices) updated
to 806.9 billion (in August 2021 at current prices across the EU. The NextGeneration
EU investments will have to align with the EU priorities of green and digital
transition due to their potential for growth and job creation (Crescenzi et al., 2021).
In the first step of our Findings, we selected data from the OECD Economic
Surveys: Romania 2022 and compared them with other realities of the EU. In Figure
1 we select six countries to compare the situation of Romania in terms of Cohesion
Policy (CP) and RRF grants. The CP is the main investment policy in the European
Union (European Commission, 2014). It includes three main funds present both for
2014-2022 and 2021-2027 which are the European Social Fund (ESF), the European
Regional Development Fund (ERDF) and the Cohesion Fund (CF) (European
Commission, 2014). Figure 1 represents the total allocation for 2021-2027 period in
current prices of CP as a percentage of 2020 GDP and the RRF as the max. allocation
of the RRF over the period 2021-2026, again expressed as a percentage of 2020 GDP
(OECD, 2022).
394
Figure 1. Romania vs other EU countries on receiving the EU funds
*Expressed values are at current prices.

Source: OECD, 2022, and author’s own selection of data.
The selected countries in Figure 1 are Czech Republic (CZ), Estonia (EE),
Lithuania (LT), Poland (PL), Romania (RO), Slovakia (SK), and Hungary (HU). The
figure indicates that Romania will receive a large amount of funds and grants to
finance its national resilience and recovery plan, as stated in the OECD 2022 Surveys
of Romania.
The second step includes the most relevant policies adopted in Romania after
COVID-19. According to the European Bank for Reconstruction and Development,
different policy responses will be in place for the next years or were approved and
are ongoing.
Figure 2. Responses to Romania's policies after and during the COVID-19 pandemic
Source: European Bank for Reconstruction and Development, 2021,

and author’s own selection.
As indicated in Figure 2, different policies are in progress in Romania. Regarding

the National Recovery and Resilience Plan, COVID-related fiscal measures, and
other initiatives from the digital, service, or law field. Furthermore, according to the
OECD Economic Surveys issued in January 2022, Romania’s GDP is growing by
4.5% during 2022-2023 and registered a growth of 6.3% in 2021. In addition, the
unemployment rate will gradually decrease from 5.4 in 2021 to 4.8 in 2023. Table 1
represents the information mentioned above in more detail:
395
Table 1. Economic outlook of Romania

2021 2022 2023
Gross domestic
6.3 4.5 4.5
product
Unemployment
5.4 5.2 4.8
rate (5%)
Public debt (%
50.3 54.1 57.1
of GDP)
Fiscal balance
-8.0 -6.6 -5.3
(% of GDP)
Source: OECD, 2022.
The last step regards a comparison between Romania with the above-mentioned
countries (Czech Republic, Estonia, Lithuania, Poland, Slovakia, and Hungary)
based on the countries' gross domestic product (GDP). The effects of the pandemic
on global economies were different in each sector, country or dimension.
Considering the following example based on countries' GDP: in 2020, the GDP
registered a decrease for each of the countries in Table 2. The Czech Republic has
the highest GDP decrease, -5.8, and the lowest was in Lithuania with -0.1. Regarding
Romania, it had a decrease of -3.9 which place it at the fourth place.
Table 2. GDP outlook of seven EU countries

GDP
COUNTRY
2020 2021 2022 2023
CZ -5.8 2.5 3.0 3.9
EE -2.7 9.6 4.5 3.8
LT -0.1 5.1 3.8 3.5
PL -2.5 5.3 5.2 3.3
RO -3.9 6.3 4.5 4.5
SK -4.4 3.2 5.0 4.8
HU -4.8 6.9 5.0 3.0
Source: OECD, 2021.
The crisis affected all the segments of the economies, and its effects differed
across countries. The European States registered a growth after the pandemic, and
surely recovery and resilience facilities, the European support and the active
cooperation between states have contributed to this growth consistently. We can only
hope that the pandemic will not cause any more damage in terms of lives and
economic crisis. Even if another conflict is knocking at the European doors, and it
involves each of our realities.
6. Conclusions
This article aims to outline the economic situation of Romania, comparing it with
other realities in the EU after the COVID-19 pandemic. Moreover, it has measured
its ranking around the EU realities during the last years, following a methodological
396
literature review. Our study demonstrates that, after the pandemic, the policies
adopted in Romania are in a mature phase with regard to the ongoing legislative,
economic, and strategic initiatives. Moreover, unemployment is expecting to
decrease in the coming years. This approach had numerous advantages:
understanding the EU policies and the economic situation is actual and involves
various segments. Moreover, data are available everywhere: from the EU to the
OECD reports cited in this paper and from academic journals to specific institutions'
predictions. The weaknesses of the research is based on the multitude of information
available about the chosen subject. Additionally, conducting the research from only
one perspective cannot be exhaustive. That is the reason we wanted to provide both
qualitative and quantitative analysis. Lastly, it is essential to mention that this study
focuses only on some parts of the economic policies adopted in Romania after the
pandemic and only on some of the available economic data (such as GDP). That is
because it is challenging for governments, academics or institutes to put together
unique studies or official documents about economic outlooking since it is a very
broad subject. Our findings underline the future of the EU economies, especially of
Romania, giving concrete and sustainable economic inputs, thanks to the EU
recovery plans.
We can conclude that efficient budgeting of resources is requested to reduce the
recovery period after the pandemic and revitalize economic growth. According to
multiple institutions such as the European Commission and the OECD, one of the
critical elements to revive the national economy is expanding it with investments in
numerous sectors such as the green economy, renewable energy, and digitalization.
Access to EU funds is also bringing variety to the Romanian economy and,
simultaneously, is preparing the country for potential future threats.
Considering the need for further research, our paper can be developed in multiple
future directions. Based on the research we have conducted so far, there are very few
scientific articles focusing on the Romanian economic reality, which is the reason
why we anticipate that our study can bring value to the scientific field. Given the
international research, we were able to identify a more increased interest in the topic
reflected in a larger number of papers (Carnap et al., 2020; Chang et al., 2021;
Belhadi et al., 2021; Ibn-Mohammed et al., 2021).
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June 16-17, 2022
The “Invisible hand” of Digital Economy

Nicolae MOROIANU1, Alexandra CONSTANTIN2*,
Iulia Maria GÂNDEA (ROȘOIU)3, Alexandra Elena TĂNASE (MIHAI) 4
DOI: 10.24789788367405072-036
Abstract
The transition of conventional economics to the data-driven digital economy has become
a focal point for the scientific community in the adjustment and transfer of basic economic
principles and parameters in the metaverse. Thus, the context of interdependence among
countries created by globalisation has allowed for a new form of interdependence to emerge,
through the increasing role of cross-border data flows as a new key resource in international
economic relations and development. The main purpose of this research paper is to study the
evolution of the digital economy under the impact of major effects that occur in a severe and
dramatic context with many widespread potentially negative consequences. With the
development of Industry 4.0, the concept of digital economy must be endorsed by
international policymaking, which is flexible and takes into account the countries different
levels of digital maturity, as well as development objectives or digital readiness. Since the
last three years have been characterised by an overlapping of black swans with the disruptive
effect of full lockdown, the digital transition to digital economy has begun to gather pace.
The methodology used implied both a quantitative and qualitative analysis, following a
thorough scoping review of scientific literature, by means of a macroeconomic approach
with the purpose to assess the major four components of the digital economy: gross domestic
product (GDP), economic output, employment, and the Outsourcing growth rate from the IT
sector. The research was centred on the case of the potential for the digitization from
Romania to become a key player in ensuring true support for the Romanian economic
prevalence under very unlikely events compared to the EU27.
Keywords: digital economy, digitalisation, digital transition, Industry 4.0, black

swan, pandemic, COVID-19.
JEL Classification: E60, O33, O47.

3 Valahia University of Târgoviște, Târgoviște, Romania, Romania, [email protected].
4 Valahia University of Târgoviște, Târgoviște, Romania, Romania, [email protected].
© 2022 N. Moroianu, A. Constantin, I.M. Gândea (Roșoiu), A.E. Tănase (Mihai), published by Sciendo. This work
is licensed under the Creative Commons Attribution 4.0 License.
1. Introduction
Humanity’s recent history has been marked by multiple series of black swans
(Taleb, 2010) that have been proved to play an essential role in how we perceive and
use digital technologies. Thus, the COVID-19 pandemic has created the ideal setting
for the steep rise of digitalization, which was no longer perceived as an alternative
way of addressing economic issues, but as an intrinsic obligation to respond to
people’s needs in a contemporary fashion.
The pandemic has also emphasised the increasing dependence of our societies in
relation to the potential role that data can play in combating global crises through
data-driven digital technologies. Real-time data and technology assistance made it
possible for the governments to monitor and control the spread of the pandemic,
and to cooperate with scientists in order to develop new vaccines in record time
(UN, 2021). Using cross-border data solutions and technology collaborations on an
international scale, governments were able to fight a crisis that spread across national
borders and affected human beings all over the world.
In order to address the increasing number of interconnection and interdependence
challenges in the global data economy, the developed countries paved the road for
the entire world to implement the design model of their digital economies and
institutions. Yet, the current industrial revolution driven by the force of digital
technology has been foreseen for more than fifty years ago, when Moore stated that
the number of transistors in a dense integrated circuit (IC) doubles every two years
(Moore, 1998). As an extension of this technological development, digital equipment
diversified exponentially its operational capabilities in terms of storage capacity and
processing speed of computers, or even home appliances wireless connected to our
mobile phones.
Nowadays companies benefit from the constant monitoring and control of
machinery equipped with technologies by process optimisation of their energy
efficiency. Hence, digital technologized companies have been able to reduce their
electricity and thermal consumption, water and waste consumption and even labour
costs (Maggiore et al., 2021). In a new COVID-19 reshaped world, social distance
and lockdown measures transformed the way we carried out our daily activities, and
home became the new headquarters of teleworking, shopping, socialising, or
receiving education.
In the light of the recent pandemic, the Southern European countries have adopted
national recovery measures in the interest of addressing the social inequalities,
teacher-training deficit, and the distribution of educational opportunities with solid
further investments in the digitization process (Zancajo et al., 2022). Regarding the
role of IoT technologies in the transition to the digital economy, both the IoT and the
economy are affected by highly unexpected events, technological innovations,
economic developments, or production (Nistor, Zadobrischi, 2022). As a result, the
digital economy could not be perceived as an alternative solution for our societies,
but as the main tool behind the force of economic recovery. The decline in
human development worldwide due to the confluence of crises generated by the
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COVID-19 pandemic was equivalent to erasing six years of progress, due to the
contraction of GDP, trade, employment, and investment (Larionova, 2020).
Taking into account the intensive interest manifested over the last five years by
the scientific community in the process of digital transformation from both
macroeconomic and microeconomic perspectives, this paper aims to evaluate the
potential for the Industry 4.0 to positively impact economic growth, as well as
address social inequalities and act as an Invisible hand in the economic recovery
process for the Romanian economy.
Furthermore, the main focus of this research condensed on a comparative
macroeconomic analysis between Romania, EU27, and G-20 countries, with the
mission to determine the performance of digital economies under an overlapping
crisis.
The current phenomenon of digital technologies has culminated around 2015
and most research studies focus on business and economic implications, but omit
related initiatives, such as Work 4.0, Management 4.0, Marketing 4.0, and others
(Maresova et al., 2018). Still, even if digital transformation can occur in countries
with very different economic backgrounds (Corejova et al. 2021), digitalization must
be endorsed by complementary strategies to support the extremely poor to share the
benefits of economic digital transformation (Subramaniam et al., 2020).
Research studies focused on the COVID-19 pandemic impact on the potential for
digital transformation under black swans’ effect have also concluded that an
economy in crisis has a negative impact on the potential for digital transformation
(Corejova et al., 2021). With regard to the European economies, one of the main
issues to be addressed in order to reduce the gap in the sustainable and inclusive
economic growth is the competitiveness performance of high-tech and digitalized
industries in the global production value chains (Boikova et al., 2021).
The trend towards Industry 4.0 acts like an invisible hand that erases boundaries
between manufacturing industries, service enterprises, IT-providers, and tech data
giants (Winter, 2020) and sets the scene for the expansion of the paradigm of digital
economy. Due to the perfect setting of uncertainties and pressures generated by the
pandemic, the metaverse gained traction throughout the creation of new value by the
means of data-driven innovation technologies (European Commission, 2021).
Studies show that one of the main factors that could help close the digital gap
between the extremely poor people and the rest of the world is the governments’ role
in ensuring that the benefits of digitalization could be reaped by people who live
in extreme poverty as well (Subramaniam et al., 2020). Other authors also
concluded that globalisation and e-government development improve economic
growth and eradicate poverty and income inequality by boosting digitalization,
investments, job creation, and wage increases for the semi-skilled and unskilled
labour-intensive workforce (Ullah et al., 2021). Other studies focus on the Internet
and Communication Technology (ICT) impact on economic growth and
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development, highlighting the positive contribution of ICT’s regardless of the

country’s development level (Habibi, Zabardast, 2020).
In the light of European’s Union goal to create a single digital market that uses
its first computer with quantum acceleration (COM, 2021/262 final), the European
Commission offers support to member states in designing and implementing
growth-enhancing reforms and facilitating the digital transition in areas such as
e-government, digital economy, digital infrastructure development (broadband),
e-health, and digital skills through the Technical Support Instrument (EU,
2021/241). Therefore, the European Commission has been using the Digital
Economy and Society Index (DESI) since 2014 as a comprehensive tool in
monitoring member states’ digital progress and offering an overview of the state of
digitalisation in Europe. The DESI 2021 reports reflect the member states’ ambitions
for the next six years, as expressed in their Recovery and Resilience Facility (RRF),
starting from a 2020 baseline (European Commission, 2021).
The global village that interconnects millions of people through the digital
economy must solve our current challenges and achieve the Sustainable
Development Goals (Espinosa et al., 2021). In contrast, the costs of anti-pandemic
measures, the drop in revenues, and growing debt on top of historically high
pre-crisis debt levels became long-term threats to sustainable development
(Larionova, 2020).
The main purpose of this research is to study the impact of digitalization, digital
economy, and economic growth under the black swan effect. The main focus of this
research concentrated on a comparative analysis between Romania, the European
Union, and G-20 countries, in order to assess the performance of digital economies
under an overlapping crisis. Taking into account the current trend to fastening the
economic decoupling using the advantages offered by the Industry 4.0, the research
questions proposed are:
1) What is the current state of Romania’s digitisation process?
2) How did the COVID-19 pandemic affect the transition of Romania’s economy to
the digital economy, compared to the most developed countries?
3) What are the key elements that could provide an increasing potential for
Romania's digital economy to expand rapidly and fill the gap in terms of
economic growth among the most developed countries?
4. Research Methods
Digital economy is strongly related to the digital transformation, which implied
a thorough scoping review of more than 200 scientific papers published between
2017 and 2022 for synthesising research evidence. The scoping process implied the
use of various academic scientific libraries identified in the Web of Science database
that offer both open and institutional access to their scientific literature in the
economic and social sciences field. For the purpose of this article, the online search
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was refined by applying two-word combinations of the following keywords: digital

economy, digitalisation, digital transition, Industry 4.0, black swan, pandemic,
COVID-19.
Then, a macroeconomic approach was applied with the purpose to assess the four
major components of the digital economy by conducting a qualitative analysis of the
following: gross domestic product (GDP), economic output, employment, and the
Outsourcing growth rate from the IT sector. The Digital Economy and Society Index
measures the degree to which the digitization transition has been successfully
provided to improve the methodology and to take into consideration the latest
technological and policy developments.
The structure of DESI indicators has changed along with the continuous
expansion of the digital economy and consists of four cardinal points of the Digital
Compass that replace the former dimension of five: human capital, connectivity,
integration of digital technologies, and digital public services. Also, the main
objective of this assessment of the progress towards the green and digital economy
is to investigate the targets’ achievement in a comparative scenario between
Romania and the EU27 over the last five years.
Next, the Global Innovation Index (GII) takes into account more than 80
indicators which measure the level of Innovation inputs and outputs in order to offer
a comprehensive view over world economies in terms of innovation capabilities.
Since the analysis of the relationship between innovation input and output
performance is directly linked to the level of economic performance, the impact of
the pandemic was investigated from a comparative perspective of Romania’s GII
with Europe and top ten countries.
As stated by the World Intellectual Property Organization (WIPO), the GII is
determined by seven fundamental pillars: knowledge and technology outputs,
infrastructure, Global Innovation Index 2021, Institutions, Business sophistication,
creative outputs, market sophistication, human capital, and research. Even if GII data
are available only for the last decade, these reports provide a useful overview of the
130 United Nations’ economies with respect to their innovation capabilities.
5. Findings
According to the Digital Compass target, member states must facilitate the
transition to fully digital key public services for their citizens and businesses with
optimal quality and efficiency. As stated by the European Commission (DESI,
2021), the Digital Economy and Society Index monitors the online provision of
public services by scoring member states on whether or not they have completed
each step of key services completely online.
Over the last five years, Romania is one of the countries from the bottom of the
hierarchy, scoring the lowest progress in terms of digitalisation, along with Bulgaria
and Latvia, as shown in the figure below (Figure 1). On the contrary, the most
significant progression in the digital transformation was noted by Denmark,
Netherlands, Spain, and Finland with the highest scores.
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Figure 1. Digital Economy and Society Index- Member States’ progress, 2016-2021
Source: DESI 2021, European Commission.
If the pandemic acted as a propulsion force for many developing countries to

adjust and rethink their transition to the digital economy, it was clearly not the case
for Romania, which remained the less advanced digital economy in the European
Union in 2021, followed by Bulgaria and Greece (Figure 2). The list of countries
with the most advanced digital economies in the EU remains constant: Denmark,
Finland, Sweden, and the Netherlands.
Figure 2. Digital Economy and Society Index in EU, 2021
405
In terms of connectivity, the Digital Economy and Society Index (DESI)

measures both the demand and the supply side of fixed and mobile broadband,
assessing not only the availability of fast broadband and fixed very high-capacity
networks, but also the population coverage of 4G and 5G networks and the retail
prices of fixed and mobile offers.
While being the less advanced digital economy in the EU, Romania succeeded in
achieving one of the highest scores for the mobile broadband sub-dimension, among
the top ten most developed countries in the broadband connectivity dimension. The
best score was once again noted by Denmark, followed by the Netherlands, Spain,
and Luxembourg. On the other hand, Bulgaria and Greece do not benefit from the
same connectivity opportunities, hence their lowest scores (Figure 3).
The integration of digital technology in EU states measures the level of
digitalisation of businesses and e-commerce, by the means of ten different digital
technology indicators: SMEs (Small and Medium Enterprises) with at least a basic
level of digital intensity, electronic information sharing, social media, big data,
cloud, AI, ICT for environmental sustainability, e-Invoices, SMEs selling online, e-
Commerce turnover, and selling online cross-border.
Figure 3. Digital Economy and Society Index 2021, Connectivity in EU states
As shown in the figure below (Figure 4), Romania has one of the weakest
performances in the integration of digital technologies, still scoring better than
Hungary or Bulgaria, while Finland and Denmark achieved the best performance.
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Figure 4. Digital Economy and Society Index 2021, Integration

of digital technology in EU states
Since effective e-government has the capacity to provide a wide range of benefits,
including more efficiency and savings for both governments and businesses, as well
as an increasing transparency and openness, it is very important to study member
states’ ability to implement digital public services according to their Digital Decade
targets. According to Figure 5 below, Romania and Greece have the lowest score of
open data and digital public services, while Estonia, Denmark, and Finland have
almost fully achieved their target in the digitalisation of the public sector.
Figure 5. Digital Economy and Society Index 2021, Digital public services in EU states
407
Romania contributed to ICT value added in 2018 with EUR 55 billion or 5% of

EU value added in ICT, while the average European level of ICT as percentage of
GDP was 4.4% (Figure 6). On the other hand, Denmark has a less large ICT sector
as percentage of GDP (4%), while Bulgaria, Czechia, Cyprus, Estonia, Malta, and
Luxembourg have the largest ICT sector as percentage of GDP (all more than 5.5%).
Figure 6. ICT sector Value Added, EU27, EUR billion, 2018 (left axis)
and ICT sector share of GDP, EU27, %, 2018 (right axis)
More than 64% of total ICT sector employment in the European Union in 2018
was accounted for by the top five largest employers: Germany with over 1.3 million
people, equivalent to 22% of total EU ICT workforce, followed by France with
almost 900.000 people (or 15%), Italy with 650.000 people (or 11%), Spain with
500.000 people (or 9%) and Poland with 430.000 employees in the ICT sector
(or 7%). In Romania, almost 250.000 people are employed in the ICT sector,
placing the Romanian state among the top seven countries in terms of employment
in the ICT area (Figure 7).
On the contrary, many other countries accounted for weak performance in terms
of employment in the ICT sector. For instance, Greece had the smallest ICT sector
share over total employment, with 1.7%.
Figure 7. Employment in the ICT sector, EU27, million individuals, 2018 (left axis)
and ICT sector share of total employment, EU27, %, 2018 (right axis)
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The average level of labour productivity in the EU27 ICT sector referring to
services and trade was EUR 101.000 per person employed in 2018, while labour
productivity in the telecommunications sub-sector was the highest (more than EUR
169.000 per employee). As shown in the figure below, Romania and Bulgaria are
once again at the bottom of the scale in terms of labour productivity in the economy
(Figure 8). Nonetheless, these countries have a good performance expressed by the
ratio of labour productivity in the ICT sector over the economy.
Figure 8. Productivity in the ICT sector, EU27,
thousand EUR PPS / individual employed, 2018 (left axis)
and ratio of ICT productivity over total productivity, EU27 (right axis)
Next, the following table (Table 1) presents the position of Romania between
2019 and 2021 in the hierarchy of world economies, in accordance with their
innovation capabilities. There is clear evidence that the pandemic stopped Romania’s
development in terms of innovation because 2021 marked a lower rank than
2020 for both innovation inputs (rank 54 in 2021 versus 51 in 2020) and outputs
(rank 50 in 2021 compared to 46 in 2020). Also, in 2021 Romania fell two positions
in the global economies rank for the GII, from the 46th place in 2020.
Table 1. Global Innovation Index of Romania, 2019-2021

Innovation Innovation
Year GII
inputs outputs
2019 54 53 50
2020 51 46 46
2021 54 50 48
Source: Authors’ contribution using GII 2021, United Nations databases.
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Despite the fact that Romania performs below the high-income group average in
all GII pillars, as well as below the regional average in all GII pillars, its best
performance is represented by the knowledge and technology outputs. As presented
in Figure 9, Romania must quickly adapt and find new solutions to address the
challenges in market sophistication, human capital and research, and creative
outputs, which perform in a negative direction and place Romania in the second half
of the hierarchy.
Figure 9. The seven GII pillar ranks for Romania in 2021
Source: Authors’ contribution using GII 2021, United Nations databases.

Note: The highest possible ranking in each pillar is one, from a total of 130 countries.
According to the National Institute of Statistics, the Romanian IT exports market

has been in a continuous expansion by 15% each year, being estimated at $5.5 billion
in 2021. With an even higher annual outsourcing growth rate of 20%, Romania
exports approximately 90% of ITO services to the EU27 countries (UK, France,
Germany, the Netherlands, or the Nordic countries).
The cost-effectiveness perspective of Western countries in choosing Romanian
software development services that have similar prices to other Eastern European
countries is underlined by the cheap IT labour force. Another great advantage of the
Romanian IT outsourcing market is the high level of professional skills of the second
largest hub of software engineers in Europe (after Ukraine) that can provide
customised delivery models for the best quality-cost ratio, depending on the buyer’s
preferences and budget.
In addition, companies involved in the software development area are exempted
by the Romanian government from paying any tax on income for their employees,
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and they can also receive a 50% deduction on their research and development costs.
Therefore, Romania is one of the most competitive countries in terms of outsourcing.
As presented in Romania's National Recovery and Resilience Plan, based on a
green and digital economic transformation, public services digitalisation is the main
element that must be addressed for the e-Government to be realised. Another
fundamental priority of the Romanian government’s IT strategy is the Digitalization
of the public sector, upon the application of corresponding cybersecurity programs.
Once the COVID-19 pushed the transition to digitalisation as a response to the
need for social distancing, the context was seen by the Romanian early adopters as a
high-priority opportunity for the e-Government implementation strategy.
6. Conclusions
Affected by the convergence of both the sanitary crisis and the natural hazards
that occurred during the last two years, the impact of COVID-19 worsened the
financial gap between developed and developing countries (Izumi and Shaw, 2022).
This traumatic period of lockdown experience and a chaotic e-learning experiment
for many teachers, students, families, or even policymakers, has accelerated the
transition to an immediate digitalization (Zancajo et al., 2022).
Previous research has already highlighted the lack of sufficient financial
government support and investments in innovations and training conducted by the
SMEs in countries with a very low degree of implementation of digital technologies
(Trasca et al., 2019). This is the case of Romania, Bulgaria and Hungary that have
been rated as “beginners” in terms of digital maturity of SMEs, due to their inability
to adopt simple technological solutions (Brodny, Tutak, 2022).
Our findings concerning the evolution of the digital economy, under the impact
of major effects that occur in a severe and dramatic context with many widespread
potentially negative consequences, suggest that digitalisation plays a decisive role in
accelerating the post-pandemic recovery process.
Through the scoping review analysis, it was possible to answer all the research
questions addressed in this paper. Thus, the limitations of this study have been the
use of a single scientific database (Web of Science) and the analysis of online
publications, taking into account only the specific keywords indicated previously.
On the one hand, sound macroeconomic policies and regulations must be adopted
in order to address post-pandemic recovery and increase economic resilience. To this
purpose, the Industry 4.0 could prove to be an effective ally for the policy makers to
develop different policies that aim decarbonisation goals and energy efficiency
mechanisms specifically designed to support energy efficiency in the industrial
sector (Maggiore et al., 2021).
Learning from the post-epidemic recovery from China, an effective way to cope
and mitigate such external shocks is strengthening economic resilience and
establishing a more complete risk emergency mechanism and social governance
system, and thus ensure the stability of the economic operating environment and
promote economic resilience (Jiang et al., 2022).
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However, the positive impact of digitalisation on climaxing the climate

emergency and achieving absolute decoupling could be submerged by the continuing
quantitative growth of the global economic activity (Kunkel, Tyfield, 2021).
On the other hand, governments must increase their investment in the educational
systems, which has already been proven to positively impact economic growth
and eventually provide the economic and knowledge base for higher education
(Volchik et al., 2018).
From the perspective of Romania’s potential for digital transition and its current
state of digitisation, we found that the Romanian state figures among top seven
countries from EU27, in terms of employment in the ICT area, while the COVID-19
pandemic slowed the conversion of Romania’s economy to the digital economy. As
a result, Romania ranks in the last position among the European countries having the
least advanced digital economy in the European Union in 2021, followed by Bulgaria
and Greece.
Moreover, Romania has one of the weakest performances from the EU27 states
in the integration of digital technologies, open data and digital public services,
and labour productivity in the economy. In contrast, the Romanian economy has a
good performance, delivered by the ratio of labour productivity in the ICT sector
over the economy.
Furthermore, Romania fell two positions in the global economies rank for the
Global Innovation Index, arriving on the 48th place in 2021. Given the fact that
Romania has a lower score than the high-income group average in all GII pillars, as
well as compared to the regional average in all GII pillars, its best performance is
portrayed by the knowledge and technology outputs.
Regarding the future lines of search, it is strongly recommended to extend the
current combination of keywords used in the bibliometric analysis, in order to
include social or geographical clusters for a better interpretation of results, in
accordance with their specific context.
For the digital economy to be fully implemented, Romania must strengthen
collaboration between the public and private sector, but also inter-sectoral and intra-
sectoral collaboration, which is why further research should focus on identifying
different models of organisational structures in terms of regulations, policies, and
guiding principles that could be transferred in the transformation process towards a
decoupling economy.
References
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determinants and effects of competitiveness: The role of digitalization in the European
economies. Sustainability, 13(21), article 11689, https://doi.org/10.3390/su132111689.
[2] COM (2021). 118 final, 2030 Digital Compass: the European way for the Digital Decade,
9 March.
[3] Corejova, T., Chinoracky, R. (2021). Assessing the Potential for Digital Transformation.
Sustainability, 13(19), article 11040, https://doi.org/10.3390/su131911040.
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414

June 16-17, 2022
The Importance of Digital Education

in a Pandemic and Post-Pandemic Context
Daniela VÎRJAN1*, Alina Ștefania CHENIC2,
Vlad-Valentin VÎRJAN3, Alin Ioan CREȚU4
DOI: 10.24789788367405072-037
Abstract
The pandemic context has changed the way we think, live, act, work, spend our free time
and travel, profoundly affecting our health, education, and behavior. This paper aims to
make a diagnostic analysis of the Romanian education system before and after the
pandemic, presenting, through a SWOT analysis, the strengths, weaknesses, threats and
opportunities of the entire education system, solutions, and recommendations. The
transition of the educational process from the “face to face” system to the online, remote
system has produced a digital segregation that has only accentuated the inequality between
different social groups. This concept refers not only to unequal access to digital content
and the acquisition of skills to use information technology, but also to stale,
underperforming computers, internet connection, slow speed, etc. Human interaction,
communication, empathy, visual, auditory, and kinaesthetic impact are the necessary
ingredients to learn effectively, to focus our attention, and to develop normally from a
physical, social, emotional, and psychological point of view.
Keywords: digital education, digital segregation, pandemic, post-pandemic.
JEL Classification: I21, I23, I25.
1. Introduction
The digitisation of education was forced upon us with the outbreak of the
COVID-19 pandemic. All actors involved in education, teachers, students, and
parents have been affected by the brutal impact and forced shift from traditional

4
© 2022 D. Vîrjan, A.Ș. Chenic, V.-V. Vîrjan, A.I. Crețu, published by Sciendo. This work is licensed under the
face-to-face education to digital, online education through platforms such as zoom,

google classroom, teams, skype, etc. Thus, each school adapted on the fly to the
new conditions, as did students and parents who overnight found themselves
sequestered at home and trapped not only in work problems, but also in the
problems of adapting to the new technology.
The digitisation of education has been talked about since 2011, so the National
Education Law no.1/2011 stated that a virtual school library will be created,
containing a series of courses, teaching materials, assessment tests, etc., accessible
to both teachers and students throughout the country. Through this method of
digitisation, teachers were supposed to draw inspiration from the best and teach
students new and interesting things, but unfortunately this has not happened due to
political instability and lack of political and social commitment and responsibility.
We can say that the pandemic has forced the digitization of the Romanian
education system, a change that has brought both good and bad things, but
unfortunately the burden has fallen on the shoulders of parents and teachers.
Digitisation is a catalyst that has pushed things forward, and today it has
become visible. If you were to ask someone before the pandemic how they saw the
future of education, one of the answers was surely digitisation, but not the first.
Today, this trend has become more pronounced, even if we all had a hard time, and
in the beginning there was resistance to change, for 2 years we had no choice but to
adapt as we went along, so that things did not stagnate, and we slowly built up the
necessary antibodies to face the new challenges.
Historian Yuval Noah Harari (Carthaus, 2020) urges a balanced use of new
technologies, especially biometric devices, because on the one hand they will
become invasive on the human heart and brain, and on the other they will widen
the gap between social classes. We must not forget the difference between the
human being and technology, the human being has free will, and we must not
become slaves to technology. Psychologists, neurologists, and specialists in digital
education draw attention to the negative effects of too much screen time on
physical and mental health, as well as on the social, school and family
environment.
Digitising education does not solve all the problems; just because we have
access to certain materials, courses, and tests does not mean that learning has been
achieved. Education is not about memorising or learning things; it is much more
than that; it is about transmitting values, patterns of behaviour, attitudes, a way of
being and thinking, which cannot be achieved through digitisation.
Digitisation increases accessibility, but it does not solve all the problems of the
education system, putting a tablet in a student's hand does not mean they will know
the information put there. The atmosphere, the environment in which the
information is learned, the auditory, visual, and kinaesthetic means are equally
important in the learning process. Each of us has a particular learning style, but
combining styles is the most effective way to understand, retain, and make
connections.
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We must also distinguish between the word "know" and "to know", to know
means to read or to become aware of certain things, facts, events, but to know
means to experiment, to put into practice the information, the knowledge acquired
in order to acquire certain skills. Studies have concluded that learning outcomes
are better when students learn from books than when they learn from tablets.
Obviously, digitisation is an irreversible path; we can see that the current
generations have much better developed digital skills than other generations.
Digital education is weaker in its effects than face-to-face education, but if you
come with traditional and put digital on top, then the effect is greater and studies
show that it is up to 25% greater because the mechanisms mesh and the learning is
different from person to person. Technology must help us discover new ways of
teaching, new ways of generating content, new ways of interacting with the
learner/student and motivating them to learn and stimulate their curiosity to
investigate.
Digitising education is not about putting certain lessons or books on email, it is
about the existence of two elements: the audience that will use the material and
they (teachers, students, parents), would be better off being digitally literate, and
the second element is the need of tools. These two elements go hand in hand, they
interlink, for nothing we have an audience if we don't have tools and vice versa.
PISA scores have been declining in recent years, and if we correlate PISA
scores with digitisation, they are not relevant because we should take into account
several variables, the level of economic development, the share of GDP that
education receives, but also its value, the level of teacher training, etc. PISA is a
comparative educational test, on three components: language, mathematics, and
science, for 15-year-olds, and it matters because the direct effect is tracked in the
economy, not in education.
The Evolution of Digitisation in Romania and the EU

According to information provided by the European Commission, the evolution
of a country in terms of digitisation is measured by 4 key factors: connectivity;
human capital, digital technology integration, and digital public services. If we
analyze the Digital Economy and Society Index (DESI) and compare it with the
EU, we can see (see Figure 1.) that Romania is at the bottom of the ranking, if in
the period 2018-2020, it was ranked 26th and with an overall increasing score, in
2021, it will be ranked 27th out of 27 countries with a lower score of 32.9
compared to the EU score of 50.7 and the DESI components have undergone small
changes, so human capital occupies 26 th place, connectivity 10th place, digital
technology integration 25th place, and public digital services last place.
417
Figure 1. Digital Economy and Society Index 2021
Source: DESI 2021, European Commission, Digital economy and Society Index (DESI)
2021, data accessible online at https://digital-strategy.ec.europa.eu/en/policies/desi.
The first component of DESI is connectivity; Romania ranks 11th in 2020 and
10th in 2021 (see Table 1), managing to approach the European average in terms of
high-speed broadband and 4G coverage, and in terms of broadband prices (fixed,
mobile, converged), Romania ranks first. What remains a problem for Romania is
the digital divide between urban and rural areas, but here too we are above the EU
average (39% vs. 20%).
Table 1. DESI rankings and score for Romania and the EU, 2018-2021
1. Connectivity DESI 2018 DESI 2019 DESI 2020 DESI 2021
Romania rank 6 8 11
score 48.8 50.0 56.2
EU score 39.9 44.7 50.1
2. Human capital
Romania rank 28 27 27
score 31.5 31.1 33.2
EU score 47.6 47.9 49.3
3. Integration of digital technology
score 20.8 21.3 24.9
EU score 37.8 39.8 41.4
4. Digital public services
score 41.1 45.0 48.4
EU score 61.8 67.0 72.0
TOTAL DESI Romania 26/35.1 26/36.5 26/40.0 27/32.9
TOTAL DESI UE 46.5 49.4 52.6 50.7
Source: European Commission, Digital economy and Society Index (DESI) 2018-2021,
data accessible at https://sph3ra.ro/wp-content/uploads/2021/07/DESI-2020-Country-
Analysis-Romania.pdf (DESI, 2021).
418
The second factor taken into account in the statistics is human capital, where
Romania is below average, occupying the last positions. Thus, in the period
2019-2021 the level of digital skills did not change much, so in 2021 at least 31%
had at least basic digital skills (compared to the EU 56%), 35% had basic software
skills, while the EU average was 58%, and 10% of Romanians had skills above
the basic level (see Table 2). Romanians' digital skills translate into common
operations using devices and software applications, but digital competence is
defined as an accumulation of knowledge, skills, and attitudes, which help us to use
ICT tools safely, to form a critical sense in choosing information sources, and not
to overuse them in order not to endanger our physical and mental health.
According to the Frames & Factory 4.0 study, Romania ranks last in the EU in
terms of basic and advanced digital skills. Thus, only 1.6% of employees have
followed different types of vocational training, in contrast to Sweden 37%,
Switzerland 39.4%, even in Bulgaria the percentage was higher than 2.3%, Poland
7.7%, Hungary 7.3% and the EU average being 14.8%. Romania is facing a
paradox, it has the best internet connection in the world, a competitive software
industry, and in terms of human capital it is at the primary level, so according to
the study, 18% of people aged 16-74 have never used the Internet, as opposed to
the EU average of 9% (Mazilu, 2021).
Table 2. Romania-EU level of digital competences
DESI DESI DESI EU DESI
2019 2020 2021 2021
1a1 At least basic digital skills 29% 31% 31% 56%
1a2 Digital skills above
10% 10% 10% 31%
elementary level
1a3 At least basic software skills 32% 35% 35% 58%
1b1 ICT specialists 2,2% 2,3% 2,4% 4,3%
1b2 Female ICT specialists 24% 24% 26% 19%
1b3 ICT training companies 5% 6% 6% 20%
1b4 Graduates in ICT 5,6% 5,8% 6,3% 3,9%
Source: European Commission, Digital economy and Society Index (DESI) 2020-2021,
data accessible online at https://digital-strategy.ec.europa.eu/en/policies/desi
(DESI, 2020; DESI, 2021).
The integration of digital technology into business activities ranks 25th in the
EU, so most indicators in this dimension were well below the EU average
(electronic exchange of information, social communication platforms, big data, and
cloud). In terms of digital public services, Romania ranks last in terms of key
indicators such as digital public services for citizens and businesses, e-government
service users, and pre-filled forms.
The Romanian government launched in July 2020 a series of projects aimed at
meeting various digital priorities that are included in the National Investment and
Recovery Plan, with a budget allocation of €100 million from EU and national
funds, covering the period 2021-2030. Romania's Recovery and Resilience Plan
includes measures that are fully or partially related to digital skills, thus the total
budget allocated is approximately €1.267 billion (Vulcan, 2021).
419
The IEA's International Informatics and Education Study (ICILS) 2018,
demonstrates the extent to which young people are able to use information and
communication technology (ICT) for study, work, and life in a digital world, and
using tools and methods this study measures international differences in
information and computer literacy (CIL) of adolescents (Fraillon et al., 2019).
Drossel et al., 2017, in their study show that the use of new technologies by
secondary school teachers for educational purposes is very important in terms of
school and teaching processes, and the use of digitization supports learning
processes and improves the quality of education (Drossel et al., 2017). Sen Grupa,
2020, highlights the importance of understanding some of the concepts that are
used in the field of digitisation and discusses the differences between digitisation,
digitalisation, and digital transformation. Digitization is about transforming
something non-digital into a digital representation or artifact, digitization improves
existing business processes but does not change or transform them, and digital
transformation is about transforming the business, possible by digitization, the
essence is about changing business processes enabled or forced by digitisation
technologies (Sen Gupta, 2020). Botnariuc et al., 2020, conducted a study trying to
show the ability of teachers and the education system to adapt from the face-to-face
system to the online system (Botnariuc et al., 2020). Diana Graber (2020), digital
literacy specialist and creator of Cyber Civics, in her book gives us lots of
pragmatic advice and teaches us how to help children have a healthy relationship
with technology, is a must read for parents raising their children in the digital age.
Kilbey Elizabeth (Kilbey, 2019), a child psychology specialist, draws parents'
attention to the risks children face if they overuse electronic devices and gives tips
on how to successfully connect with them. Ceobanu et al., 2020, provides a new
perspective on learning content by integrating the opportunities provided by
new information and communication technologies, and the pandemic health
crisis has highlighted the advantages and disadvantages of digital education in
different contexts. Cucoș, C. (2020), foreshadows aspects of the future of education
over the next two to three decades and outlines a series of lessons from the
COVID-19 pandemic. Martin L. Kutsher (Kutsher, 2018), a paediatric neurologist,
offers solutions to prevent the negative effects of prolonged screen time, which
are manifold: loss of concentration and attention, lack of interest in school,
limited creativity, stress, fatigue, obesity due to unhealthy eating and sedentary
lifestyles, aggression, lack of control, etc., and urges balance and moderation.
Quartz Matrix (QM, 2019), has launched a series of projects for digital education,
the ACCED project – Today's child, tomorrow's creator, which supports teacher
training for digital education, managing to train and educate 100 teachers from
Bucharest and Bihor in the use of the following technologies: interactive
whiteboard, ProLang digital language lab, mozaBook educational software,
Microsoft 365 or Kahoot app.
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3. SWOT Analysis of the Education System in Romania

Strengths Weaknesses
Insufficient financial resources in relation to
educational needs; unmotivating and
unstimulating remuneration for employees;
Free compulsory education; ensures the
school curricula not adapted to the reality of the
right to education and provides equal
labour market; large discrepancies between
opportunities for all; freedom of
urban and rural areas (conditions, equipment,
expression; experienced teachers;
qualifications, training); emphasis on theory
classrooms with modern equipment,
and very little on practical aspects;
fully equipped laboratories; involvement
monetisation of illegitimate interests in
of pupils/students in various national
education; assessment based on grades and less
and extracurricular projects; unlimited
on knowledge level; large number of hours
access to the internet and other
spent at school and then at home on homework
programmes; varied educational offer;
and too little time for recreational, creative and
good results in sports competitions,
sporting activities; outdated teaching system,
contests, conferences and Olympiads;
teacher dictates, pupil writes, pupil loses
merit, study and social scholarships;
curiosity, motivation and attention; classrooms
numerous programmes, projects and
are not properly equipped (lack of sports halls,
partnerships with the community, etc.
old and insufficient technological equipment);
lack of motivation to perform increases
absenteeism and drop-out rates, etc.
Opportunities Threats
Migration of well-trained teachers to centres;
educational centres, both nationally and
Erasmus and internship programmes;
internationally; international; reducing the birth
professional and psychological
rate; funding through local budgets do not cover
counselling; facilitating distance
all the expenses necessary for a efficient
learning and the hybrid model; attracting
education system; lack of qualified staff which
funds for improving teaching and
forcing the system to employ poorly trained
assessment methods; emphasis is also
staff, more especially in rural areas; education
placed on other subjects such as
is dominated by ideologies political parties;
financial education, psychological
lack of accountability, solidarity and optimism;
education, sports, nutrition, personal
students are not prepared for life but for doing
development, etc.; maintaining a state of
to face exams; our education system provokes
discipline and security for pupils; good
stress and dissatisfaction on the part of all
school-primary-community-business
actors involved in education; due to low and
collaboration; opportunities and access
unmotivated salaries, the quality the quality of
to education for minority groups and
teaching leaves something to be desired;
certain disadvantaged groups; extending
teachers are not respected and they are not
the use of modern teaching and seminar
respected at their true value and then they are
methods and enriching the existing book
not 100% committed in the educational
stock in libraries; organising
process; instability and ambiguity the
competitions, conferences both
legislative system; lack of investment in
nationally and internationally, etc.
infrastructure and technical and technological
means; corruption and bureaucracy, etc.
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We note that in this analysis we have captured the most important aspects of the
education system, but there are certainly many more.
In order to identify possible problems faced by the students of the Bucharest
University of Economic Studies during the period March 2020 - March 2022, when
the educational activities were conducted online, we conducted a questionnaire in
Google Forms and distributed through the institutional addresses. The research
hypothesis: can we keep online activity in learning/teaching and assessment
practice, to what extent, at what cost and with what return?
The sample consists of 269 respondents/students and the questionnaire consists
of 15 questions, these are of several types: closed-ended questions, open-ended
questions, opinion, introductory questions and rating scale questions using a
response matrix (Vulcan, 2021). Following the grouping of the survey data, we
conducted a horizontal and vertical analysis of the responses. The horizontal
analysis involves the independent presentation of responses to each question, while
the vertical analysis aims to correlate responses and identify statistical links and
associations between the characteristics recorded. The procedure is quantitative and
involves presenting the instructions that subjects received. The questionnaire
includes an introductory letter containing a series of information about the purpose
and social significance of the research, the guarantee of confidentiality of the
answers, and explanations of how to respond. At the beginning of the
questionnaire, several questions are inserted providing information on gender, age,
and residence and form of education.
5. Research Results
The sample consists of 269 students, of which 95.2% are students in the full-
time bachelor programme and 4.8% in the full-time master programme. The vast
majority of respondents, 94.1%, are aged 18-24, 4.1% are aged 25-35, and 1.9%
are aged 36-45. The female part accounted for 67.7% of the respondents and the
male part for 32.2%. During the pandemic, 68% lived in urban areas, 30.1% in
rural areas, and 1.9% outside the country.
In order to find out to what extent certain aspects of the teaching/learning/
assessment process affected the respondents, to the question, "What affected you in
the teaching/learning/assessment process during the pandemic period?", we used
the Likert (1932) scale calculation method (not at all score 1, to a small extent
score 2, to a medium extent score 3 and to a large extent score 4), and obtained the
following results:
My insufficient level of digital skills: 1x176+2x66+3x22+4x5/269=1,46

Limited Internet access: 1x180+2x54+3x24+4x11/269=1,5
Lack of motivation: 1x106+2x63+3x63+4x37/269=2,10
Focus of attention: 1x91+2x68+3x57+4x53/269=2,26
422
Lack of courage to ask questions: 1x128+2x59+3x45+4x37/269=1,96

Lack of a well-structured programme: 1x115+2x55+3x54+4x45/269=2,11
Lack of habit of using new technologies: 1x191+2x49+3x14+4x15/269=1,45
Stress/depression/anxiety: 1x130+2x49+3x42+4x48/269= 2,03
From the results, we can deduce that the respondents were largely affected by
the ability to focus on an objective and to pay attention to teaching new concepts
or to completing tasks, then by the lack of a well-structured programme due to
uncertainty and the pandemic context, lack of motivation coupled with lack of
attention and time management, then the onset of anxiety, depression, and stress
which increased dissatisfaction and dissatisfaction in the teaching/learning process,
leading to poor results in the evaluation process. However, in the last places were
the aspects related to internet connection and the ability to use technology and
acquire digital skills, which shows us that the respondents have managed to adapt
to the new requirements and to the way of relating through online platforms,
especially the ase.ro platform.
To analyse the responses to the question, "What will help the teaching/learning/
assessment process during the pandemic?", we used the same Likert (1932) scale
(no score 1, low score 2, medium score 3 and high score 4) to determine to what
extent the aspects listed below helped students in the teaching, learning, and
assessment process. The results are as follows:
Lecture and seminar materials: 1x5+2x14+3x69+4x181/269=3,58

Videos/audio materials/posters: 1x10+2x35+3x75+4x18/269=3,35
Teacher explanations and guidance: 1x8+2x20+3x75+4x166/269=3,48
Exercises and case studies: 1x8+2x29+3x85+4x147/269=3,38
Homework check: 1x27+2x53+3x84+4x105/269=2,99
Peers' ideas and guidance: 1x31+2x42+3x92+4x104/269=3,0
Various tutorials found online: 1x16+2x55+3x75+4x123/269=3,13
Tests given during the semester: 1x27+2x58+3x89+4x95/269=2,94
Analysing the results we can say that the respondents appreciated, as an aid,
first of all the lecture and seminar materials accompanied obviously by the
teachers' explanations and guidance, as well as the exercises and case studies in the
seminars, then the videos/audio materials as well as a number of tutorials found
online, and to a lesser extent the ideas and guidance of peers as well as the
checking of homework, which was to be expected given that the pandemic affected
interpersonal relationships and especially among first year students, as they did not
have the opportunity to meet face to face and have a social connection.
To the question, "What does the digitisation of education mean?" , 56.4% of the
respondents answered, more than half of them failed to give a clear definition of
digitisation, i.e., they tried to stress the importance of posting teaching materials on
the online platform ase.ro, and others answered: it is an evolution, a progress, it
gives the possibility to learn anywhere/anytime, the use of electronic means and
423
digital technology, a new way to receive information, information can be accessed

anytime, etc.
The most used online applications were: zoom (99.6%), online platform.ase.ro
(91.8%), Google Classroom (41.3%), Microsoft Teams/Office 365 (24.5%),
Facebook/Messenger (7.8%), Whatsapp (2.2%), Skype (3.3%), and others but in
very small proportions (see Figure 2). We can see that the online.ase.ro platform
was used by 91.8% of the respondents, who appreciated how easy the platform is to
access and use, both in the teaching and seminar process.
Figure 2. Applications used for online learning activity in times of pandemic
altele 2
telegram 3
adservio 4
edu24.ro 4
whatapp 6
skype 9
phone call/text message 20
facebook/messenger 21
microsoft Teams/Office 365 66
google classroom 111
ase.ro online platform
Source: According to zoom
the results obtained
from the questionnaire applied on Google forms
https://docs.google.com/forms/d/1CJ8KxsQI67OxbygbAq_6CXDIVIlI7FH8EqVUCiTeolo/edit.
To the question, "What are the most appropriate ways of teaching/learning/

assessment after two years of testing other ways of conducting educational
activities?", the results are captured in Figure 3.
Figure 3. The most appropriate ways of learning, teaching and assessment

after testing online learning activities
interactive lessons and emphasis on practice and 182

79
case studies 8
have the opportunity to ask the teacher what I
54
don t understand 4
ways the teacher decides 32
173
64
word with information and tasks to solve by a 201
55
deadline 13
recording lessons to learn whenever I can 186
58
25
180
online assessment 80
9
25
face to face assessment 125
119
online teaching/learning 155
88
26
Source: According to the results obtained from the questionnaire
66 applied on Google forms
https://docs.google.com/forms/d/1CJ8KxsQI67OxbygbAq_6CXDIVIlI7FH8EqVUCiTeolo/edit.
424
Based on the results, we can see that the respondents, after testing the online
learning, rated the online teaching/learning in a high proportion of 90.4% (suitable
+ very suitable) and the online assessment in a proportion of 96.6% (suitable +
very suitable), compared to the face-to-face teaching/learning system of 68.4%
(suitable + very suitable) and 55.8% for face-to-face assessment, respectively.
Obviously, they also appreciated other ways of conducting educational activities,
namely: being able to ask the teacher where they do not understand or where there
are unclear points, materials with information and tasks to solve by a deadline,
recording lessons so they can listen and learn at any time, appreciating interactive
lessons and case studies that focus on practice.
The teaching activities carried out online were appreciated as interesting and
useful in a proportion of 80.7% and 10.4% considered that they were uninteresting
and tiring, and the remaining 8.9% did not know how to appreciate. It is quite clear
that the students have adapted to the online teaching activities, managing to
appreciate them in a fairly large proportion after two years.
To the question, "What are the advantages of online learning?", respondents
answered: saving money on transport/gas passes and waiting time; no more time
wasted on the road, breaks from college, travel time from college to home;
attendance at courses and seminars increased because even those who could not get
to college for various reasons would turn on their phone or computer; can record
lectures and seminars and re-read/review whenever needed; greater availability and
convenience; ability to be present regardless of location, no formal setting; gave us
the opportunity to get a job, and now we had to quit for a 2 month physical system;
the lessons were held in our comfort zone which allowed us to understand certain
notions much better; lack of anxiety and social embarrassment; possibility to have
all lessons in online format; an advantage for those who live in areas bordering
Bucharest, having to travel more than 2 hours on the road; low costs both for
school supplies and for clothing, shoes and services; the possibility to protect
oneself and be safe from contracting COVID-19; more free time for personal
development and individual study; saving money and stress; increased courage to
ask questions and say what is not understood; test and exam results are given
immediately via the online platform ase.ro; no need to print out projects and
lectures on dozens of pages, avoid wasting paper; forced to adapt on the fly to new
technology and new methods of presentation and assessment; lower rent/housing
costs; possibility to learn and work at the same time; more effective learning by
seeing and hearing very well, time needed to write down certain observations, no
longer matters where in the classroom in relation to the board; information can be
accessed at any time, assignments have clear teaching dates, online platform ase.ro
is very useful and it would be a shame not to use it anymore; no more having to
decipher handwriting on the board if it is not clear or the kite is very poor; if you
have a cold you can attend from home without having to catch up or take lessons
from colleagues; convenience, accessibility, flexibility; hybrid system would be
most effective, online courses and physical seminars, etc.
425
To the question, "What are the disadvantages of the teaching/learning/

assessment system?”, respondents indicated: lack of motivation, concentration,
attention, connection, and interest; in some areas especially in rural areas the
Internet connection is unstable and weak; not all students have unlimited access to
the internet; not everyone has access to a computer and high-performance technical
means; poor digital literacy both on the part teachers as well as students; spending
a large number of hours in front of the computer computer/phone/laptop and at
home; lack of socialisation, communication and interpersonal contact; inadequate
assessment; lack of communication and interaction leads to depression, anxiety and
isolation; being in your comfort zone can be distracting for lack of courage to ask
questions and the teacher's inability to read on the student's face if he or she has
understood or not understood; there are no disadvantages, etc. More than 40% of
the respondents answered that they do not find any disadvantage in the online
learning system and did not answer this question.
To the question, "Would it be useful for online learning to remain part of
educational practice?", 94.4% of respondents answered that it would be useful for
online learning to remain part of educational practice after face-to-face return, and
only 5.6% answered that it would not be useful. In this respect, respondents were
asked to give reasons for their choice, and those who answered yes,
overwhelmingly repeated the points made under the advantages of online learning,
while the proportion of those who answered no was quite small and almost
insignificant. From the total number of respondents' answers, we have selected a
few answers that reinforce the relevance of online education: even if we came back
face to face, the online environment should be frunctified more, especially in terms
of posting teaching materials/lessons, lectures and seminars; lectures can be
recorded and saved on a platform where they can be accessed at any time,
especially by students who did not make it to class for various reasons; lectures
should be held online because we understand, see and hear much better when each
of us has them in front of our eyes, than when they are posted on the screen, and
everyone's position is different from the blackboard/screen; it is useful that online
learning remains part of educational practice, as it is an evolved, modern, current
and future-proof way of learning and training on the professional side and reduces
downtime, breaks, windows, commuting to college; face-to-face activities are
much more tiring and demanding; time is the biggest advantage, it reduces
pollution, it reduces costs, there are students with certain problems to whom the
online system brings benefits; online learning could remain an alternative for those
who cannot reach physically; it is efficient for those who do not live in Bucharest
because they do not have to pay rent, transport, meals, etc. ; it creates an advantage
for those who have a job; since we don't have practical subjects, I think it would be
advisable to do online; online activities have taught us to look for information on
our own, whoever wants to learn can learn in any learning system, be it physical or
online; online learning gives us freedom and the possibility to take responsibility; it
helps us to acquire digital skills; it is effective in crisis situations; online learning is
revolutionary and much more effective than traditional learning; it is a step forward
426
on the ladder of evolution in education; because materials are electronic, students

pay more attention to what the teacher is explaining and do not waste time on
notes; it allows us to access information from anywhere; I prefer to keep classes
online because it is much easier for me to hear the teacher, to see on the screen and
to shere screen so I can view when I want; it is effective in crisis situations and for
this reason it would be desirable not to abandon this system for good.
The last question was to propose solutions to improve the teaching/learning/
assessment system, and respondents indicated the following: educational activity to
be kept online, or in the best case hybrid, online courses and physical seminars;
a friendlier and more accommodating attitude of teachers toward students;
interactive and more practical lessons; recording lessons and putting them on the
online platform ase.ro and not to abandon this practice; further posting of
materials; the problem would be solved if we had online lectures and seminars and
physical exams, I think it would increase the level of engagement and seriousness;
experiential learning by creating interactive and engaging/interesting materials as
well as learning through case studies, assessment through quizzes; focus on the
ability to work with an information, not on the ability to memorize and render; I
prefer the online mode of assessment as I am a more panicky nature and it was
much better for me to take exams in a relaxed and enjoyable environment; teachers
to speak in a way that everyone understands and use accessible language; exam
topics to be in line with the difficulty of the exercises worked on in class; face-to-
face classes with the possibility for those who cannot get face-to-face to enter
either online or for lectures/seminars or lectures to be recorded etc. A significant
proportion of respondents supported the return to the online system considering it
to be an advantage from all points of view, hearing, seeing, understanding,
repetition, etc.
6. Conclusions
With economic development, people have been satisfying their needs at an
increasingly high level, both in terms of quantity and quality, and in this respect, in
recent decades, an important role in increasing efficiency and economic
performance has been played by digital technology, which combines the process of
digitisation with that of digitalisation. The integration of digital technology into
business has given a positive impetus to competitiveness and quick access to a
range of databases and information, and the digitisation process improves work
efficiency and productivity and provides better insight for decision-making.
Romania faces a paradox, it has the best internet connection in the world, a
competitive software industry, it is close to the European average in terms of high-
speed broadband and 4G and 5G coverage, but it is at the bottom of the EU ranking
in terms of DESI, so of the four DESI factors, only connectivity ranks 10th, while
human capital ranks 26th, digital technology integration ranks 25th, and digital
public services ranks last.
Digitisation is an important step of the present moment, but it does not solve all
the problems, especially in the education system. The sudden shift from face-to-
427
face to online system has forced us to adapt to new learning/teaching and

assessment methods and techniques, which we initially found quite difficult to
accept, and now, two years later, we are thinking about whether this system should
be integrated into the classical educational system, as it could benefit both sides,
students/pupils, and teachers.
We conducted a questionnaire on a sample of 269 respondents, most of whom
are students in the full-time undergraduate program at the Academy of Economic
Studies in Bucharest, aged between 18 and 24 years, predominantly female, and
70% of whom lived in urban areas during the pandemic. The aim of this
questionnaire was to identify the following aspects: What were the most important
issues they faced in the period March 2020 - March 2022 in terms of educational
activities (teaching/assessment) carried out online; what were the most important
aspects that helped them in the online teaching/learning/assessment process; what
applications they used during the pandemic period and how much it helped them in
this process; to identify the advantages and disadvantages of the online educational
process; to appreciate and place the teaching activities carried out online in the
current context; to make proposals and recommendations in order to make the
teaching/learning/assessment process more efficient.
During the pandemic period (March 2020 - March 2022), students faced
problems related to attention, motivation, time management, communication,
anxiety, depression, stress, and less problems related to digital skills and internet
connection, which shows us once again the high degree of connectivity in Romania
and the ability of the new generations to access and use technology. What helped
them during the pandemic period were the course materials and seminars posted on
the ase.ro platform, the explanations and guidance of teachers, the applications and
case studies solved together with teachers on the zoom platform, the teachers'
recommendations in terms of viewing tutorials and audio and video materials
online, the tests given during the semester as well as checking homework, etc. The
online platform.ase.ro was used in a proportion of 91.8%, being appreciated as easy
to use and accessible both in the teaching and assessment process.
The students saw several advantages and a few disadvantages of conducting
teaching activities online, with 94.4% saying that it would be useful for online
learning to remain part of educational practice. Working online brings a number of
advantages, lower costs in terms of accommodation, food, clothing, transport, but
also ensuring some comfort and safety. Obviously, they also found strengths of the
face-to-face system, and these relate to the interpersonal side, communication,
socialising, understanding, focusing, attention, and concentration.
The proposal is to maintain a hybrid system, where courses are held online and
seminars are held face-to-face, with the possibility for those who have health
problems to come online or both courses and seminars are held both physically
and online, so that those who cannot come physically for various reasons can
connect online. The online platform.ase.ro is an important source of transmission
of teaching materials and testing/assessment along the way, and it would be
advisable to exploit it, improve it, and why not direct it towards a digital era.
428
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429

June 16-17, 2022
Urban Green Infrastructure, Ecosystem Services

and Challenges for Universities to Respond
to the Needs of Society
Simona LUNGU1, Ioana ENACHE2, Geta RÎȘNOVEANU3*
DOI: 10.24789788367405072-038
Abstract
Universities are more and more interested in responding to the society's needs and
contributing to the sustainable development of cities. The COVID-19 pandemic challenges
universities to innovate and develop more adaptive educational practices. The green urban
infrastructure is designed and implemented to improve sustainability and reduce
vulnerability to natural hazards. It is increasingly advocated as a win-win solution for nature
and human communities. The biophysical structure of the green infrastructure generates
ecological processes and functions that humans can appropriate as ecosystem services that
contribute to human well-being. This paper aims to assess the students' perception of the
current state and problems faced by the green infrastructure in Bucharest, the students'
willingness to get involved in volunteer and service-learning activities, and their knowledge
of the ecosystem services concept. We applied face-to-face questionnaires. As hypothesized,
students' perceptions and knowledge of the current state and threats to the urban green
infrastructure and ecosystem services depend on their professional background. However,
more than 94% of the respondents consider that the current number of green spaces in
Bucharest is insufficient. Even more of them (97%) believe that the level of protection of
urban green spaces is inadequate. More than three-quarters of those involved in research
are interested in participating in volunteer and service-learning activities. Our results could
inform the university’s decision-makers and stimulate innovation by allowing students to
develop a deeper understanding of environmental issues, engage in problem-solving, and
make informed and responsible decisions. It is for the benefit of civic universities, students,
and communities alike.
Keywords: perceptions, students, civic engagement, universities, urban green

infrastructure, ecosystem services.
JEL Classification: I23.
1 University of Bucharest, Bucharest, Romania, [email protected].

© 2022 S. Lungu, I. Enache, G. Rîșnoveanu, published by Sciendo. This work is licensed under the Creative
1. Introduction
The Ecosystem Services (ESs) framework has enabled the broader public to
acknowledge the benefits that nature provides to humans (Felipe-Lucia et al., 2015).
According to the Common International Classification of Ecosystem Services –
CICES (Haines-Young, Potschin, 2012), these include tangible or material benefits
such as provisioning services (e.g., food, raw materials) and intangible benefits such
as cultural services (e.g., recreation, environmental education and aesthetic
enjoyment), regulating and supporting services (e.g., climate regulation, habitat
provision, and soil formation). ESs have become essential for decision-making, their
assessment being a support tool for urban and landscape planning to improve the
quality of life (Cheng et al., 2019).
The green spaces within and around cities designed by humans or fragments of
once natural-origin ecosystems, compact or discontinuous, accessible to the public
or not, with or without active management, projected for recreational use or not and
regardless of a specific spatial scale, are all considered urban green spaces
(Swanwick et al., 2003) or urban green infrastructure – UGI (Tzoulas et al., 2007).
These can be fragments of rivers crossing a city, wetlands, forests, cemeteries,
gardens, parks and play areas, green roofs and walls, linear trees, shrubs or herbs
around railways, and roads (Wolch et al., 2014). They can consist of various species
of vegetation and have different connectivity to one another or different types of
legal protection – i.e., urban protected vs. unprotected areas (Wolch et al., 2014).
UGI provides a suite of ESs that are widely recognized as critical to health, well-
being, and sustainability on an urbanizing planet (du Toit et al., 2018): microclimate
regulation, mitigation of the urban heat island, increased air quality (Martins, 2022).
UGIs represent biodiversity hotspots in cities (Attila et al., 2021) and participate in
the carbon storage process (Davies et al., 2011).
A stakeholder can be defined as a “group or individual who can benefit from the
ESs provision” (Haines-Young, Potschin, 2012). The involvement of stakeholders
(e.g., representatives of locally affected communities, national or local government
authorities, politicians, civil society organizations, and businesses) in the process of
identifying the ESs provided by natural capital is an essential condition for effective
governance (Felipe-Lucia et al., 2015). However, there are few specialized works in
which the students are involved as beneficiaries of the ESs delivered by UGI (Lungu,
Rîșnoveanu, 2021).
The societal protective measures taken during the COVID-19 pandemic were
highly effective in preventing the spread of the virus (Brauner et al., 2021). However,
concerning mental and physical health, social distancing posed significant risks to
people of all age groups (Flanagan et al., 2021; Lades et al., 2020). These measures
could have fundamentally changed the relationship between people and UGI
regarding the use and perception of ESs they provide (Ugolini et al., 2020). In this
context, UGI offered specific ESs for human well-being, such as the possibility of
carrying out recreational and sports activities, aesthetic benefits, and growing food
(Lehberger et al., 2021; Ugolini et al., 2020). A survey developed between April and
July 2020 (Robinson et al., 2021) reported that more than 90% of the respondents
431
increased the period spent visiting UGI, such as gardens (48%), woodlands (14%),
and urban parks (11%).
Previous studies have focused on the relationship between green spaces and the
academic benefit of students showing a positive effect of UGI on their well-being
and academic performance (Collins et al., 2022). University students are considered
a vulnerable group as a matter of mental and physical health both before (Holm-
Hadulla, Koutsoukou-Argyraki, 2015; Kousis et al., 2020) and during (Browning et
al., 2021) the COVID-19 pandemic.
Service-learning involves university initiatives designed to engage students in
community learning and service activities as part of their regular coursework (Martin
et al., 2005). Successful university-community partnerships acknowledge and
incorporate the participatory efforts of the various stakeholders (Lasker et al., 2001;
Martin et al., 2005).
In recent decades and especially during the COVID-19 pandemic, people
changed their exposure patterns to nature, valuing the UGI more. Universities have
a social responsibility to improve the well-being of society (Dhakal, Chevalier,
2017). They may offer research opportunities and courses on UGI and its ESs
(Dhakal, Chevalier, 2017), can partner with various institutions in order to train
communities (Rîșnoveanu et al., 2021), advise more efficiently the policymakers
(Poole, 1997) and have more initiatives on campus greening (Sima et al., 2019).
Students represent a particular category of stakeholders who can ensure the
connection between the academic environment, society, decision-makers, and other
stakeholders (Poole, 1997), being valuable providers of information and solutions.
However, students are rarely involved in the identification and mapping of ESs
(Lungu, Rîșnoveanu, 2021). Despite recognizing the role that UGI plays in cities,
there is not enough awareness of ESs among stakeholders. We hypothesized that
students’ perceptions and knowledge of the current state and threats to the UGI and
ESs relate to their professional background. Understanding patterns of perception
among students with different academic backgrounds helps universities identify
practical opportunities and challenges for students to apply practically the theoretical
knowledge and increase their professional capacity, stimulate critical thinking, and
develop skills and competencies for the benefit of civic universities, students, and
communities alike.

The aims of our research were: i) to assess the students’ perception of the current
state and problems faced by the UGI in Bucharest; ii) to assess the students’
willingness to get involved in volunteer and service-learning activities; iii) to assess
the students’ knowledge of the ESs concept.
432
4. Research Methods
During the COVID-19 pandemic, from 22 to 25 November 2021, within the
CIVIS initiative, we were able to carry out a series of online workshops and use
Google forms to apply questionnaires (for questions, see Table 1) to assess the
students’ perception and knowledge of the current state and threats to the UGI of
Bucharest and the ESs it provides. We promoted the research through social
networks of student associations and professors involved in CIVIS OpenLab
initiatives. The involvement of students was voluntary, and without any restriction.
Table 1. Questions asked in the student questionnaire

No. Question Potential answers
1 Do you consider that more green zones are needed 1-high need,
in/around Bucharest? 2-average need,
3-not a need
2 Do you think that better protection of green urban zones 1-high need,
is needed? 2-average need,
3-not a need
3 Which of the following problems do you think Bucharest 1-high risk,
is facing? 2-average,
a) The development of road infrastructure 3-not a problem
b) Development of the real estate industry
c) Climate change
d) Exploitation of natural resources
e) Intensive tourism
f) The air pollution
g) Economic activities
h) The ambiguous legislative framework regarding
UGI
i) Non-prioritization of the social role of UGI
j) Waste disposal
k) The disinterest of decision-makers
l) Lack of infrastructure for visiting green zones (in
the case of larger green zones)
m) Inadequate zonally urban planning plans
n) The disinterest of the citizens
o) Lack of awareness of ecosystem services
p) Inconsistent application of the law
q) Invasive species
4 Are there other issues that Bucharest faces that have not Open question
been mentioned before?
5 Are you willing to get involved in volunteer and service- Yes/No
learning activities?
6 Do you know the concept of "ecosystem service"? Yes/No
7 How would you define ecosystem services? Open question
Source: Authors' own research.
433
Although most of the students participating in the workshops are not permanent
residents of Bucharest, they benefit from the ESs offered by the UGI throughout the
academic year, when they spend most of their time in the city. The research involved
174 students from six faculties of the University of Bucharest (Business and
Administration, Biology, Geography, Psychology, Letters, Sociology, and Social
Assistance).
To account for the different perceptions related to students’ academic
background, we grouped the students into four groups: life sciences (biology,
ecology, geography), business and administration, social sciences (sociology,
psychology, pedagogy), and philology (letters). We applied face-to-face
questionnaires during four online workshops (one for each group), which included
both closed and open questions. For each closed question (e.g., questions 1-3 in
Table 1), students were asked to allocate weights from 1 (very important) to 3 (the
least or not important).
Also, we assess the students’ willingness to get involved in volunteer and service-
learning activities. Considering the need to make operational the ecosystem services
concept and its role in feeding the decision support system by translating complex
functions and processes of ecosystems into indicators for urban planning and
governance, we test how familiar the students are with this concept.
5. Findings
Our research involved 140 women and 34 men between 18 and +36 years old.
Most of them (87%) are 18-25 years old. A large proportion (85%) consists of
undergraduate students. Only 5% are Ph.D. students. Students' perceptions, desire to
engage in volunteer activities, and their knowledge of UES do not differ by genus,
age, or level of studies.
5.1 The Students’ Perception of the Current State of UGI

and the Problems It Faces in Bucharest
More than 94% of the respondents consider that the current number of green
spaces in Bucharest is insufficient. Even more of them (98%) believe that the level
of protection for UGI is inadequate and needs to be improved. These results are
consistent with Badiu et al., 2016, who revealed that in the largest cities in Romania
(including Bucharest), the surface of UGI is 16.82 m2 per capita, 97.36% of them
providing fewer green surfaces compared to national legislation.
The great majority of students consider that Bucharest faces all the issues listed
under question no. 3 in Table 1. Among the issues perceived to pose a high risk to
the city’s development, the disinterest of decision-makers accounts for the highest
score (85.71% of students in philology) and the invasive species the lowest (19.04%
and 22.2% of students in philology and social sciences, respectively). There is an
agreement among students in all four groups (more than 70% of respondents) that
the disinterest of both decision-makers and citizens and inadequate waste disposal
pose urban green spaces at high risk. The highest proportion of students in life
434
sciences and business and administration (more than 65%) perceive the lack of
awareness of ESs and inconsistent application of the law as being issues of high
importance the UGI faces. Students in life sciences and philology (more than 70%)
point to the development of the real estate industry, and those in business and
administration and philology (>75%) to air pollution. Students in business and
administration (>65%) also allocate high weights to non-prioritization of the social
role of UGI in urban planning and lack of infrastructure for visitation, and those in
philology (>66%) to the exploitation of natural resources.
Students identify some supplementary issues, apart from those in Table 1. Among
them, it is worth mentioning the following: lack of environmental education and
limited awareness of the ESs provided by UGI (students in life sciences, business
and administration), noise pollution (students in business and administration, social
sciences), insufficient parking places that end up in the use of UGI for cars parking
(all groups) and decrease in quality of life (students in life sciences and philology),
incoherent management of synanthropic species and lack of landscape planning
especially in the marginal districts (students in life sciences), too few places to spend
time outdoors with kids (students in business and administration), and lack or
insufficient infrastructure within UGI – e.g., toilets (students in philology).
5.2 The Students’ Willingness to Involve in Civic Engagement Activities

The CIVIS initiative, a European civic universities alliance, encourages and
promotes the activities that allow students' civic engagement by carrying out projects
and workshops. Our results show a high interest of the students at the University of
Bucharest in actively participating in the current problems of society related to the
UGI through volunteer or service-learning activities. The highest interest was
expressed by students in life sciences and philology (96%) and the lowest by students
in social sciences (73%).
5.3 The Students’ Knowledge of the ESs Concept

Less than half (48.6%) of attendees consider themselves familiar with the ESs
concept. Most of them (56.5%) have a background in life sciences (biology, ecology,
geography) – Figure 1. On average, more than 50% of the respondents consider ESs
to be the benefits that humans receive from nature (Figure 2). While a greater
proportion of students in life sciences (65%) and philology (74%) perceive ESs as
benefits offered by nature, a significant proportion of students with training in social
sciences (19%) and in business and administration (22%) point to the decisive role
of ESs for human well-being. Between 11 and 14% of the respondents know that
UGI provides direct and indirect, tangible and intangible services, excepting students
in philology (Figure 2). Only one student with a background in life sciences
associates ESs with the functions and processes in natural systems. Another
highlights the importance of the concept in assisting the decision-making process.
About 28% of those familiar with the concept could not define it accurately –
Figure 2. Among the most common mistakes, we mention the attribution of the
435
provision of ESs to human socio-economic systems or the consideration of ESs as

actions of conservation and protection of nature.
Figure 1. Percentage of students who declare they are familiar

with the ESs concept
To define the concept of ESs, students used phrases such as: "care and cleaning
of the environment", "help regulate green spaces", "protect ecosystems", "benefits
for natural or artificial ecosystems", "which refers to ecology ", "representing human
activities necessary for the maintenance of a clean environment", "all the
components of nature and its components", "the place where different species live",
"several elements correlated in nature", "the goods provided to the environment that
helps to improve it with human help", "systems that bring us benefits", "services that
take place within an ecosystem", "the benefits that human communities obtain from
the ecosystems that exploit them" and even "services that keep track of green spaces
and contribute to certain economic sectors, such as forestry, tourism and agriculture".
Figure 2. Students' knowledge of the ESs concept. Keywords of the concept of ESs
mentioned by students with an academic background in life sciences,
business and administration, social sciences and philology
436
6. Conclusions
Urbanization creates a range of environmental, social, and economic challenges.
Despite the small sample size, our research shows that students' knowledge of UES
and their perception of the importance of UGI are related to their academic
backgrounds. It demonstrates a need for a deeper understanding of environmental
issues to increase the professional capacity of students and broaden their skills and
competencies for the benefit of civic universities, students, and communities alike.
Although the desire to get involved in volunteer activities is encouraging, the
different challenges students face and the need for enhanced knowledge require more
innovation in academia. Informal training, service-learning activities in mixed
groups with students from different faculties and fields of study, and engagement
through the OpenLab initiative could be among the solutions universities can
promote to give students opportunities to practically apply the theoretical knowledge
and engage in problem-solving activities. Universities could better use information
and communication technologies and develop interactive web interfaces to
encourage open participation and barrier-free access to information. Thus, they open
the opportunity for citizen science, which is undervalued in the region.
Acknowledgment
We thank Prof. Magdalena Iordache-Platis, Prof. Cristian Iojă, and Prof.
Smaranda Witec for their support and involvement in organising the workshops. We
also thank the Biology Students Association and the Sociology Students Association
for disseminating the invitations. Our thanks also go to the University of Bucharest,
which allowed the development of this project within the CIVIS OPENLABs
Initiative.
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Proceedings of the 5th International Conference on Economics and Social Sciences (2022), ISSN 2704-6524, pp. x-x

June 16-17, 2022
Identification of Gaps and Barriers in Building Renovations

through a Targeted Survey to Professionals
of the Built Environment to Upgrade the Quality
of Building Stock and Mitigate Climate Change
Vasileios NTOUROS1*, Chrysanthi EFTHYMIOU2, Theoni KARLESSI3,
Dimitris PALLANTZAS4, Margarita Niki ASSIMAKOPOULOS5
DOI: 10.24789788367405072-039
Abstract
Deep energy renovations (DER) in buildings are now required to satisfy the European
Union’s low carbon emission efficiency standards in order to confront the climate crisis and
boost the economic recovery of Europe after the pandemic outbreak. With annual energy
renovation rates expected to double in the next 10 years, the building sector is expected to
make a substantial change to achieve high energy efficiency goals by 2050. The construction
sector and building experts are urged to upskill their workforce. This implies both meeting
the targets and learning to use innovative approaches and technological solutions to ensure
high-quality construction and to increase the energy performance of buildings. However,
there are aspects that prevent the implementation of DER to a large extent. The aim of this
research is to identify gaps and barriers for energy efficiency implementation methods in
Greece and Cyprus through a targeted survey for building experts related to technical,
financial, and policy issues that may pose challenges to further boost building renovations.
The first results revealed that limited access to funding, poor legislative frameworks for
renovations, and poor expertise of professionals in the renovation market are among the
constraints that delay the renovation wave’s propagation. Based on the findings,
recommendations are provided for the development of qualitative university training courses
as a means of upgrading existing knowledge and paving the way towards a sustainable,
energy efficient, and decarbonized European building stock.
Keywords: buildings, renovations, barriers, technical survey, professionals.
JEL Classification: I25, J24, K32, L74, O18.
1 National and Kapodistrian University of Athens, Athens, Greece, [email protected].

4 Hellenic Passive House Institute, Athens, Greece, [email protected].
© 2022 V. Ntouros, C. Efthymiou, T. Karlessi, D. Pallantzas, M.N. Assimakopoulos, published by Sciendo. This
work is licensed under the Creative Commons Attribution 4.0 License.
1. Introduction
The construction industry is a major energy user worldwide. Buildings, in
particular, account for 16-50% of total global energy consumption (Saidur et al.,
2007), with buildings accounting for 40% of Europe's energy use (European
Parliament and Council, 2012). As a result, upgrading older buildings offers
tremendous opportunities to reduce energy usage and greenhouse gas emissions.
Building rehabilitation is becoming increasingly important in nations across
Europe. One cause for this is an aging construction stock. Another factor is the
requirement for more ecologically efficient buildings that reduce energy usage and
greenhouse gas emissions in order to prevent the damaging climatic effect. At the
same time, many structures must be upgraded to improve the quality of life – social
sustainability, for example, by improving indoor climate – and to raise efficiency in
the building process to provide cheap housing – economic sustainability.
Deep building renovations are now necessary to meet the European Union's high-
energy and low-carbon emission efficiency criteria, as well as to help Europe's
economic recovery following the pandemic epidemic. The European Commission
(EC) communicated the policy "A Renovation Wave for Europe – Greening our
Buildings, Creating Jobs, and Improving Lives" in 2020 to achieve this dual goal of
increased energy efficiency and economic growth. According to this, EC intends to
double annual energy renovation rates over the next ten years. These upgrades in the
building stock will not only help Europe fulfill its decarbonization ambition, but will
also improve the quality of life for those who live in and use the buildings, as well
as create a large number of new green employment in the construction sector.
To reach decarbonisation targets, the deployment of Nearly Zero-Energy
Buildings (NZEB) refurbishment packages in Europe must be hastened. To achieve
this goal, the way buildings are being renovated must be improved (Jensen et al.,
2018), boosting both the rate and depth of renovations (Artola et al., 2016). To
achieve this goal, a good remodelling strategy aimed at zero-energy buildings that
balance a lower energy demand against locally generated power is required.
Despite several good attempts to increase the energy performance of Europe's
building portfolio, it is evident that a slew of impediments is significantly restricting
full potential. This underperformance is due to a combination of obstacles. There are
several classifications for obstacles, and they have been defined in numerous ways
over the years. The BPIE 2011 survey found four major kinds of impediments that
have a specific impact on existing buildings: 1) Financial, 2) Institutional and
administrative, 3) Awareness, guidance, and skills, and 4) Spending and benefit
separation.
There are several impediments to knowledge, information, and technical skills.
Without a question, accurate and timely information is critical for the market to
function properly. Ambitious renovations are a huge choice that can only be
successful if the correct energy advice to take action is accessible, the energy
efficiency service sectors are capable of providing such measures, and finally,
adequate customer satisfaction levels can be ensured.
441
To meet these challenges and opportunities, the National & Kapodistrian

University of Athens (NKUA) joins forces with Hellenic Passive House Institute
(HPHI), Cyprus Energy Agency (CEA), and Da-Di-Werk municipal enterprise in
Darmstadt – Dieburg, Germany, in the UPGREAT project. The UPGREAT project
aims to create the necessary conditions for the minimization of the performance gap
between design and construction phase, especially in school buildings in Greece and
Cyprus. UPGREAT proposes the development, application and dissemination of a
Total Training Toolkit – an educational package- which comprises of three different
training programs. One for institutions of higher education, one for vocational high
schools, and one for lifelong training for professionals coming both from public and
private sector. The overall capacity development in UPGREAT includes the upgrade
of knowledge and experience on energy efficiency measures & circularity processes
in school renovations, the enhancement of competence between engineers,
architects, and building experts, and the strengthening of national and international
interaction between target groups.
Much research has been conducted to investigate the obstacles to building retrofit
adoption. Bjørneboe, Svendsen, and Heller (2018) found three major barriers:
information, financing, and procedure. Davies and Osmani (2011) identified four
major barriers: 1) financial and economic problems, 2) design and technological
challenges, 3) regulatory challenges, and 4) environmental and cultural issues.
Tuominen et al. (2012) classified building retrofit hurdles into four categories:
regulatory, organizational and decision-making, financial, and information,
promotion, and education. Building retrofit hurdles were categorized by Baek and
Park (2012b) into four categories: 1) lack of knowledge of energy performance,
2) financial reasons, 3) insufficient information, and 4) lack of regulatory
mechanisms. Bertone et al. (2016) classified the obstacles as follows: 1) knowledge
barriers, 2) regulatory hurdles, 3) financial barriers, and 4) modeling issues. The
primary impediments to public building retrofit, according to Alam et al. (2019),
include a lack of political will, finance mechanisms, department/agency expertise,
industry competency, quality assurance, and misaligned incentives. Seven major
bottleneck types have been identified by Konstantinou et al. (2021) which are the
following: (1) a lack of knowledge; (2) ambiguous definitions; (3) normative and
compliance issues; (4) coordination and communication; (5) duties and assurances;
(6) untrustworthy assessments; and (7) technological obstacles. As can be seen,
barriers can be classified in a variety of ways, although most research highlights
three types of barriers: administrative, financial, and knowledge/information.
Furthermore, numerous EU initiatives (i.e., 4RinEU, P2ENDURE, Pro-GET-
OnE, and MORE-CONNECT) have addressed the primary challenges to
comprehensive renovation in recent years by looking for creative technology
solutions to overcome the restrictions existing in the energy requalification market.
We categorize the major impediments discovered during extensive refurbishment
442
activities into the following macro-groups: Technical impediments; financial

impediments; and social impediments (D’Oca et al., 2018).

The primary purpose of this study is to address the most significant bottlenecks
in order to improve renovation efficiency by conducting an experts’ survey in Greece
and Cyprus. The goal is to identify the prominent barriers for financing building
energy renovations, the most important policy gaps for the applicability of energy
efficiency policies, the difficulties that were hard to overcome in deep energy
renovation (DER) projects and the drivers that may boost the DER projects in both
countries, which can then be utilized to enhance the workflow between all players.
4. Research Methods
In order to identify the barriers for energy efficiency implementation methods, a
targeted survey for building experts related to technical, financial, and policy issues
that may pose challenges to further boost building renovations and the achievement
of high quality retrofits was developed. An online version of the questionnaire survey
was created on LimeSurvey in Greek and English and was distributed between
April and May 2022. The questionnaire was disseminated to participants through
emails and social media and it was targeted to blue & white collar professionals
(technicians, installers, architects and engineers and other building experts)
responsible for the design and implementation of deep energy renovation measures.
This purposeful sampling technique was used to identify information-rich cases for
the most effective use of limited resources. Out of the 94 participants who opened
the survey, 72 responses were considered as valid, with the vast majority of them
(61) being from Greece. The questionnaire includes multiple- and single-choice
questions. In the first type of close-ended questions, participants were offered a set
of answers they have to choose from, while in the second type, respondents can
choose one option. Finally, the answers were collected online, and afterward they
were coded, quantified, and analyzed using the statistical computer-based programs
Microsoft Excel and IBM SPSS. For the derivation of the results, a quantitative
analysis that involves bar charts and percentages was used.
5. Findings
In the following paragraphs, a comparison of the main findings of this work
between Greece and Cyprus is presented. The gaps in energy efficiency policies are
presented in Figure 1, the financial barriers to implement deep energy renovations in
buildings are shown in Figure 2, while the particular difficulties that were hard to
overcome in deep energy renovation projects and the drivers that may boost DER
are illustrated in Figure 3 and Figure 4 respectively.
443
5.1 Gaps in Energy Efficiency Policies

In Greece, “Poor national legislative framework for renovation of existing
buildings” was considered as the most important gap in energy efficiency policies,
selected by the 34% of the participants. Eighteen percent (18%) of those surveyed
stated that the “inadequate adaptation of Energy Efficiency (EE) policies” is the most
important policy gap, while another 12% regard the lack of communication actions
on the benefits of energy efficiency and lack of training as the most important policy
gap. In Cyprus, the options “Poor overall ambition of the EE policies”, “No
monitoring of the implementation of the legislation”, “Inadequate renewable energy
legislation” and “lack of voluntary national DER standards for renovating existing
buildings” was equally selected by the 20% of those surveyed.
Figure 1. Most important policy gaps for the applicability of energy efficiency policies
Gaps in energy efficiency policies
Poor national/regional legislative framework 34%

for renovation of existing buildings
12%
Lack of communication actions and training
10%
Lack of voluntary national deep energy

6%
renovation standards for renovating existing
20%
buildings
10%
Inadequate renewable energy legislation
20%
18%
Inadequate adaptation of EE policies
10%
10%
Poor overall ambition of the EE policies
20%
No monitoring of the implementation of the 8%

legislation 20%
2%
I don't know
0% 5% 10% 15% 20% 25% 30% 35%

Greece Cyprus
Percentage
Source: Authors’ own contribution.
444
5.2 Financial Barriers

With regard to the financial barriers (Figure 2) that pose a challenge for DER, the
top 3 prominent barriers for financing building energy renovations are the same for
Cyprus and Greece. “Lack of funds or access to finance” is regarded as the most
important financial barrier in Greece, selected by the 36% of those answered while
in Cyprus this option was chosen by the 20% of those surveyed. “Poor financial
incentives” was selected by the 34% and 20% of the Greek and Cypriot respondents,
respectively, while “High capital costs and financial risks” was chosen by the 20%
of Cypriot respondents and 11% of the Greek participants.
Figure 2. Prominent barriers for financing building energy renovations
Financial barriers
Poor financial incentives 34%

20%
Lack of funds or access to finance 36%

20%
High capital costs and financial risk 11%

20%
Lack of interest to invest in EE 4%

10%
Lack of financial incentives 6%

10%
Too long paybacks 6%

10%
Limited payback expectations 2%

10%
I don't know 2%
0% 5% 10% 15% 20% 25% 30% 35% 40%

Greece Cyprus Percentage
5.3 Difficulties in DER Projects

When it comes to the particular difficulties that were hard to overcome in the
DER projects (Figure 3), the Cypriot respondents equally selected “Legislation
restrictions” (22%) and “Finding skilled actors” (22%) as their main difficulties
faced during der projects. For Greek respondents, technical issues in the
“construction” (15%) and in the “design” (15%) phase followed by “legislation
restrictions” (14%) were stated as the most frequent hard to overcome difficulties in
der projects. Interestingly, in both countries, a high share (22% Cyprus, 24% Greece)
did not know about such difficulties.
445
Figure 3. Particular difficulties that were hard to overcome

in deep energy renovation projects. A comparison for Cyprus and Greece
Difficulties in DER projects
Legislation restrictions 14%

22%
Finding skilled actors 10%

22%
Complicated tender documentation 3%
Availability of products 7%
Technical issues in the construction phase 15%

11%
Technical issues in the design phase 15%

11%
There was not any particular difficulty 12%

11%
I don't know 24%

22%
0% 5% 10% 15% 20% 25%

Greece Cyprus Percentage
5.4 Drivers to Boost DER

Finally, the drivers that may boost DER projects were examined. In both
countries, the vast majority of respondents (82% Cyprus, 77% Greece) highlighted
that “improved financing solutions” may boost the deep energy retrofits in buildings.
Forty-five percent (45%) of the Cypriot respondents, stated that “Upgrading the
skills of professionals” involved in der would boost deep energy renovation projects
whereas another 45% regarded the raise of societal awareness on DERs as a mean to
increase support and therefore boost deep energy retrofits as an important factor. In
Greece, 48% of the respondents answered that consultancy and training would be a
tool to boost deep energy renovations in the country, followed by a 46% of those
surveyed that regard “clear technical guidelines on DERs” as an effective tool that
could boost the deep energy renovation projects.
446
Figure 4. Drivers that may boost the deep energy renovation projects.
A comparison between Cyprus and Greece
Drivers to boost DER
Improved financing solutions 77%

82%
Consultancy / training 48%

36%
Upgrading the skills of professionals for DERs 38%

45%
Clear technical guidelines on DERs 46%

36%
More ambitious renovation obligations 28%

36%
Robust legislation 38%

36%
Raise societal awareness on DERs to increase 25%
support 45%
New business models 25%

36%
Emphasizing the role of DERs in improved 20%
Indoor Air Quality and health 27%
Further boost of DERs is not possible 2%
I don't know 2%
Greece Cyprus 0% 20% 40% 60% 80% 100%

Percentage
6. Conclusions
The findings of the assessment of the survey results in Greece and Cyprus
indicated that a percentage of 22% in Cyprus finds that legislation restrictions and a
lack of skilled actors prevail in the difficulties faced in DER projects. In Greece 15%
indicate technical issues in the design and construction phase as the main difficulty
faced, while a significant percentage of 22% approximately in both countries has no
opinion on the issue. Economic and financial barriers also play an important role in
DER projects (40% in Cyprus and 51% in Greece). Concerning the drivers that may
boost the deep energy renovation projects, the results show improved financial
solutions by 80% approximately. Consultancy & training, upgrading the skills of
professionals and clear technical guidelines for DERs are considered main drivers to
boost deer energy renovations. An important policy gap for the applicability of
energy efficiency policies is the poor national/regional legislative framework for
renovation of existing buildings in Greece by 34%, while in Cyprus the gaps are
related to lack of voluntary national DER standards, inadequate renewable energy
legislation, poor overall ambition of the EE policies, and no monitoring of the
447
implementation of legislation (20%). Concerning financial barriers, the most

prominent are the poor financial incentives, lack of funds, and high capital cost and
financial risks in both countries.
The results presented in this study were collected while the survey was still
ongoing, and thus they should be considered as an initial depiction of a broader
picture. Due to the small sample size, a factor that limits generalizability, the results
should not be considered either representative or sufficient of the entire building
professionals’ universe but as indicative, and so they should be used with caution.
The present work will be extended to add further data, thus becoming more
representative of the building professionals’ population in each country.
The survey methodology for assessing the experience of building experts in DER
projects in order to identify gaps and barriers in energy efficiency implementation is
the first level toward the UPGREATs project scope which is the development,
application and dissemination of a Total Training Toolkit – an educational package-
through capacity building actions for different target groups involved with energy
renovations in buildings. However, these first results provide an indication that
training and upgrading the skills of professionals are a main driver in upgrading the
existing building stock that requires an integrated training methodology.
Within this context, universities can play a key role, firstly by doing cross-
disciplinary research to identify the gaps and barriers that prevent the full
deployment of deep energy renovations in buildings as a means to boost energy
savings and mitigate climate change and secondly by upgrading the skills of the
professionals through updated training courses and technical seminars in a lifelong
manner. Therefore, the development of qualitative training schemes, the provision
of training courses and the upgrade of existing knowledge, the production of
reference documents with renovation roadmaps based on real-life examples, the
involvement of related stakeholders’ groups, as well as the dissemination of
information to public authorities and the general public is highly recommended. As
a result, universities can become a multi-stakeholder hub that impacts the local,
regional, or national economy paving the way for the new European Bauhaus
movement, which calls on all of us to imagine and build a sustainable and inclusive
society, responding to needs beyond functionality.
Acknowledgment
This project is part of the European Climate Initiative (EUKI) of the German
Federal Ministry for Economic Affairs and Climate Action (BMWK) under Grant
Agreement No. 81277750. UPGREAT – Upskilling Professionals for deep energy
efficiency Renovations: A Tool for better schools https://www.euki.de/en/euki-
projects/upgreat/.
448
References
[1] Alam, M., Zou, P.X.W., Stewart, R.A., Bertone, E., Sahin, O., Buntine, C., Marshall, C.
(2019). Government championed strategies to overcome the barriers to public building
energy efficiency retrofit projects. Sustain. Cities Soc., 44, pp. 56-69.
[2] Artola, I., Rademaekers, K., Williams, R., Yearwood, J. (2016). Boosting Building
Renovation: What Potential and Value for Europe? European Union: Brussels, Belgium.
[3] Baek, C., Park, S. (2012). Policy measures to overcome barriers to energy renovation of
existing buildings. Renew. Sustain. Energy Rev., 16(6), pp. 3939-3947.
[4] Bertone, E., Sahin, O., Stewart, R.A., Zou, P., Alam, M., Blair, E. (2016). State-of-the-
art review revealing a roadmap for public building water and energy efficiency retrofit
projects. Int. J. Sustain. Built Environ., 5(2), pp. 526-548.
[5] Bjørneboe, M.G., Svendsen, S., Heller, A. (2018). Initiatives for the energy renovation of
single-family houses in Denmark evaluated on the basis of barriers and motivators.
Energy Build., 167, pp. 347-358.
[6] BPIE (2011). Europe’s Buildings under the Microscope; Building Performance institute
Europe: Brussels, Belgium.
[7] Davies, P., Osmani, M. (2011). Low carbon housing refurbishment challenges and
incentives: architects' perspectives. Build. Environ., 46(8), pp. 1691-1698.
[8] D’Oca, S., Ferrante, A., Ferrer, C., Pernetti, R., Gralka, A., Sebastian, R., Op ‘t Veld, P.
(2018). Technical, Financial, and Social Barriers and Challenges in Deep Building
Renovation: Integration of Lessons Learned from the H2020 Cluster Projects. Buildings,
8(12), p. 174.
[9] European Parliament and Council (2012). Retrieved from https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:32012L0019&from=EN.
[10] IBM SPSS Statistics for Windows (version 23.0) (2015). Armonk, NY: IBM Corp.
[11] Jensen, P.A., Maslesa, E., Berg, J.B., Thuesen, C. (2018). Ten questions concerning
sustainable building renovation. Build. Environ., 143, pp. 130-137.
[12] Konstantinou, T., Prieto, A., Armijos-Moya, T. (2021). Renovation Process Challenges
and Barriers. Environ. Sci. Proc., 11(6).
[13] LimeSurvey: An Open Source survey tool. (version 2.73.1). Hamburg, Germany:
LimeSurvey GmbH, https://www.limesurvey.org.
[14] Saidur, R., Masjuki, H.H., Jamaluddin, M.Y. (2007). An application of energy and exergy
analysis in residential sector of Malaysia. Energy Policy, 35(2), pp. 1050-1063.
[15] Tuominen, P., Klobut, K., Tolman, A., Adjei, A., de Best-Waldhober, M. (2012). Energy
savings potential in buildings and overcoming market barriers in member states of the
European Union. Energy Build., 51, pp. 48-55.
449

June 16-17, 2022
How Realistic are ECTS Credits

from the Student's Perspective?
Riza SALAR1*, Bilal YILMAZ2, Burak Erdinc ASLAN3
DOI: 10.24789788367405072-040
Abstract
Various Bologna tools have been developed in order to compare higher education
systems with each other, to easily understand higher education systems in different countries,
and to ensure recognition and transparency in higher education systems. The European
Credit Transfer and Accumulation System (ECTS) is one of these tools. This research aimed
to investigate whether there was a difference in reaching ECTS credits between university
students studying in an accredited program and those in non-accredited programs. For this,
students responded to a survey asking how much time they spent in the courses they attended.
The data obtained from the survey are ECTS credits according to the students' opinions. The
differences are calculated by subtracting these credit values from the ECTS credits in the
curriculum. These differences should be close to zero. In non-accredited programs, this
difference is statistically different from zero, and the mean is greater than zero. These
findings showed that the ECTS credits in the curriculum and the ECTS credits determined
according to the students' opinions in non-accredited programs are different from each
other and that the student completes the course with a workload less than the workload
in the curriculum. On the other hand, there was no difference between the ECTS credits
calculated according to the answers of the students studying in accredited programs and
the ECTS credits included in the curriculum of these students.
Keywords: accreditation, ECTS, higher education.
1. Introduction
The main functions of universities are education, research, and sharing them
with society. Significant changes are taking place in the fulfilment of these functions
of universities. It is essential to make this change sustainable and comprehend and
1 Atatürk University, Erzurum, Turkey, [email protected].

© 2022 R. Salar, B. Yilmaz, B.E. Aslan, published by Sciendo. This work is licensed under the Creative Commons
implement the change. For this purpose, states can act together to achieve qualified
education.
The Education Ministers of France, Italy, Germany and England put forward the
idea of creating a common European Higher Education Area at a meeting they held
in the Sorbonne in 1998. The Bologna Process officially started in 1999, with the
ministers responsible for higher education from 29 European countries meeting in
Bologna and signing the Bologna Declaration to create a common higher education
area in Europe. The main goal of this process is to create a European Higher
Education Area (EHEA) by 2010. This framework is aimed to expand the mobility
of students and lecturers in order to improve the role and effectiveness of Europe in
higher education, implement the European Credit Transfer and Accumulation
System (ECTS), to create easily understandable and comparable higher education
diplomas and/or degrees, and to establish and expand the network of quality
assurance systems in higher education.
The European Credit Transfer and Accumulation System (ECTS) is a tool of the
European Higher Education Area to make studies and courses more transparent. It
helps students move between countries and have their academic qualifications and
periods of study abroad recognized. ECTS credits allow courses in one higher
education institution to be counted towards a qualification studied at another higher
education institution.
There are some problems in determining ECTS credits and student workloads
(Karseth, 2006). Lecturers trying to plan with ECTS credits in higher education
institutions are often faced with the task of having to assign learning times that are
unknown in principle and must be estimated (Garmendia et al., 2008).
In most studies that aimed to determine how much time students take to complete
a course, students are surveyed at the end of the course and asked to give an overall
estimate of the time they have spent on that topic. The results obtained in these
studies are very variable (Kolari et al., 2006). Properly formulated, administered, and
processed questionnaires can indeed provide consistent answers (Cohen et al., 2007).
In this study, it was compared whether the workload collected from the students
through questionnaires differed from the ECTS credits in the curriculum of the
students. In addition, the differences between accredited and non-accredited
programs were discussed separately. Thus, the relationship between quality
assurance and ECTS credits was also examined. As a result, it has been tried to
present a study that can create new ideas and form a basis for the calculation of
ECTS credits and quality assurance elements.
1.1 European Credit Transfer and Accumulation System

The European Credit Transfer and Accumulation System (ECTS) is a tool of the
European Higher Education Area for making studies and courses more transparent.
It helps students to move between countries and to have their academic qualifications
and study periods abroad recognised. ECTS supports the planning, implementation,
and evaluation of higher education programs. It is an effective and useful tool in the
Bologna process, making national education systems internationally comparable.
451
ECTS credits represent learning based on defined learning outcomes and their
associated workload. According to Andrich (2002), there is a strong link between
behaviourism and outcomes-based education, and outcomes-based education is the
planning and implementation of what is required for all students to successfully do
everything in an education system.
There are three methods applied to determine ECTS credits. The first
method is the “top-down method”, in which the lecturer in charge of the course
calculates, based on his individual experience, by estimating how much
time the average student should devote to which applications to be successful
in the course. The second method; based on the results of the survey applied to the
students, is the “bottom-up method” in which the average amount of time allocated
to the basic stages of the course is calculated. The third method is to calculate the
ECTS credits according to the learning outcomes of the course. According to the
literature, these three methods have positive and negative aspects (Lavigne, 2003;
Loskovska, 2008).
In this research, it was planned to determine how realistic the ECTS credits are
from the students' perspective in a university where the top-down method is
generally used. The purpose was to contribute to this gap in the field of higher
education by presenting empirical data to the criticisms of this method. Research
results could provide faculty members with a different perspective on ECTS credits
in curriculum designs.
1.2 Quality Assurance in Higher Education

The demand for higher education is increasing day, by day and it is estimated that
the number of students studying in these institutions will reach 263 million by 2025
(Karaim, 2011). As the demand for quality education increases, quality assurance
(QA) has become a necessity rather than an option for universities where the mobility
of students, faculty, programs, and higher education institutions in global networks
increases (Hou, 2012; Varonism, 2014). Quality assurance can be a driving force for
institutions to achieve excellence in higher education. However, ensuring that the
quality of education programs simultaneously meets local and international
standards has become a major challenge in many countries (OECD, 2007).
Therefore, the cooperation of quality assurance agencies and the acceptance of
quality assurance review decisions are needed (Ryan, 2015).
In order to create a quality assurance system in higher education, learning design,
content, and pedagogy will be evaluated effectively (Puzziferro, Shelton, 2008).
According to Barnett (1992), the quality of higher education can be measured by
reaching the determined performance indicators. Another way to describe quality in
higher education is faculty-student interaction (Lundberg, Schreiner, 2004).
Accreditation is a review of the quality of higher education institutions and
programs (CHEA, 2014). An institution or program is accredited if it meets
minimum quality standards. The main objectives of accreditation include quality
assurance assessment and continuous improvement. Accreditation agencies have
developed standards and procedures to guide institutions in the process of voluntary
452
commitment to continuous improvement through the application for accreditation.

These standards are used by review committees as a basis for decision making and
for making recommendations.
One of these standards is the curriculum of the program. Considering that one of
the components of the curriculum is ECTS credits, quality assurance of these credits
should be established. In this study, the opinions of students studying in accredited
programs about ECTS credits were investigated. The findings were aimed to provide
knowledge about the quality assurance of ECTS credits.
2. Methodology
The main purpose of this research was to investigate whether there was a
difference in reaching the prescribed ECTS credits between university students
studying in an accredited program and those in non-accredited programs. The survey
model was adopted by collecting quantitative data in the research. The research
participants were students studying at a state university in Turkey. At the end of the
semester, the students were asked questions about the effort they put into the courses
they attended. The questions are given in Table 1. ECTS credits based on the
working hours spent by the student were obtained by dividing the total workload
obtained from the questions by 25. Because one academic year corresponds to
60 ECTS credits, equivalent to a total workload of 1500-1800 hours. The university
decided to put this workload on 1500 hours and one ECTS credit corresponds to
25 hours.
Table 1. Survey questions
No Activity in the semester Repetition Time spent Time
1 How many weeks was the ….weeks How many hours per week …
lesson held during the was the lesson held? hours
semester?
2 How many times did you …times How many hours per week …
prepare before the lesson did you work on average hours
during the semester? for preliminary
preparations?
3 How many times did you …times How many hours on …
prepare homework within the average did you study for hours
scope of the course during the assignments?
the semester?
4 How many …times On average, how many …
presentations/seminars did hours did you work for the hours
you prepare during the presentation(s)?
semester?
5 How many times was a quiz …times On average, how many …
given in the course during the hours did you study for hours
semester? each of the quizzes?
6 How many times were the …times How many hours on …
midterm exams made during average did you study for hours
the semester? the midterm(s)?
453
No Activity in the semester Repetition Time spent Time

7 How many times did you …times How many hours did you …
prepare a project/semester work on average for the hours
homework during the project/semester
semester? assignment?
8 How many times did you do …times On average, how many …
practice/laboratory/field hours do you spend per hours
work outside of class hours week for
during the semester? practice/laboratory/field
work?
9 How many activities …times On average, how many …
(research, forum, discussion, hours did you work for hours
etc.) did you do during the each of the activities
semester, apart from (research, forum,
preliminary preparation, discussion, etc.)?
homework, and seminars?
10 How many hours did you study for the final exam? …
hours
Participants completed the questionnaire on a completely voluntary basis. The

number of students who answered the questionnaires about the courses studied
from non-accredited programs was 1847. The number of students who answered
the questionnaires from accredited programs was 974. In a non-voluntary survey
study, question marks arise about the reliability of the data collected, since the
student is obliged to answer. In this case, the student may write random numbers in
the required fields to complete the questionnaire quickly and cause contamination of
the information to be transferred to the academic units.
ECTS credits should be calculated on the basis of the “average student”. In order
to find the average student, it is the calculation of the arithmetic mean from the
remaining data by removing the highest and lowest 25% parts of the data, which is
also known as the "interquartile mean" in the literature (Bickel, 1965). In this way,
it is not possible to calculate exactly the theoretical distribution of the statistic
obtained. However, it is known that this distribution converges to the normal
distribution as the number of samples increases (Maronna et al., 2006).
With the data obtained from the ECTS survey, the variable "ECTS credits
according to student" was calculated for each course. This value was deducted from
the variable “ECTS value in the curriculum”. The difference was labelled as the
“ECTS credit difference” variable. The fact that this difference value is close to zero
means that the value in the curriculum and the effort of the student are equal.
Therefore, one sample t-test was used to find out whether the variable "ECTS credit
difference" is different from zero. Zero was taken as the test value.
454
3. Findings
Survey data were obtained for 1054 different courses from 68 non-accredited
undergraduate programs. These data were subjected to the extraction procedure and
the opinions of the students in the lower and upper quartiles of 25% and the opinions
of only one student for a course were excluded from the analysis. As a result of this
process, 549 different courses were included in the analysis. Survey data were
obtained for 372 different courses from 18 accredited programs. After the data were
extracted, the ECTS credit difference was calculated for 258 different courses.
Descriptive statistics of "ECTS credit difference" variables are presented in Table 2.
Table 2. Descriptive statistics of the ECTS credit difference variable

ECTS credit N Min Max Mean Std. Skewness Kurtosis
difference Deviation
Non-
549 -6,10 10,64 ,453 2,541 -,224 ,245
accredited
Accredited 258 -3,16 2,34 ,069 1,524 -,342 -,967
In Table 2, it can be said that the distribution for both variables is close to the
normal distribution because of skewness and kurtosis values. Some researchers
suggest that skewness and kurtosis up to an absolute value of 1 may indicate
normality (Huck, 2012; Joyner et al., 2018). It is striking that the range and standard
deviation are larger in non-accredited programs. In addition, the mean for both
variables
was greater than zero. When calculating the difference, the ECTS credits in the
curriculum were subtracted from the survey data, so if this difference was greater
than zero, it means that the students put in less effort than expected in the curriculum.
One sample t-test was conducted to investigate whether the difference from zero
of the “ECTS credit difference” variable was statistically significant. Here, the test
value was taken as zero. The results are presented in Table 3.
Table 3. One sample t-test

ECTS credit t df p Mean Difference
difference
Non-accredited 4,177 548 ,000 ,453
Accredited ,733 257 ,464 ,069
When Table 3 is examined, the difference between "ECTS value in the

curriculum" and " ECTS credits according to student " of non-accredited programs
differs significantly from zero (t=4.177; p<0.05). If this difference is significantly
greater than zero, it means that the effort made by the students is less than the
ECTS credits in the curriculum. On the other hand, this difference value is not
455
significantly different from zero in accredited programs (t=0.733; p>0.05). This

result shows that the ECTS credits specified in the curriculum are more consistent
in accredited programs.
4. Conclusion and Recommendations

In this study, it was investigated whether there was a difference between
university students studying in accredited programs and those in non-accredited
programs in reaching the ECTS credits specified in the curriculum. For this, the
students answered a survey asking how much time they spent in the classes they
attended. This study had some limitations during the data collection phase. The fact
that the participation in the surveys was on a voluntary basis decreased the
representativeness of the population of the sample. In addition, the fact that the
questionnaire was administered at the end of the period may have affected the
reliability. Because during the whole semester, students may have forgotten how
much they had studied. The data obtained from the survey were the ECTS credits in
the views of the students. The differences were calculated by subtracting these credit
values from the ECTS credits in the curriculum. These differences should be close
to zero. In non-accredited programs, this difference was statistically different from
zero, and the mean is greater than zero. These findings showed that in non-accredited
programs, the ECTS credits in the curriculum and the ECTS credits determined
according to the students' views were different from each other and that the student
completed the course with a less workload than the workload in the curriculum. On
the other hand, there was no difference between the ECTS credits calculated based
on the answers of the students studying in accredited programs and the ECTS credits
written in the curricula of these students. Based on this finding, it can be said that
the workload of students in accredited programs is more realistic. This result may be
the result of accredited programs providing quality assurance in education systems.
Because the function of national accreditation systems is to provide quality assurance
of the program through an evaluation process. (Andreani et al., 2020). In fact, quality
assurance for ECTS credits must be established in all programs, accredited or not.
ECTS credits determined by faculty members and ECTS credits obtained from
student responses should be compared. In cases where the workload is low according
to the student, the number of in-class and extra-curricular activities should be
increased or the ECTS value of the relevant course should be written lower when
revising the curriculum.
References
[1] Andreani, M., Russo, D., Salini, S., Turri, M. (2020). Shadows over accreditation in
higher education: Some quantitative evidence. Higher Education, 79(4), pp. 691-709.
[2] Andrich, D. (2002). A framework relating outcomes based education and the taxonomy
of Educational Objectives. Studies in Educational Evaluation, 28(1), pp. 35-59.
[3] Barnett, R. (1992). Improving higher education: Total quality care. Bristol, PA: SRHE
and Open University Press.
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[5] Cohen, L., Manion, L., Morrison, K. (2007). Research methods in education London:
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[6] Council for Higher Education Accreditation (CHEA). (2014). Information about
accreditation. [Para. 1]. Retrieved from http://www.chea.org/.
[7] Garmendia, M., Guisasola, J., Barragués, J.I., Zuza, K. (2008). Estimate of students’
workload and the impact of the evaluation system on students’ dedication to studying a
subject in first-year engineering courses. European Journal of Engineering Education,
33(4), pp. 463-470.
[8] Hou, A.Y.C. (2012). Mutual recognition of quality assurance decisions on higher
education institutions in three regions: A lesson for Asia. Higher Education, 64(6),
pp. 911-926.
[9] Huck, S.W. (2012). Reading statistics and research (6th Edition). Boston, MA: Pearson.
[10] Joyner, R.L., Rouse, W.A., Glatthorn, A.A. (2018). Writing the winning thesis or
dissertation: A step-by-step guide. Corwin press.
[11] Karaim, R. (2011). Expanding higher education. CQ Global Researcher, 5(22),
pp. 525-572.
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Process: A new pedagogic regime? Revista Española de Educación Comparada, 12,
pp. 255-284.
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enough time studying?. European Journal of Engineering Education, 31(5),
pp. 499-508.
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[17] Maronna, R.A., Martin, R.D., Yohai, V.J. (2006). Robust Statistics: Theory and
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457

June 16-17, 2022
A Responsive Approach to the New Academic Mobility.

Building a Conceptual Framework for Embedding Digitally
Enhanced Mobility in a European University
Roxana ZUS1*, Nadia FÉRNANDEZ DE PINEDO2, Lucia VENNARINI3,
Anișoara DUMITRACHE4, Alexandru CARȚIȘ5, Romiță IUCU6
DOI: 10.24789788367405072-041
Abstract
Educational practices have dramatically changed in the past few years, especially due to
the COVID-19 pandemic. Universities, academics, and civil society had to respond to a
shifting educational landscape. The growing interest of that time for student mobility had to
take a break, offering the opportune context for innovating mobility formats and enriching
the presence of virtual (digitally enhanced) mobility in higher education teaching and
learning. Targeting many “mobile” students, European Universities Alliances had to quickly
react and adapt to these changes, reconfiguring their educational offerings and the
corresponding conceptual framework. In this context, at the level of CIVIS – a European
Civic University, one of the first alliances of the European Universities Initiative, we
designed an innovative conceptual framework for embedding virtual (digitally enhanced)
mobility in the alliance’s educational offer, integrating methodological and procedural
components into a unique tool, as a coherent approach to the emerging growth of virtual and
blended learning at the European level. Therefore, we proposed a virtual mobility matrix, as
a basis for developing enhanced virtual learning components, and as a starting point for
larger curricular constructs, such as the European Degrees. The aim of the current paper is
to present the process of designing and implementing a conceptual virtual mobility
framework, as a starting point for developing an integrated and innovative educational offer
at the higher education level. The framework adopted by CIVIS European University renders
the intermediate steps towards implementing European Degrees and embedded mobility
approaches at the alliance level, contributing to the objectives and visions of the European
Universities Initiative and the development of the European Higher Education Area.

2 Universidad Autónoma de Madrid, Madrid, Spain, [email protected].
3 Eberhard Karls Universität Tübingen, Tübingen, Germany, [email protected].
© 2022 R. Zus, N. Férnandez De Pinedo, L. Vennarini, A. Dumitrache, A. Carțiș, R. Iucu, published by Sciendo.
This work is licensed under the Creative Commons Attribution 4.0 License.
Keywords: digitally enhanced mobility, flexible curricula, micro-credentials,

European universities, higher education.
1. Introduction
Virtual mobility has encountered an important increase in international higher
education practices, not only because of the pandemic’s impact on designing and
delivering education, but also due to the dynamics and changes of students’ needs
for a more flexible approach to teaching and learning. Some boundaries and
clarifications are yet to be made on the role and presence of virtual mobility
experiences in learning activities, and here is where contexts such as the European
Universities Initiative (European Commission, n.d.a) play a major role in testing and
piloting new approaches for designing a coherent way for such processes.
The aim of the study is to present the steps and actions that were taken for
designing and developing a conceptual curricular framework in one of the first
European University Alliances, CIVIS European University, starting from the
construction of a virtual mobility conceptual approach. The paper will describe both
the work and process, as well as the outcomes that serve as a basis for shaping a
CIVIS innovative educational offer.
The main component of the present study is based on the CIVIS Handbook on
Virtual Mobility (Iucu et al., 2022), a practical tool which offers support and
guidelines for designing, managing, and delivering educational activities that are
accompanied by virtual mobility components. The CIVIS curricular framework
offers a conceptual and practical way forward for academics, researchers, and
decision-makers to develop new formats for teaching and learning, in a flexible way,
addressing the needs of all students in an inclusive manner. The educational
components included in the matrix, described in the present analysis, can stand as a
valuable example of a piloting process that supports innovation in the European
higher education sector, while also creating a context for sharing best practices with
other alliances and universities.
There are more documents emphasising the idea of developing virtual mobility
as a means for increasing students mobilities (European Commission 2017; 2022),
whereas only a limited number of studies that are focused on the institutional
perspective of developing it (Ubachs, Henderikx, 2018). We consider it important to
maintain a holistic approach when investigating the process of developing and
implementing a scalable framework for virtual mobility. In this regard, precisely,
this study proposes an empirical dimension towards this approach, and its novelty
represents the integrated way for building and embedding virtual mobility in higher
education contexts, based on modularisation of learning activities.
459
2. Problem Statement; Digitally Enhanced Mobility for Flexible

Curricula in Higher Education
Virtual mobility has great potential for developing new and flexible learning
pathways, connecting universities, and ensuring an integrative approach to
student mobility. The concept is widely used, especially in recent years, and
different definitions are given. Moreover, there are different terms related to virtual
mobility and the similarities and differences between the terms are analysed. Higher
education institutions strived to create contexts that promote mobility for all
members of the academic community. Internationalisation proved its potential in
increasing the quality of educational processes, and universities sought new /
improved ways to collaborate and open their campuses for international students
(Altbach, Knight, 2007).
Information and communication technologies (ICT) significantly contributed to
a new kind of mobility, more accessible and easier to achieve virtual mobility.
“Internationalisation at home” (IaH), a term coined by Bengt Nilsson in 1998
(Crowther et al., 2000), was the starting point for increasing access to various
international learning experiences for students who cannot access physical mobility.
The concept of virtual mobility opened students’ perspectives and borders to
enriched learning experiences and intercultural collaboration in an innovative
international environment created through the collaboration between universities
and was reshaped according to the educational policies and strategies for the
higher education environment in line with substantial developments in the field of
ICT. There are some terms and concepts related to virtual mobility and debates
about what can be included in this category. For example, MOOCs (Massive Online
Open Courses) have many of the virtual mobility features, but are a tool that can be
used to support virtual mobility, due to collaborative intercultural efforts. Dondi
and Salandin (2010) underline that the differences between the dimensions that
characterise virtual mobility are not present in e-learning and distance learning:
internationalisation and cooperation, virtual exchange, while virtual mobility uses
distance education principles to build its learning framework. There are significant
similarities between virtual exchange and virtual mobility and the two terms are
often used with the same understanding; still, in virtual exchange, the aim of the
activity is “on people-to-people interaction and dialogue” (European Commission,
n.d.b), also integrating virtual exchange components for soft skills development.
The European Commission has addressed virtual mobility as a key issue for the
future of higher education, including virtual mobility in the Erasmus+ initiative with
the aim of increasing the number of students’ mobility (to 50% in 2025). Virtual
mobility is also defined as a type of mobility that uses the advantages offered by ICT
to create learning experiences with the same benefits as physical mobility
(Commission of the European Communities, 2009). However, even if virtual
mobility was seen at a certain point as an alternative to physical mobility, other
approaches brought different perspectives, and virtual mobility was used in addition
to physical mobility.
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In the CIVIS Handbook on Virtual Mobility (Iucu et al., 2022), the concept of
virtual mobility is analysed together with previous CIVIS experiences in conducting
learning activities with virtual or blended components: “virtual mobility can cover a
wide range of international learning and teaching, research, and collaborative
activities, in an online environment, empowering students with learning experiences,
and promoting the development of the competences for a knowledge-based society”
(Iucu et al., 2022, p. 11). Considering this definition, different CIVIS physical and
virtual learning experiences were analysed and framed to identify common
understandings.
The COVID-19 pandemic was a worldwide challenge for educational institutions
and Emergency Remote Teaching (ERT) was adopted to ensure access to education,
shifting from face-to-face to online education. There was an increased focus on
virtual mobility, and there were concerns about the potential of replacing physical
mobility with virtual mobility soon. The students’ representative bodies at the
European level, such as the European Students’ Union (ESU) and the Erasmus
Student Network (ESN), underline the importance of separating virtual mobility
from physical mobility, which has been seen as the main driver for transformative
experiences. In their vision (ESU & ESN, 2021), virtual mobility can be used in
addition to complete physical mobility or as a support to increase internationalisation
and access to specific online learning activities, using digital means. As a response
to the reshaping needs of mobilities within the European Higher Education Area
(EHEA) and ESU’s statement on what virtual mobilities should represent in the
future, the Rome ministerial conference (EHEA, 2020) further commits to “enabling
all learners […] to experience some form of mobility, whether in physical, digitally
enhanced (virtual) or blended formats”. This conceptual redesign and interpretation
recognise that virtual mobilities must not be seen as replacements or substitutes for
physical or blended mobilities, but as complementary learning opportunities.
3. Research Questions / Aims of the Research; Pathways for European

Degrees
Starting from the need of establishing a common framework for designing
and implementing virtual mobility learning opportunities across the alliance, work
has been done for identifying the most suitable educational components that would
answer to the student’s needs and the alliance’s specificities. The process of
designing and implementing a conceptual and curricular framework for delivering
virtual mobility educational components at the alliance’s level considered some
questions and concerns, of which some research questions (RQ) are presented here:
RQ1: How can we define virtual mobility and what are its main characteristics?
RQ2: What are the most suitable learning components to be delivered based on
virtual mobility at the level of the alliance?
RQ3: How can we embed an approach to micro-credentials in the new curricular
framework?
As one of the first pioneering European University Alliances, part of the
European University Initiative’s (European Commission, n.d.a.) first wave of
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alliances, CIVIS aligned its strategic priorities to the major development directions
at the European level, this including topics such as the European approach to micro-
credentials, the European student card initiative, as well as the new Erasmus+
framework for blended mobilities across Europe. The framework thus addressed the
need for developing a more flexible approach to designing education, as a CIVIS
modular approach, in line with the European approach to micro-credentials
(European Commission, n.d.c).
We consider that the results of this analysis will support the exchange of best
practices with regard to building an innovative educational offer at the European
level. As piloting arenas for innovation and change in higher education, we believe
that the alliances’ experience represents valuable assets for a real community of
knowledge.
4. Research Methods for Building CIVIS Virtual Mobility Framework

The modularisation of learning activities together with virtual mobility was
extensively explored to design a coherent framework applicable to the CIVIS
Alliance and other European alliances and academic communities. The research used
a qualitative approach, and it was organised in three stages: literature review and
document analysis, workshops with stakeholders, and best-practice analysis.
Moreover, it started with literature and document analysis to identify the existing
concepts and experiences in the field of virtual mobility. One of the key issues was
to identify the pillars to support a virtual university environment that enables
students to build their own learning pathways. The analysis included research on
policy documents, evaluation, and frameworks and offered qualitative data used to
establish the current state of the examined components. The results of this stage
consisted in pointing out the main dimensions of a virtual mobility environment.
These dimensions were discussed and validated through four thematic and two
transversal workshops organised within the first CIVIS Virtual School on Virtual
Mobility, with more than 150 participants, involving policy makers, stakeholders,
academics, and researchers. Each workshop was planned around a specific subject:
a) building European Study Programmes - strategic decisions and policies needed;
b) research and innovation strategies and operational tools for thematic activities;
c) course design with virtual or blended component to build flexible curricula;
d) innovative pedagogies as necessary ingredients for virtual learning activities;
e) multilingualism as a strategic point for the development of the project. The
discussions explored each topic, collecting the participants’ input.
Data analysis included the revision and organisation of information offering an
improved theoretical framework that needed to be adapted to the alliance’s context.
Examples of learning activities with virtual or blended components were provided
by CIVIS partner universities. They revealed a variety of learning activities, from
regular courses to short-term and modules in CIVIS universities. The analysis of best
practices considered several characteristics and focused on the common dimensions
of a coherent virtual mobility framework, with modularisation as a key indicator.
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Our study also poses some limitations, especially due to the research context and
the COVID-19 pandemic impact, the first of which refers to the literature review and
the extent of previous studies on this topic. Even though the concept of virtual
mobility has a long history in the educational language, it was mostly analysed
through European and international policy documents rather than in research studies.
The pandemic changed perceptions on virtual mobility and on its role in ensuring
accessibility to different learning contexts. Secondly, our study’s research design did
not include quantitative data analysis, understanding that such approaches could
offer insight into designing a coherent curricular approach, based on virtual learners’
experiences in virtual mobility learning contexts.
5. Findings; CIVIS Virtual Mobility Framework

The CIVIS modular approach was designed on pillars such as embedded mobility
(virtual, physical, or blended), innovative pedagogies, multilingual practices and
contexts, enhanced recognition of learning (through ECTS credit points, an umbrella
agreement, and the CIVIS Passport), and flexible learning pathways.
Table 1. CIVIS Virtual Mobility Curricular Matrix

Recognition &
No. CIVIS VM ECTS Delivery mode
Certification
Full / Partial &
1. CIVIS Open Courses 1-10 Virtual (DE)
CIVIS passport
CIVIS Modules /
2.
Micro-Programmes
CIVIS Summer / Winter Virtual (DE) / Full / Partial &
2.1 5-15 Blended / On site CIVIS passport
Schools
Full / Partial &
CIVIS “Bootcamps” (Practical Virtual (DE) /
2.2 5-15 CIVIS passport +
/ Research Intensive Stages) Blended / On site
Transcript of Records
Full / Partial &
Virtual (DE) /
2.3 CIVIS Micro-Programmes 5-15 Blended
CIVIS passport +
Transcript of Records
Source: Adapted from Iucu et al., 2022, p. 26.
As the CIVIS Matrix shows (Table 1), the alliance built an educational offer
starting from individual courses, mainly delivered in a virtual format, as a first level
of modularity, and the CIVIS modules (CIVIS Summer / Winter Schools, CIVIS
Bootcamps, and CIVIS Micro-Programmes) as the second level of the matrix. The
matrix not only allows the development of several educational components that are
interrelated and allow recognition of previous learning, but also especially promotes
a flexible “stackable” design, in which each CIVIS Module is composed of smaller
units, independently delivered and recognised, but able to build on larger
certifications, such as CIVIS European Degrees, delivered jointly at the alliance level
through the transnational cooperation of at least three partner universities. As one of
the testbeds (European Universities) for innovating higher education across Europe,
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the proposed curricular framework developed in CIVIS (see Figure 1) creates the
conceptual and pedagogical context for transforming European strategic priorities
into concrete higher education innovation practices.
Figure 1. CIVIS Curricular Diagram
Source: Iucu et al., 2022, p. 25.
Along with a short description of each building block of the CIVIS VM matrix,
we designed a framework that mentions paths of delivery and length, ECTS credit
points for each category, and formal recognition possibilities, as well as the
potential of contributing to building the European degree. An overview of some
of the main features of each category can be found in Table 1, while below we
include a short description for each of the components. Regarding the ECTS credit
points, as can be seen in the CIVIS curricular matrix, all activities should
mention ECTS credit points, assigned based on the overall length of the activities,
and clearly defined according to the student workload (25-30 hours per credit point)
and assessment / graduation requirements.
Benefiting from the different major languages spoken in the Alliance (English,
French, German, Spanish, Greek, Italian, Swedish, or Romanian), CIVIS supports
the linguistic diversity through multilingual tools, communication, education, and
research, but also offers innovative language-learning methodologies for its students.
Therefore, all activities included in the Virtual Mobility Matrix can be delivered in
any of the languages present in the alliance or in any combination of these languages
(more than one language per course). This process recognises and empowers cultural
exchange and multilingualism as strategic development points for the Alliance.
Innovative Pedagogies are not just practical means for innovation teaching and
learning in higher education, but also a strategic approach for creating a CIVIS
educational brand connected to the higher education and European universities
landscape. Linked to the theoretical and practical aspects included in the CIVIS
Handbook on Innovative Pedagogies (Ciolan et al., 2021), pedagogical innovation
464
practices should be included in the teaching design, either by replicating at least one
of the examples provided in the CIVIS Innovative Pedagogies Database, or by
enriching the database with new designs and proposals (contributing to the
continuous development of this project and providing practical models of
pedagogical innovation to academics and practitioners from all CIVIS universities).
CIVIS Open courses, as core building blocks of the CIVIS programmes, can
include a variety of different learning experiences, courses / disciplines, regardless
of the status of the discipline (compulsory, optional), its category (fundamental,
specialisation courses), duration (from few weeks with concentrated activities to a
full semester) or study programme type (full-time or part-time). It can cover regular
online/ blended courses or newly designed courses or learning experiences outside
the current curricula, with the possibility of integrating them in the curricula
according to national regulations. Moreover, there are CIVIS Courses
collaboratively designed and delivered by at least three CIVIS partner universities,
either through different calls or by a direct collaboration between faculties,
departments, or doctoral schools, with different length and structure, from one to
multiple learning units.
CIVIS Summer / Winter (Seasonal) Schools consist of a series of events and
activities that might be accomplished through workshops, webinars, and / or lectures,
accompanied by individual study. They cover a large variety of subjects / topics and
can be organised at Bachelor, Master, or Doctoral level (BA, MA, PhD). CIVIS
Seasonal Schools can be either physical, blended, or virtual, and an intensive
approach is recommended to develop the educational activities included in their
schedule.
CIVIS Bootcamps stand for intensive research / practice stages, since these
components of research and practice are in many cases basic requirements for study
programmes, at any of the cycles (BA, MA, PhD), but especially linked to doctoral
studies and post-doctoral programmes. Moreover, ECTS should be assigned based
on the regulations and practices existing at national and institutional level and in
accordance with the ECTS Guide (European Commission, 2017). In essence,
students of all levels are interested in extending their experience in additional
research experiences, with emphasis on practical components, or as internships in
any of the CIVIS universities. Depending on the level of study, research activities /
internships can be research / innovation-oriented (addressing a restricted number of
students, depending on the thematic) or research-informed / learning-oriented
(addressing mainly to BA students and appropriate to larger groups of students).
Activities included in these stages can cover several weeks of intensive activities
(as, for example, during summer break of students), or it can be spread over one
semester, linking it also with a traditional Erasmus mobility.
CIVIS Micro-programmes (MPs) represent learning components that offer
students short and medium sized learning activities, on a variety of topics and
formats, built on different smaller units of learning (courses, research, and practice
activities / projects, etc.) that exist within CIVIS curricular offer or are newly
designed for the micro-programmes’ purposes. MPs allow students to combine
465
multiple CIVIS Single Learning Activities (SLAs) into one coherent learning
pathway that reinforces or complements their main study programme. With
transdisciplinary or disciplinary approaches and interests, MPs offer CIVIS students
the possibility to follow their own learning and training interests, deepening their
knowledge in specific topics. They provide the students access to a wide range of
disciplinary / interdisciplinary / transdisciplinary learning opportunities linked
around one large topic, in a collaborative and modular curricular framework, but also
extra-curricular topics and interests, in the training of transferable skills or challenge-
based learning approaches, linked, for example, with the CIVIS challenges.
6. Conclusions
Virtual mobility remains an important component for delivering innovative
educational activities at the transnational level. Its added value and relevance for the
new approaches towards an inclusive and sustainable learning environment and
experiences up to this moment do not tend to present virtual mobility as a “pandemic-
only” solution only. Nevertheless, lessons learned during these transformative times
will remain in higher education practices, and virtual learning components are yet to
become even more important in building new teaching and learning activities. In the
most recent Erasmus+ programme (European Commission, 2022), blended learning
has turned out to be one of the most interesting and attractive tools for innovation.
Defining virtual mobility is an ever-changing challenge, as technology is not
static, and the students’ needs and abilities have different response rates to these
changes. Society is highly impacting such indicators, testing the conceptual
statement through several scenarios and educational contexts. We believe that the
CIVIS conceptual virtual (digitally enhanced) mobility framework offers space for
innovation, allowing future emulations that can adapt to change and developments
in this area. The alliance’s view on how virtual mobility can become an asset for
learning activities successfully responds to the new educational paradigm, in which
students are empowered through enriched learning activities that “promote the
development of competencies for a knowledge-based society” (Iucu et al., 2022,
p. 11). Moreover, the CIVIS practice has been also further analysed in a UNESCO
study on the role and presence of virtual mobility in different higher education
contexts across the globe (Sabzalieva et al., 2022). Virtual mobility is regarded as an
experience where students collaboratively build a knowledge-based society,
fostering all formats of exchanges, supported by the growing offer of online
platforms and tools. Answering to our first research question, virtual mobility can be
seen as an inclusive approach for creating enriched transnational learning
opportunities for all students, opening access to non-traditional students and to those
with less chance to venture on a traditional long-term physical mobility.
Developing a virtual mobility framework not only supported understanding of the
concept and using it for further design processes, but became the baseline for
developing an educational offer. This offer starts from small learning units and builds
larger educational components in a stackable and modular approach. The alliance’s
response to the European approach to micro-credentials (European Commission,
466
n.d.c.) and the experience of enriching learning experiences through virtual mobility
activities paved the way for an enhanced educational curricular framework. The
framework encompasses the most suitable teaching and learning activities that could
respond to the changing educational landscape and the students’ needs for flexible
and customised learning pathways. With a relevant emphasis on the modular design,
innovative pedagogical approaches, multilingual and multicultural exchanges, and
recognition of all types of learning, the new curricular framework becomes a model
for innovation and change in the designing process of educational activities at the
European level. This allows academics to design flexible programmes, based on
modular designs and interconnected components, in line with the European agenda
and the approach on micro-credentials, offering the students an active role in creating
their own learning pathways.
The analysis does not represent an over-functional model for educational
innovation in European higher education but can be seen as a useful experience for
all academics, researchers, and decision-makers that are engaged in developing new
frameworks for designing and delivering innovative approaches to teaching and
learning in higher education. We consider that such analyses could be replicated and
address several higher education contexts, offering a common answer to the needs
for flexible, modern, challenging, and innovative European curricular frameworks.
Acknowledgment
The conceptual curricular framework presented in the paper has been developed
under the Erasmus+ project “CIVIS - a European Civic University” (project no.
612648-EPP-1-2019-1-FR-EPPKA2-EUR-UNIV).
References
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pp. 290-305, http://dx.doi.org/10.1177/1028315307303542.
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Ways into the Process of Learning Transformation. CIVIS European University. Zenodo,
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ge-en.
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Internationalisation at Home. A Position Paper. European Association for International
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descargas/recursos/VirtualMobility_Movinter2010.pdf.
[6] EHEA (2020, November 19). Rome Ministerial Communiqué. http://www.ehea.info/
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mobility, virtual exchange & blended learning. Joint position paper by the European
Students’ Union and the Erasmus Student Network, https://www.esn.org/news/esu-esn-
position-paper-mobility-virtual-exchange-blended-learning.
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europa.eu/education-levels/higher-education/european-universities-initiative.
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education.ec.europa.eu/education-levels/higher-education/micro-credentials.
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[13] Iucu, R., Ciolan, L., Nedelcu, A., Zus, R., Dumitrache, A., Carțiș, A., Vennarini, L.,
Fernández de Pinedo, N., Pericică, A. (2022). Digitally enhanced mobility. CIVIS
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[14] Sabzalieva, E., Mutize, T., Yerovi, C. (2022). Moving minds: Opportunities and
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June 16-17, 2022
The Revenue for the New Market

using Innovative Business Model
Sabin-Alexandru BĂBEANU1
DOI: 10.24789788367405072-042
Abstract
Objectives – The purpose of this paper is to identify the business growth, customers’
request, and revenue resulting from the implementation of the value-driven innovative
business model. Tools – Literature review provides a framework for observing the
implementation of the innovative business model. It is necessary to identify client requests to
address the innovation of a market and observe which one generates more revenue: the new
market or the innovative market. Methods – Analyzing the literature review, counting
109 articles, identify the indicators for Ansoff matrix construction. These components are for
market development through the new market offering and the diversification of services using
digital technologies. Moreover, generating revenue is verifying the assumption that the
new market changes the profile of customers who use digital data and accept digital
transformation. Results – Restructuring the business by creating new business model,
creating and developing the new digital value based on consumer preferences conducting to
future revenue, interconnecting products to the new digital technology are the main
components behind digital transformations, which can define the new market. Limits – The
research is based on an innovative business model in the automotive industry. Thus, future
research will be generalized to any activity domain. Conclusions/Originality – This article
presents the digital value highlighted in an innovative business model that adopted Industry
5.0 in the new market. On this line, a simple strategy has been built to implement product
presentation directions in the new market.
Keywords: business growth, customer, new market, digital value, revenue.
JEL Classification: M21, M41, M31.
1. Introduction
Companies in the automotive industry are increasingly interested in technological
innovations involving artificial intelligence (Abrardi et al., 2021), but customers
© 2022 S.-A. Băbeanu, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
are the ones who come to their aid through the demand for new technologies (Ellis
et al., 2012).
Increasing customer expectations, a number of environmental factors and
competitiveness on the car market are the basis for innovation and companies'
revenues (Ili et al., 2010). Thus, the emphasis is on the strategy of developing the
market (Li et al., 2021), by creating new markets; in this case it is virtual (Henriques
et al., 2020), which have not been explored and for which we do not know the
associated risks with the implementation and development costs.
Innovating an existing market is the solution that generates considerable revenue
(Sanchez et al., 2010). By changing the structure of an existing market, in which
there are already customers (Sanchez et al., 2010; Kjellberg et al., 2015), it will be a
certain behavior and with clear requirements for innovation of existing technologies
(Yalamov, 2021), but also with the reorganization of the business model (Kjellberg
et al., 2015).
Scientific research has shown that virtual reality is an environment for analyzing
market innovation at low cost (Henriques, Winkler, 2021). Additionally, the
emergence of Industry Revolution 5.0 (I5.0) makes the innovative business model
comply with the production process (Xun et al., 2021) based on artificial intelligence
or other innovative technologies (Ozdemir, Hekim, 2018).
Flows containing innovative business processes (Sxoinaraki, Panou, 2017),
customers and their requirements, revenues, cost generated by production (Pallares
et al., 2021) in the automotive industry, market positioning of the finished product
(Lei et al., 2014), or investors are components of the innovative business model,
which creates digital value in addition to the value of physical goods (Beqiri, 2014).
In I5.0, the emphasis is on value and implicitly on the value resulting from the
use of artificial intelligence (AI) (Xun et al., 2021). However, the implementation of
I5.0 has a major impact, especially in the automotive industry through innovation
ecosystems (Sun, Su, 2015). Therefore, computerization will transform business
processes and lead to new customer demands (Roblek et al., 2021).
In this sense, innovation in the I5.0 environment, based on the Internet of Things
(IoT), leads to much faster product acquisition (Aslam et al., 2020). In the innovative
business model, the supply chain in the production process contains IoT (Akundi et
al., 2022).
Inventory management is currently highlighted by developed IT systems that aim
to minimize costs and maintain minimum inventory (Singh, Verma, 2018; Conley
et al., 2019). However, most of the time, inventory management is done with IoT.
Innovation in a market, compared to a new market, is based on the customer. If
in the first case we already have customers (Kjellberg et al., 2015) that we should
attract with new products, in their field of interest, in the second case, the customer's
request is still unknown (Cleff et al., 2015), for the simple fact that we do not have
customers yet.
470
In a new automotive market, we need a number of factors (Taylor-West et al.,

2020) to define the environment for quality assurance of goods, setting market rules,
and generating market representations (Harrison, Kjellberg, 2016). They depend on
the brand and the group of customers for whom it is intended.
In this context, a new business model is born, based on innovation in the
automotive industry. This model is defined by operations to reconfigure the
organization of the entity, business processes, computerization of production flow,
all stages of accounting, business promotion through successful marketing to virtual
clients, highlighting digital value, and preparing accounting statements (Xun et al.,
2021; Ozdemir, Hekim, 2018; Fraga-Lamas et al., 2021; Aquilani et al., 2020;
Müller, 2019).
Given the above, the innovative business model in relation to the purchasing
power of customers requires the analysis of all participating actors (Sxoinaraki,
Panou, 2017).
The presentation of a car, in the virtual environment, and its configuration for
production remain major challenges for the manufacturer.
The Ansoff matrix identifies the strategy by which a new market is built using
technologies, according to the adopted innovative business model.
Both the automotive industry and the marketing of products are experiencing
changes in the innovative business model.

With the implementation of the innovative business model, questions are posed
about how we structure the market in order to have advantages. Thus, the questions
answered by the research are as follows:
Q1- How do we identify if a new market is suitable for the sale of a car built in an
innovative business environment?
Q2- How do we identify revenues in a new market?
4. Research Methods
At this stage of the research, it is important to choose the specialized literature
using 82 articles representative of the innovative business model. Initially, articles
on economic growth, customer requirements, and revenue identified in the
innovative business model were extracted from the Web of Science. However, by
studying the articles, it was found that the research needs a number of details about
the market, customer requirements, and the digital value created.
Subsequently, there are 27 other articles that support the idea that the strategy of
building a new market for an innovative product in the I5.0 environment is based on
digital value. This strategy is carried out using the Ansoff matrix.
From the 109 articles, the components for the Ansoff matrix indicators following
the analysis of situations in which the product, in this case the car with multiple
innovations, can penetrate the market (Yin, 2016). The studies consulted show that
a new market is needed (new customers, new locations, new products, etc.) or it can
innovate the existing market (old and new customers, new technologies and
471
techniques to penetrate the market, new or innovative products, etc.) (Kjellberg et

al., 2015; Thomas, Maine, 2019).
Research investigates which of the two markets brings the highest revenue to the
company and how the product is presented on the market, in relation to customer
requirements, by identifying the digital value.
We are proposing to produce a car brand and we still do not know if the innovative
market will accept this product (Thomas, Maine, 2019), or if we will have to develop
a new market (Kjellberg et al., 2015).
Marketing studies, from the selected articles, are those that show if this product
will be sold and if the customer's requirements are met. Moreover, this product will
lead to the economic growth of the company (Gusev, 2021) and implicitly to the
generation of income if we choose a new market.
The Ansoff matrix, which is a marketing strategy (Gurcaylilar-Yenidogan,
Aksoy, 2017), as shown in Table 1, contains the indicators to be implemented (Yin,
2016), presents the steps of developing a new market, but also updating the
production process, from an existing product on the market to a new innovative one
(Lenfle, Midler, 2009). Existing products on the market are sold in physical stores,
showroom type, because the company must remain competitive in the market
(Fonseca et al., 2019).
Discounts offered to customers are starting to become less important to them (Lee
et al., 2015), and therefore marketing strategies are needed to increase direct sales
(Uhlaner et al., 2013). However, the new niche can generate sales risks (Hofmann,
2011). Therefore, a reorganization in a sense of the innovative business model is the
virtual sales market (Lawson et al., 2015; Fahmi, Alwy, 2020), in which the
customers can choose their own options. They can order the car with the desired
options and to be manufactured (so the car is not in stock, in the configuration
required by the customer) (Karadgi et al., 2009).
The presentation of the cars is made by a robot (Sumpsomboon,
Varodhomwathana, 2017), which is much more efficient and actually defines the
innovation of the market (Dana et al., 2022). However, the impact of this robot on
revenue flow remains constant. Even if this robot takes over human activities, the
company's employees observe and verify it.
The presentation of the cars is made by a robot (Sumpsomboon,
Varodhomwathana, 2017), which is much more efficient and actually defines the
innovation of the market (Dana et al., 2022). However, the impact of this robot on
revenue flow remains constant. Even if this robot takes over human activities, the
company's employees observe and verify it.
However, there are risks associated with the innovative market, such as
whether market competitiveness remains the same as before the innovation process
(Dana et al., 2022). Customers know how to use information related to innovation
(Henriques, Winkler, 2015), which leads to the identification of the resulting value
(Exner et al., 2014), even if it is a digital value (Paolucci et al., 2021). The robot
collects data and information about customer preferences (Dana et al., 2022), and
this is, in fact, a value for the company (Exner et al., 2014) and implicitly an income
(Sanchez et al., 2010).
472
Table 1. Ansoff Matrix

Ansoff
Current product New product
Matrix
Market penetration Product development
Promoting cars that already exist Creating new prototypes that meet
in stock, with attractive financial the needs of customers. Superior
measures for the customer quality of materials used in the
Current (discount, credit, etc.); production of cars, at low
market Increasing market share through prices;Innovation of some
promotion; Brand sales leader; important functions of the car;
New physical stores; New products according to the need
Extending the variation of products and customer profile; Periodic
to attract customers. review of the offer to customers.
Market development Diversification
Increasing the number of stores Special system for direct sales,
New to attract new customers; at low prices;
market Innovative market; Digitized services;
Increasing revenue from dedicated Virtual stores.
offers.
Source: Adapted for the automotive industry from Yin, 2016.
Physical store-based infrastructure is maintained, but until the new virtual market
develops (Fahmi, Alwy, 2020). Much higher income is obtained than the existing
one, or there is a risk that the physical store will have much higher costs than the
income and will not be able to support itself financially.
The proposal, in this case, is a new market, which we develop by attracting
customers to use innovation (Dana et al., 2022) and implicitly new technologies. In
this case, the company will be able to develop new product prototypes (Exner et al.,
2014), requested by the customer, following completion of the information in the
virtual showroom (Fahmi, Alwy, 2020).
Product diversification would mean selling prototypes developed within the
company (Exner et al., 2014; Elverum et al., 2014) or producing them on a large
scale, taking into account the options desired by most customers (Dana et al., 2022).
Another diversification could be car accessories or even service provided during the
warranty period (Paolucci et al., 2021), identified by the created digital value.
5. Findings
The business model depends on the strategy of choosing a product (Oresky,
2019), the correlation of the architecture of the innovative business model with the
innovative product (Climent, Haftor, 2021), and the environment for the new or
innovative market (Polgári et al., 2017), which will lead to a market strategy (Taylor-
West et al., 2020).
An analysis of the literature leads to the identification of the factors underlying
the market strategy, through the Ansoff model of the development matrix
(Rojek, 2019).
473
In this regard, we observed from the studied works that this matrix model allows
the identification of development needs (Lawson et al., 2016). The architecture of
the innovative business model must be flexible and scalable (Akundi et al., 2022),
which means that it stimulates the flexible adoption of products in the I5.0
manufacturing environment.
These results suggest that new market models (Polgári et al., 2017) based on
Industry 5.0 technology in the automotive industry lead to a business with
computerized support (Oresky, 2019) and economic growth, leading for example to
higher revenues, than an innovative market. Moreover, the supply chain in the
production process is done with IoT (Akundi et al., 2022). In addition, this makes
inventory management much easier.
IoT-based innovation in the I5.0 environment leads to much faster products
(Aslam et al., 2020), which result in economic growth and thus revenue.
Therefore, this paper contributes to the literature in three ways.
First, the research focused on how to create revenues resulting from the adoption
of the innovative business model.
The second way was to choose the type of market. From the specialized literature,
we have identified the innovative or new type of sales market. The high price in the
new market brings selective customers (see Tesla).
It is necessary to compare the new market with the innovative one. This
comparison results from revenue generation, according to Table 2.
The third way was to create digital value in a new market. Even if there are
specialized works that show that the innovative market has many more values
(Fonseca et al., 2019), more studies of selected articles have shown that the new
market is much more advantageous than the innovative one, according to Table 2.
The presentation, in the specialized literature, of the preparation of a new market
presupposes the existence of several indicators, depending on the market activities.
Search for "New market in automotive industry" on Web of Science returned
1145 results, which were summarized in Table 2.
It is necessary to compare the new market with the innovative one. This
comparison results from revenue generation, according to Table 2.
The third way was to create digital value in a new market. Even if there are
specialized works that show that the innovative market has many more values
(Fonseca et al., 2019), more studies of selected articles have shown that the new
market is much more advantageous than the innovative one, according to Table 2.
A combination of these markets cannot be called into question for several reasons.
The marketplace is where the manufacturer and the customers can meet.
First, customers have different preferences, the customer profile is different in
the two market models (Taylor-West et al., 2020), and revenues are much higher in
a new market (Sanchez, Ricart, 2010), selective from construction, rather than
innovation and the loss of customers along the way.
474
Table 2. Creating revenue in a new market

Stages of
Source Preparing New implementation Resulting
Revenue
studies market of the new digital value
market
“Methodology
New market Revenue
for identifying lead Structure
(Cleff et al., shape from creating
markets of a new online
2015) in automotive a new database
in the European market
industry with clients
automotive industry”
„Significant market Revenue
Electronic
(Stoean, share and possess key Drives from the sale
components
2018) intellectual property, performance of digital
of the vehicle
patents and copyrights” materials
„Changing the core
Revenue from
company functions
software sales
as are product
Reshaping roles Reconfiguring developed
(Oresky, development,
in the value the departmental in-house,
2019) IT,manufacturing,
creation process structure in the process
logistics, marketing,
of creating
sales, and after-sale
digital value
service”
„Innovation Revenue
management Tesla Motors – from the sale
(Thomas, Electric vehicle
frameworks are useful „competing of vehicles
Maine, configured
... giving ...better electric vehicle configured
2019) online
chances for value models” by customers
creation and capture”. in production
Source: Adapted for the automotive industry from source in the first column, resulting
digital value to generate revenue.
A combination of these markets cannot be called into question for several reasons.
The marketplace is where the manufacturer and the customers can meet.
First, customers have different preferences, the customer profile is different in
the two market models (Taylor-West et al., 2020), and revenues are much higher in
a new market (Sanchez, Ricart, 2010), selective from construction, rather than
innovation and the loss of customers along the way.
Customers in the innovative market (Rojek, 2019) do not fully migrate to the new
market, due to financial availability or products. In addition, if these are the
requirements of the customer, the question may be asked what the combined markets
should look like.
However, there is a lack of description of how the customer is present in the
online environment (Cleff et al., 2015), he is presented with a car and can buy it,
without interacting with a physical store.
When generating revenue by segmenting the market in relation to customers who
have made requests for robotic product presentation, in the innovative or new
market, revenue streams automatically recognize costs (Sxoinaraki, Panou, 2017;
Fahmi, Alwy, 2020).
475
6. Conclusions
The structure of the innovative business model identifies the realization of a
product that meets the requirements of customers in a new market. This means that
the customer's needs and requirements are taken into account when launching a new
product. In conclusion, we have the answer to the first question.
Revenues from digital value are highlighted in an innovative business model,
which has adopted Industry 5.0, in the new market, and therefore we have the answer
to the second question.
The implementation of an innovative business model based on studies in the
literature leads to customer research. Thus, the customer's request regarding the
evolution of a certain product of the automotive industry (Toni et al., 2021) includes
a series of requirements for the implementation of special equipment, in line with
the industrial revolution I5.0 and technological progress (Yilmaz, Ustaoglu, 2013).
These requirements are both software, by identifying and processing customer data
(Cleff et al., 2015), and the car (Toni et al., 2021).
By generating revenue, it is verified that the new market (Polgári et al., 2017)
changes the profile of customers (Li et al., 2021) who use digital data and accept the
digital transformation of the product.
This paper shows that the new market with conditions imposed by customer
demand, the market based on the innovative business model, is the one that generates
revenue for companies. The study was conducted only on the basis of scientific
articles with an impact on the automotive industry.
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June 16-17, 2022
The Impact of ERP Systems on the Organization’s

Sustainable Development in the Era of Digitalization
Laura-Eugenia-Lavinia BARNA1
DOI: 10.24789788367405072-043
Abstract
The objective of this paper is to observe how ERP systems influence the sustainable
development of an organization, as well as the need to implement these ERP systems as a
result of the massive change in technology in the last period. The aim of the paper is to add
value to the literature and research conducted by other authors, given the advantages and
disadvantages of digitalizing the organization's activities using ERP systems and the impact
of these systems on the sustainable development of the organization. The research method
used in this paper was quantitative, based on a questionnaire structured in two sections: a
section containing questions outlining the profile of respondents and a section containing
questions specific to the research topic of the paper. Thus, it was possible to observe the
impact of ERP systems on the sustainable development of the organization. The data
collected using the questionnaire were analysed with the Microsoft Excel application based
on a regression model built by the author of this paper. The results of analysing the data
collected using the questionnaire demonstrate that ERP systems have a significant influence
on the process of sustainable development of the organization, as these ERP systems offer
the ability to process or import a large volume of data, thus avoiding human error and
ensuring a significant increase in the quality and transparency of information. However,
without trained staff, the sustainable development of an organization would not be possible,
as they have an important role to play in the processing or management of data in the
database of ERP systems.
Keywords: ERP systems, sustainability, digitalization, technology, transparency.
JEL Classification: C88, M15, M40, M42, Q01.
1. Introduction
The continuous evolution of technology and the desire to automate tasks have
favoured the progress of digitization of activities, so that a large number of
organizations have begun to implement high-performance IT systems to automate
© 2022 L.-E.-L. Barna, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
processes, significantly influencing labour productivity and organizational

performance.
According to the European Court of Auditors (2020, p. 4), digitalization is often
associated with improving the organisation's performance in terms of "productivity,
management practices, innovation, growth, and better paid jobs". This accentuated
digital transformation in recent years has also occurred due to the fact that most
organizations want to remain competitive for as long as possible.
The concept of digitalization is defined as “the use of new technologies, robotics,
cloud services, intelligent systems and Big Data that have penetrated rapidly”
(Boghian, Socoliu, 2020) that contribute in particular to increasing the efficiency of
the organization's activities, as well as the accuracy of data processed with ERP
systems. According to Ungur and Cuciureanu (2017), digitalization does not only
refer to the acquisition of equipment or computer systems, but also to the
possibilities offered by new technologies in streamlining the activities carried out
by organizations.
An organization can grow sustainably as long as it is aware that the negative
effects of its activity on the environment can be significantly reduced by
implementing ERP systems. ERP systems contain many functions useful to the entire
organization that decides to implement these systems, which are arranged modularly
as follows: specific modules "supply business, finance, human resources,
accounting, sales and other customer-specific modules depending on the field of
activity" (Rajan, Baral, 2015). Thus, these systems offer the possibility to digitalize
a large number of activities within the organization (Hietala, Päivärinta, 2021), so
that the information processed with these systems is much more "correct and
complete, providing a correct and complete picture of the situation of the
organization" (Kanellou, Spathis, 2013).
ERP systems integrate a lot of business processes such as: supply, accounting,
human resources, finance, production, and sales (Spathis, Ananiadis, 2005; Hassan,
Mouakket, 2015; Rajan, Baral, 2015). The main advantage of these systems is that
they process a large volume of data in a short time. At the same time, all processed
information is saved in the application database, ensuring quick access to data and
reducing the amount of printed paper facilitating the sustainable development of
organizations (Ursăcescu et al., 2019).
Sustainability is an important economic component both for the business
environment and for managers and entrepreneurs (Dona, 2020). Danciu (2013)
considers the concept of sustainability as an “important strategic component for the
future of the organization”, because, based on it and the data provided by ERP
systems, managers make different decisions regarding the continuity of the
organization's activity.
Organizations that want to grow sustainably must be “socially responsible”
(Mirghafoori et al., 2017) and must use IT equipment that consumes less electricity
and use complementary resources at the expense of traditional resources
481
(Mathews, 2015). Knut (2016) believes that the role of sustainability for an
organization is to ensure value creation for as long as possible.
Oracle (2020) identified the main benefits of the ERP system within the
organization:
• data accuracy;
• low operating costs;
• automation of a very large number of work tasks;
• reducing the risk of errors in the ERP system due to the controls implemented in
the IT system.
Given the many advantages offered by ERP systems, HassabElnaby et al. (2012)
consider that they have an impact on the fulfillment of “strategic, organizational,
management, operational and IT infrastructure objectives”.
Watson et al. (2010, cited by Bradford et al., 2012) consider that ERP systems
provide a “multilateral view of the organization” because information in different
areas is easily integrated and processed by ERP systems. The main criteria that an
ERP system has in the sustainable development of an organization are efficiency,
energy consumption as low as possible, reliability, and portability.
Following the digitalization process, the role of users of financial-accounting
information will no longer focus only on document processing, but will also include
skills related to analysis and consulting, being able to interpret the data that will be
processed using ERP systems (Boghian, Socoliuc, 2020). Digitalization offers the
opportunity to open new horizons, through which users of financial-accounting
information "will be able to capitalize on their knowledge to provide new services
to customers" (CECCAR, 2019).

The purpose of this article was to be observe how ERP systems influence the
sustainable development of an organization, as well as the need to implement these
ERP systems as a result of the massive change in technology in the last period.
4. Research Methods
The research method used in this paper was quantitative, based on a questionnaire
structured in two sections: a section containing questions outlining the profile of
respondents and a section containing questions specific to the research topic of the
paper. The questionnaire contained closed-ended questions and 5-step Likert scale
questions to identify the relationship between ERP systems and the sustainable
development of the organization. The reason why I chose the quantitative research
method was to conduct a detailed and in-depth investigation in order to observe the
perception of ERP users regarding the sustainable development of the organization
in the digital age.
The questionnaire was distributed between November 13, 2020 and November
24, 2021 to respondents who work in the economic field and use ERP systems, taking
into account the level of studies graduated. The limitations of my research were due
482
to the limited access to the number of respondents who use these systems, some of
the respondents using integrated applications implemented by the company. Even
though the number of companies implementing ERP systems is growing, there are
still quite a few companies using integrated applications implemented internally.
The respondents who participated in the survey were between 20 and 70 years
old, most of them residing in urban areas (79.6%), the rest coming from rural areas
(20.4%). The studies graduated by the respondents are mostly undergraduate studies
(79 respondents), followed by those with master studies (29 respondents), and then
doctoral studies (4 respondents).
In this study, I constructed based on the questionnaire a multifactorial regression
model consisting of 5 components (independent variables) as follows:
y = α0 + α1 * SLOW + α2 * SQUAL + α3 * SPROD + α4 * SACT + α5 * SINFRA + e (1)

where:
SLOW = cost reduction;
SQUAL = quality and transparency of information;
SPROD = improved productivity;
SACT = the influence of the activity of the organization in general;
SINFRA = the infrastructure of the organization.
I formulated 4 hypotheses presented in Table 1:
Table 1. The hypotheses that will be tested based
on the multifactorial regression model
No.
Hypotheses Relationship
crt.
SERP and independent
ERP systems (SERP) provide support in the
H1 variables: SLOW, SQUAL,
sustainable development of the organization
SPROD, SACT, SINFRA
There is a significant relationship between SERP
H2 variables: SLOW, SQUAL,
and SLOW, SQUAL, SPROD
SPROD
H3 variables: SQUAL and
and SQUAL, SINFRA
SINFRA
H4 variables: SACT and
and SACT, SINFRA
SINFRA
Source: Author’s creation.
5. Findings
The first part of the questionnaire contained questions based on which I was able
to outline the profile of the respondents so that they could distribute the results
according to their residence or type. Most respondents come from urban areas in a
percentage of 79.6% according to the chart in Figure 1, and most of them being
enrolled in university, master's or doctorate.
483
Figure 1. Distribution of respondents by residence
In Figure 2, I analysed the distribution of respondents according to gender and

area of residence, observing that the largest share of respondents who responded to
this questionnaire are female and live in urban areas.
Figure 2. Distribution of respondents according to gender and area of residence
In Table 2, I presented a correlation between the age and the experience of the
respondents in using ERP systems:
Table 2. Correlation between the age and the experience of the respondents
Experience
Age
< 6 months 6 months - 1 1-5 years 5-10 years >10
(years)
year years
20 - 30 47 23 23 - -
31 - 40 3 1 3 1 -
41 - 50 1 - 1 - 2
51 - 60 2 2 - 1 1
61 - 70 1 - - - -
Total 54 26 27 2 3
484
According to data published by Eurostat in 2019, most young people start

their first job at the age of 24 or 25, because younger people aged between 20 and
24 follow another form of education (university, post-secondary education). Some
young people start working during their undergraduate studies.
In the second part of the questionnaire, I analysed whether ERP systems have an
impact on the sustainable development of the organization, using the regression
model built (1). The data collected using the questionnaire were statistically analysed
using the Microsoft Excel application, performing a regression analysis to observe
the impact of ERP systems on the sustainable development of the organization.
Based on the data that substantiated the construction of the regression model,
I obtained the following relevant data from the regression analysis presented
in Table 3:
Table 3. Summary output
Multiple R 0.9778
R Square 0.9561
Adjusted R Square 0.9453
Standard Error 0.9541
Observations 112
The regression coefficient (Multiple R) has a value of 0.9778 which is a value

very close to 1, indicating that there is a very strong relationship between the SERP
dependent variable and the independent variables (SLOW, SQUAL, SPROD, SACT,
SINFRA). At the same time, according to the data obtained in Table 3, I can see that
the variation of the dependent variable (SERP) is explained in a percentage of
95.61% (a value very close to 100%) of the independent variables (SLOW, SQUAL,
SPROD, SACT, SINFRA).
Table 4. ANOVA
SS MS Significance
df F
(Sum of Squares) (Mean Square) F
Regression 5 2130.60 426.12 468.07 0
Residual 107 97.41 0.91 - -
Total 112 2228 - - -
According to Table 4, I tested the validity of the constructed regression model,

observing that the value of the significance threshold (Significance F = 0) is less than
0.05, resulting that the constructed regression model is valid.
485
Table 5. Coefficients of independent variables

Coeffi- Standard Lower Upper Lower Upper
Model t Stat P-Value
cients Error 95% 95% 95% 95%
Intercept 0 N/A N/A N/A N/A N/A N/A N/A
X1 -
0.0561 0.1181 0.4752 0.6355 -0.1780 0.2903 -0.1780 0.2903
SLOW
X2 -
0.3146 0.1445 2.1764 0.0317 0.028 0.6011 0.028 0.6011
SQUAL
X3 -
0.2921 0.1675 1.7432 0.0841 -0.04 0.6242 -0.04 0.6242
SPROD
X4 -
0.0468 0.1754 0.2670 0.7899 -0.301 0.3947 -0.301 0.3947
SACT
X5 -
0.3445 0.1471 2.3420 0.0210 0.0529 0.6362 0.0529 0.6362
SINFRA
Based on the table 5, I established the coefficients from the regression model,
which is below presented:
y = 0.0561 * X1 + 0.3146 * X2 + 0.2921 * X3 + 0.0468 * X4 + 0.3445 * X5 + e (2)
where:
X1 = cost reduction (SLOW);
X2 = quality and transparency of information (SQUAL);
X3 = improved productivity (SPROD);
X4 = the influence of the activity of the organization in general (SACT);
X5 = the infrastructure of the organization (SINFRA).
At the same time, I tested the significance of the variables in Table 6, thus
identifying only the variables that will remain valid within the constructed regression
model. To calculate the significance of these variables, I used the values obtained in
the P-value column of Table 5.
Table 6. Coefficients of independent variables
Independent Calculating the significance of
Significant / Insignificant
variable variables 100% - (p-value * 100)
X1 - SLOW 36.44% < 95% Insignificant
X2 - SQUAL 96.83% > 95% Significant
X3 - SPROD 91.58% < 95% Insignificant
X4 - SACT 21% < 95% Insignificant
X5 - SINFRA 97.90% > 95% Significant
From the regression model built, after testing the significance of variables it can
be observed that the main factors influencing the sustainable development of the
organization are the quality and transparency of information processed with ERP
systems, but also the organization's infrastructure greatly influences the flow of
information through ERP systems. Thus, the regression model remained composed
of only 2 variables that which are significant:
486
y = 0.3146 * X2 + 0.3445 * X5 + e (3)

where:
X2 = quality and transparency of information (SQUAL);
X5 = the infrastructure of the organization (SINFRA).
The independent variables SLOW, SPROD, SACT obtained values lower than
95%, consequently these variables are not significant and were eliminated from
the model.
In Table 7, I checked the hypotheses that are confirmed or denial to outline the
final conclusions.
Table 7. Hypotheses tested based on the multifactorial regression model
– confirmation or denial of hypotheses
Confirmation /
No. Hypotheses Relationship
Denial
SERP and Partially
ERP systems (SERP) provide independent confirmed only
H1 support in the sustainable variables: SLOW, by variables
development of the organization SQUAL, SPROD, SQUAL and
SACT, SINFRA SINFRA
SERP and
There is a significant relationship
independent
H2 between SERP and SLOW, Denial
variables: SLOW,
SQUAL, SPROD
SQUAL, SPROD
SERP and
There is a significant relationship
independent
H3 between SERP and SQUAL, Confirmation
variables: SQUAL
SINFRA
and SINFRA
SERP and
There is a significant relationship independent
H4 Denial
between SERP and SACT, SINFRA variables: SACT and
SINFRA
The reasoning behind the confirmation or denial of the hypotheses formulated in

the methodology part of the research was based on the significance of the
independent variables in the regression model tested and statistically analysed. Thus,
only hypothesis H3 was confirmed and hypothesis H1, which was partially
confirmed, because only between the dependent variable (SERP – ERP systems in
sustainable development of the organization) and independent variables (SQUAL –
quality and transparency of information, SINFRA - organization infrastructure) exist
a significant relationship.
487
6. Conclusions
Given the rapid evolution of IT technologies in recent years, it has led to an
increase in the degree of automation due to the need to process a very large volume
of data in a short period of time, and the data processed to be as accurate and
complete as possible, but also to increase the credibility of the data. The degree of
automation of the activity carried out by the organization greatly depends on the
increase of the competitiveness between the organizations.
Digital transformation also involves costs, efforts, and risks to keep up with
technological developments. Thus, any organization must take into account changes
in the field of IT technologies and invest in high-performance IT equipment or
systems so that it can streamline its work, but also reduce the negative effects on the
environment that could occur as a result of the activity carried out by the
organization.
The use of high-performance IT systems, especially ERP systems, would allow
the organization to develop sustainably in the context of the evolution of
digitalisation. The use of ERP systems is the way in which organizations can
significantly reduce the inefficient consumption of resources (paper, electricity), and
all activities of the organization can be automated with these systems. Sustainable
development is the key to meeting current needs without compromising the ability
to meet the needs of future generations.
Given the results obtained in the study conducted in this article, I noticed that
ERP systems offer a higher quality and transparency of data processed with these
systems, while having an impact on managing the flow of information between
departments in electronic format, to the detriment of printing excessive amount of
information to be distributed between the departments of the organization, as the
data is stored in the database of the ERP system.
All processed data is stored in the database of the ERP system in order to be easily
accessed by employees of the organization in different departments for faster
preparation of monthly reports that will be presented to managers. Data processed
with ERP systems are much more transparent, providing a clearer picture of the
organization. Based on the data provided by the ERP systems, the important
decisions are taken regarding the continuation of the organization's activity, so as to
reduce as much as possible the risks to which the organization could be subjected.
Managers make the most important decisions regarding all the functions and assets
of the organization, ensuring the continuation of the activity. Thus, before
implementing an IT system, it must first consider the risks to which the organization
may be exposed when transferring data from the previous system to the one in which
it was implemented.
Managers' expectations regarding the implementation of ERP systems are
mainly: supporting the achievement of business objectives, flexibility, accuracy, cost
reduction, and supporting the entire activity of the organization.
In conclusion, I can say that ERP systems provide support in the sustainable
development of organizations because they play an important role in the processing,
storage, and distribution of data within organizations.
488
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490

June 16-17, 2022
Straightforward System – ERP Risk in Companies Life

Casiana Maria DARIE1
DOI: 10.24789788367405072-044
Abstract
When embarking on an ERP implementation, choosing the best ERP software for your
organization is one of the most important things you can do. Technology plays a key role, so
for most of owners that have no shortage of ERP Systems to choose from, it’s hard to know
what will fit their needs and business the best. Our qualitative study and the conclusions were
found to be equivalent, supporting the validity of choosing and implementing ERP systems.
We also involve quantitative study to demonstrate the understanding and adoption rate of
straightforward system by different types of business. Business requirements are basically a
definition of what organizations need from their technology to do and is usually based on
business processes and on their future state that they are trying to accomplish. The
corresponding results from this study show the importance of best practices in finding the
best ERP, taking into consideration implementation ERP project failure that shows needs of
an organization and how systems differentiate in the marketplace.
Keywords: Enterprise resource planning (ERP), risk assessment, failure indicators,

DTS, straightforward system.
JEL Classification: O33, E32.
1. Introduction
Starting with 1990s adoption of ERP (enterprise resources planning) within
organizations has achieved lots of interests in information systems (IS) research, that
had outcome in a major count of research surveys. Enterprise systems embody a
substantial mainstay of the business, which can control all organizational resources
and relations in one system (Osnesa et. al, 2018).
Enterprise resources planning systems are synchronized of the self-software
package that is assembled on best practices centered on different industries. Besides,
ERP reply to the necessity for built-in solutions by swapping the legacy systems to
prevent incompatible structures and database dismissal, also decreasing costs of
maintenance servicing, and setting a common platform for organization.
© 2022 C.M. Darie, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
Hence, Fedi et al. (2019) point out the facilitating role of IT systems for an allowed
compliance. An ERP system is a multipart business processes integration to
mechanize the flow of material, information, and financial funds among all functions
within a company using a central and unified database (Fedi et. al., 2019).
Thus, Enterprise Resources Planning became industry-driven basics and
systems and widely acknowledged by the singular type of business as a realistic
solution to accomplish the long-awaited cohesive enterprise information systems
(Addo-Tenkorang, Helo, 2011).
ERP selection it is important, argues Panorama Consulting Groups, in 2021
reports, for organizations and their businesses upcoming goals to consider what
functionality they will need in the next five years (Temur, Bolat, 2018). Once every
organization understands those goals, it can lead to a particular vendor being good
for a long term.
The actual literature about ERP system includes appreciable amounts of
research, articles, publications, and other multiple sources like mass-media that
define and talk about ERP implementation lengthwise with its substantial impacts
on organizations from different perspectives and perceptions. This study not only
proposed a crucial overall of ERP systems, but also offered the main factors that
could practically influence organization decision in selecting the ERP system.
The selection of an ERP system means a difficult process and must be effective
in dealing with organizational doubts (Osnesa et al., 2018). The task of ERP in
organizational activities is growing faster and, in line with it, organizations are
imposed to use complex software systems to keep up with the density of products,
industries services, and beneficiary expectations and needs, as well as the market
pressures (Alavi, Eklili, 2011).
An Enterprise Resources Planning enables an organization to incorporate all
business processes in order to improve efficiency and maintain a competitive
position (Fotache, Hurbean, 2004), hence Chofreh et al. (2016) assumed that the
implementation of ERP projects is not trivial and requires considerable effort to
achieve. The process includes a wide- range of information covering management and
technology (Chofreh et al., 2016).
Most of the time, implementation design comes with remarkable requests on time
and financial resources. Incomplete incomes, such as a close-fitting time schedule or
a lack of process knowledge and aptitudes of IT teams, as well as the extremely
differentiated market, can turn the selection of an adequate ERP system into a highly
complicated mission (Fischer et al., 2017; Fedi et al., 2019).
At the end of the 1980s, there was the market ERP system and a new category of
software fit for enterprises, which at the beginning marked the big companies from
the market. Those new complex systems, including turnkey resolutions, extremely
expensive, proprietary, and dominant, the implementation comprises their adaptation
to the requirements and specifics of business (Osnesa et al., 2018).
492
Alaskari and Ahmad, 2019 mention that ERP, in several cases, will not find the
unique needs of a particular business. Thus, the decision to choose the best ERP to
match business processes is important, elements of which are a capable system
supplier are: installation; supervision organization and business processes of change,
in consequence enabling productive ERP implementation (Alaskari et. al., 2019).
Aloini et al. (2012) argued that implementation of a good ERP project involves
selecting the appropriate ERP; because unsuitable ERP system selection would
initiate the project to fail, adversely decreasing organization performance (Aloini et
al., 2012). It is obvious that organizations have various number of ERP solutions that
can be chosen. Most ERP systems offer a wide range of capabilities and have been
implemented according to the best practices of the industry (Fischer et al., 2017).
On the other hand, Naaman 2020, argues that success or failure in ERP
implementation is very challenging to measure, involving a lot of various factors,
in addition to problems occurring in the early stages, those cannot be tracked
(Yulianto et al., 2020).
Therefore, with so many solutions on the market, organizations frequently
experience challenges in the adoption of the best ERP software.
This fragment of the study provides selection advice and analyzes the ERP
decision of the organization about its size.
Table 1. Selection ERP

Rank I Rank II
Systems designed for enterprises with Systems adapt for mid-sized and
complex size, which combines entity structure smaller enterprises that have only one
and consolidation needs with operational industry and need topic solutions with
processes, but also for mid-sized enterprises niche functionality, and for them there
that have only one industry and one entity to are hundreds of software providers.
handle. Typically, organizations with 10$
million to $750 million revenue per year.
Examples: Microsoft Dynamics 365 Finance; Examples: Sage ERP 300, Aptean, ECI,
SAP S/4HANA, Oracle ERP Cloud, Sage X3, ASC Sage ERP 100.
IFS
Source: Interpretation according to Panorama Consulting Group, 2021.
The choice process should not be overlooked when selecting an ERP product, so
that the success of the ERP implementation can be ensured. Choosing the suitable
ERP system is expected to deliver accurate information, so that information and data
can be used to make decisions and provide additional value for the company.
Additionally, incorrect choice of ERP system can cause a burden for organization.
493
2.1 Assessing Risk

Based on the various frameworks, the word risk has been understood differently,
and the authors have come up with several definitions in this sense. Therefore, risk
assessment establishes a report that analyzes the potential for bad things to happen
and the actions that must be taken to keep them from happening or minimize the
risk, thus can be understood in other ways from people’s experiences, and it is
also different depending on the point of view and propensities (Aloini et al., 2012;
Liu, 2019).
According to Aloini (2012), a "risk analysis" is the process of arriving at a risk
assessment, also called a "threat and risk assessment, thus, risk assessment includes
risk identification (RI) and risk qualification (RQ). Where, RI aim at sensible
identification of hypothetical threats (in-house and outdoor risk factors) and their
collision (effects) on project success. On the other hand, risk qualification proposes
to prioritize threats to their risk-wide and involves two main steps: Risk Analysis
(RA) which provides the treatment stage for the final risk and input to the assessment
and preparation of the best response strategy. In addition to risk evaluation or RE
defines class risk, choosing an appropriate, effective risk aggregation algorithm,
the risk level for each recognized risk aspect can be expressed synthetically (Aloini
et al., 2012). In theory, risk indicates the possibility of deviating from the desired
goal at a given time. Also, terms like uncertainty or indefinite situation, ambiguity
about the future are defined in the risk theory (Fischer et al., 2017).
Analysis of failure factor and their effects is listed to as a set of targeted actions
to identify and measure impending failures of products, activities and their effects,
overall process of identifying all the risks to and from an activity and assessing the
potential impact of each risk (Carlton, 2019).
2.2 Risk Assessment and ERP Systems

Enterprise resource planning (ERP) projects have a risky implementation.
According to Gartner, the failure rates for ERP implementation go beyond 75%
(Gross, 2019). Meanwhile, ERPFOCUS, 22 August 2019 report, talks about 60% of
ERP project failures, because implementing an ERP causes heavily change almost
80% of customers are unhappy with their current ERP. Additionally, 90%
implementation is disappointing, providing non-quantifiable ROI (Kumar Behera,
Kumar Dhal, 2020). Based on another study conducted by Learn Hub, 64% of ERP
implementation projects spend more than the agreed budget, and on average 30%
more time than expected.
The above results advise that vigilant and rigorous studies must be carried out on
the ERP projects. Also, all the experts, managers, and user its technicians should be
prepared to operate in a new system with standardized processes taking into account
the improvement and adjustment of the information course in their most significant
activities (Alavi, Eklili, 2021).
494
3. Research Methodology and Results

Remarking those various challenges with implementation ERP systems, this
survey aims to identify six indicators why ERP implementation fails and to help
organizations predict the risk and avoid the mistakes that other known infamous
failed project of ERP implementation.
The main issue with ERP systems occurs when organizations are in contact with
wrong selection. Thus, in the end clues towards improper planning, difficulties in
functionality and a higher cost.
Exploring in most recent reports published in the last few years from Panorama
Consulting Group, NetSuite, Forbes, and Deloitte, we identify six essential
indicators why ERP implementation fails.
Indicators were made using analyses of many articles and publication on top
reasons that ERP implementation failure.
Table 2. Indicators failure

No. Description Indicator
1 Unrealistic Timeless Expectation UTE
2 Change Management CMG
3 Improper Master Data IMD
4 Deficient System Testing DST
5 Wrong Partner Selection WPS
6 Inadequate Resources IQR
Source: Own processing: Tops failure reasons of ERP failure.
In our study, we use some of the famous failure that converts into viral failure
implementation on the newspaper, publication, or mass media. This famous top
holding great organization that realized a lot from their implementation processes.
Also, according to the publication, organizations that had the biggest issue with
ERP project that became a huge failure it will be present in Table 3.
Table 3. Famous organization with failure ERP project

No. Company Failure losses System Brand Impact- year
1 Revlon 70,3$ S/4HANA 2018
2 LeasePlan 100$ SAP 2018
3 MillerCoors 100$ SAP 2017
4 Lidl 580$ SAP 2011
5 Nike 400$ In-house 2003
Source: Own processing from online – media data.
495
For each indicator recognized in businesses story we granted a point, so that in

the end I could estimate a total of all the indicators encountered and their portion in
the five implementations.
Where the presence of indicators has not been encountered or mentioned, it has
not been taken into consideration.
Hence, we represent the indicators with their explanations of ERP project failure
to get the most common indicator that must be avoided when an organization selects
an ERP package and handles the implementation.
Table 4. Indicators by companies

Indicator
No. Company
Company Name
IQR WPS DTS IMD CMG UTE TOTAL
1 Revlon 1 1 1 0 1 0 4
2 LeasePlan 1 1 1 0 0 1 4
3 MillerCoors 0 1 1 1 0 1 4
4 Lidl 1 0 1 0 1 1 4
5 Nike 1 0 1 0 1 0 3
TOTAL 4 3 5 1 3 3 -
Source: Own processing online reports from Panorama Consulting Group, 2021.
DTS becomes the most awful indicator bump into all companies, because any
other indicator influence impacting it, even if we talk about IQR, because resources
are almost the main user who benefits from that kind of implementation or UTE, for
the reason that companies have to take into account also testing in UTE.
DTS finished a failure step on all five businesses analyses and it turned to the first
aspect of downfall. IQR stands on second position in our research because we found
a lot of movements through teams who were involved in ERP implementation
processes.
The third indicator was WPS, CMG and also UTE, all companies had some of
them, two indicators or just one of them, which of course led to ERP failure.
IMD comes across just one point indicator, all other indicators considered more
important than this one at the end of failures.
4. Conclusions
Based on our approach, the results can be used to identify the root causes
of the ERP system implementation utilization failure and count the impact of
496
dangerous component failures or critical risk events in the implementation process

and selection.
Concerning of rapid spread of ERP systems in the industrialized world, and
facility launched by each intelligent business application research that helps to
explain, choose of an ERP and how those differentiate in the market and also
its impact on organization performance, is beneficial for professionals and not
just them.
How could those prescribed companies have treated the issues in another way?
First of all, they must be skeptical of perceptions such as Oracle’s Unified Model,
SAP’s Model Company, NetSuite’s Suite Success, Microsoft Business Basic and
other ERP industry systems that may mislead to improbable expectations and search
well if one of those can be fit with their business needs.
Digital transformations are too often misaligned with an evolving business
model and overarching corporate strategy. It is nearly impossible to succeed in this
type of situation. Furthermore, according to the Henrico Dolfing report, being a
responsible buyer of technology and outsourced software development services and
working well with suppliers during projects are crucial skills for any organization.
A systematic risk assessment might have equipped the organization for such
setbacks. There are inherent risks to any Enterprise Resources Planning and
expecting to go live without any issues is unrealistic.
This research work offers a new instrument to practitioners by allowing them a
better understanding of the project of success or failure of the ERP system. The
managers of the information system and the users of the new ERP need to realize the
implication of their activities in the development of success and how they contribute
to the improvement of performance.
The selection of the best ERP system taking into consideration that should fit
our business needs leads to a successful implementation project that could transform
your ERP into a straightforward system.
References
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498

June 16-17, 2022
Determinants of the Individual Decision to Travel Less

Isabelle BICLESANU1*, Sorin ANAGNOSTE2, Iulia ȘULEA3

DOI: 10.24789788367405072-045
Abstract
In an effort to reduce the spread of the COVID-19 outbreak, the international
tourist arrivals worldwide have been brought to pre-1990s levels, the travel and
hospitality industry being one of the most affected industries during the pandemic.
Multiple factors created difficulties in planning trips, decreasing travel demand.
This paper investigates the determinants of the individual decision to travel less
during 2020 and 2021, through a quantitative analysis of 224 survey answers
collected from a convenience sample of people living in and outside Europe. The
results show that the unease generated by the travel restrictions and scheduling
when considering flights and accommodations had the highest impact on travel.
Moreover, being older, and the fear of getting infected as a result of the trip
increased the likelihood of travelling less. The respondents manifest travel-related
anxiety and a preference for prudent trips (domestic, familiar, or tailored). The
gender, occupation, income, and continent were not found as predictors of the level
of travel during the pandemic.
Keywords: tourism, travel, COVID-19, pandemic, behavior, hospitality, airline,

anxiety.
JEL Classification: L83, L93, D91, I12, I18, Z3.
1. Introduction
Travel and tourism companies struggled to adapt and survive during the
COVID-19 pandemic. Customer behavior experienced changes, with potential
long-term effects. However, as travel restrictions started to be removed, airports and
© 2022 I. Biclesanu, S. Anagnoste, I. Șulea, published by Sciendo. This work is licensed under the Creative
airlines were unprepared to accommodate the surge in demand in 2022, producing

delays, cancellations, and strikes (Amaro, 2022).
Individuals faced tremendous uncertainties when planning trips in 2020 and
2021, thus choosing or being forced to stay at home more. Travel restrictions,
alongside health concerns and other factors, increased prudence when considering
destinations, transport means, accommodations, entertainment, etc., prudence acting
as a safety net for one’s state of mind in uncertain situations and aiming to alleviate
anxiety. Tourists influenced business models through their selections and feedback.
New travel trends emerged, people preferring longer stays with higher spending, in
domestic or closer destinations that offer “get away”, sustainable and authentic
experiences (World Tourism Organization, 2022).
This paper aims to assess the individual travel behavior and decision making
during the COVID-19 pandemic. The investigation is based on the research
question: What are the determinants of the individual decision to travel less during
2020 and 2021?
2. Context
tourist arrivals worldwide have been brought to pre-1990s levels, the pandemic
having a stronger impact than the SARS epidemic of 2002-2004 or the global
financial crisis of 2007-2008, as presented in Figure 1 (World Tourism Organization,
2020 and 2022).
Figure 1. International tourist arrivals in the past three decades (worldwide)
Source: As resulting from the World Tourism Organization (2020 and 2022).
The international tourist arrivals worldwide increased by 4% in 2021; however,

this is still 72% lower compared to 2019 (World Tourism Organization, 2022). 64%
500
of the global tourism experts expect international tourism in their country to return
to pre-pandemic levels in 2024 or later (World Tourism Organization, 2022).
The global business travel expenses were reduced by 52% in 2020 (Benefield et
al., 2021). Although business travel accounts for only 12% of airline passengers, it
generates up to 75% of profits (USfunds, as cited by Investopedia, 2021). This could
lead to big losses for airlines, hotels and other industries serving corporate travelers,
as lower volumes of business travel are expected even after the pandemic, due to
increasing effectiveness and time savings through virtual meetings (Semuels, 2021).
The COVID-19 pandemic lowered air fares in 2020, as the air service providers
tried to attract more customers; however, higher prices could be expected in the near
future, since airlines will attempt to recover from two years of massive losses (The
Conversation, 2021; Schengen Visa Info, 2021).
Multiple factors created difficulties in planning trips, decreasing travel and
tourism demand, from countries temporarily closing their borders to all/most
international travel and frequent changes in regulations, to the fear of getting
infected, delays in treatment and vaccine availability, the emergence of new virus
variants increasing uncertainty, etc.
The parasite-stress theory explains how a species identifies and avoids infected
individuals, maximizing reproductive success and altering the species’ values, social
behaviors and immune systems (Fincher and Thornhill, 2017; Fincher et al., 2008).
Pathogen threats predict greater in-group attraction, while individual differences in
disgust sensitivity and subjective perceptions of pathogen prevalence, regardless of
actual infection rates, predict out-group avoidance and prejudice (Meleady, Hodson,
Earle, 2021; Landry, Ihm, Schooler, 2021), and higher levels of engagement in
preventive health behaviors (Shook et al., 2020). The perception of the risk of
human-to-human transmission of infection when travelling was greatly increased by
the COVID-19 pandemic (Rahman et al., 2021), people manifesting greater levels of
disgust sensitivity compared with pre-pandemic data (Stevenson, Saluja, Case, 2021)
and increased anxiety (Makhanova, Shepherd, 2020). Furthermore, the actual or
perceived pathogenic threat predicts authoritarianism (Pazhoohi, Kingstone, 2021)
and collectivism (Fincher et al., 2008; Kashima et al., 2021). These cultural
adaptations to pathogenic threats amplify in-group acceptance and out-group
avoidance, through imitation of in-group members, ethnocentrism, obedience, and
punitive attitudes toward dissenters. Since cultural patterns have a strong tendency
to influence their future state through temporal autocorrelation (Kashima et al.,
2021), long-term socio-economic setbacks could be generated, either as a result of
widespread ideological compliance, or intense state and institutional distrust.
The COVID-19 pandemic was often studied in relationship with the behavioral
immune system (BIS), which is represented by a series of psychological mechanisms
allowing individual organisms to detect potential pathogens in their immediate
environment and facilitate the avoidance of infection by triggering cognitive and
emotional responses (Schaller, Park, 2011). However, some authors criticize BIS’s
applicability in infectious respiratory diseases due to the lack of apparent cues of
infection, especially in asymptomatic and pre-symptomatic transmission, and the
501
limited utility of the behaviors engaged by BIS in combating this type of infection
(Ackerman, Tybur, Blackwell, 2020).
The terror management theory, which focuses on the role mortality salience
plays in different aspects of life, was also studied in relationship with the
COVID-19 pandemic. While proximal defenses are activated to forestall death
and provide a feeling of safety in the short term, distal defenses push for the pursuit
of meaning and close relationships which buffer death anxiety in time of crisis, thus
creating a tension between following the COVID-19 related safety measures and
the desire to resume a “normal” life (Pyszczynski et al., 2020; Ahmed, Ahmed,
Barkat, 2020).
Collective emotions, such as collective anxiety, could spread within populations
as a result of pandemic awareness, the type of information people come into contact
with, and the perceived credibility of the source, affecting human behavior and
decision-making.
3. Methodology
A self-administered, online survey collected 224 valid answers during 2021
from people in and outside Europe selected through convenience and snowball
sampling. The sample size meets the requirements for a 95% confidence level
with a 6.55% margin of error.
The first section of the survey aims to gather demographic data (i.e., age, gender,
occupation, average monthly net income in the last 12 months). The second and last
section of the survey has 33 items measured on a 1 to 6 Likert scale
(1 = “strongly disagree”; 6 = “strongly agree”) for assessing the respondents’ travel
behavior and decision making during the pandemic.
Data analysis was performed in SPSS. A principal component analysis (PCA)
was used for the Likert items and checked against a parallel analysis and reliability
analysis. Index variables were constructed for each of the latent variables through
arithmetic mean of their items. A multiple linear regression was performed for
the predictors of the tendency to travel less during the COVID-19 pandemic
(regardless of transport type, travel type or destination). Cluster analysis was
employed for the demographic variables. Tests of correlation, association, and
difference of means were used where appropriate.
4. Findings
The 224 valid answers came mainly from the younger generations, as available
in Table 1. 90% of the respondents are from Europe, the rest living on the other
continents. 70.5% of the total respondents are women. The dataset has no
unemployed or retired respondents, 37% being students and 63% being employees
of public or private organizations. 34% of the total respondents reported they had an
average net income of 1000-2000 EUR in the last 12 months, 43.3% having below
1000 EUR and 22.7% above 2000 EUR.
502
Table 1. Dataset demographics

Frequency Percent
man 66 29.5
gender
woman 158 70.5
18-25 140 62.5
26-35 34 15.2
age 36-45 13 5.8
46-55 35 15.6
over 56 2 .9
student 82 36.6
occupation
employed 142 63.4
under 300 EUR 37 16.5
300-599 EUR 27 12.1
income
600-999 EUR 33 14.7
(average monthly
1000-1999 EUR 76 33.9
net income in the
2000-2999 EUR 20 8.9
last 12 months)
3000-4000 EUR 16 7.1
over 4000 EUR 15 6.7
Europe 202 90.2
continent
Other 22 9.8
Source: Dataset analysis in SPSS.
As a result of PCA, parallel analysis and reliability analysis, 30 Likert items
were separated into five factors (Table 2): (1) Less travel in 2020 and 2021 – the
tendency to travel less during the COVID-19 pandemic, regardless of transport type,
travel type or destination; (2) Concern: Travel restrictions and scheduling – the
unease with travel restrictions and scheduling when selecting flights and
accommodations; (3) Concern: Destination and virus – the infection fear and caution
when selecting a destination, flight, and accommodation; (4) Concern: Refunds and
cancellations – the unease with refunds and cancellations when selecting flights
and accommodations; (5) Travel anxiety and pacifying choices – the travel anxiety
and preference for prudent trips (domestic, familiar or tailored). The other three
Likert items in the survey are analyzed separately.
Table 2. Factor analysis results
Cronbach’s
Factor Item Alpha
(std.)
I have travelled less in 2020 – the first year
of the COVID-19 pandemic.
Less travel in
2020 and 2021 I have travelled less in 2021 – the second year
(regardless of of the COVID-19 pandemic.
.722
transport type, I have booked significantly fewer accommodations
travel type or in 2020 - the first year of the COVID-19 pandemic.
destination)
I have booked significantly fewer accommodations
in 2021 – the second year of the COVID-19 pandemic.
503
Cronbach’s
Factor Item Alpha
(std.)
I have been very cautious when choosing the dates
for my future flight in 2020 considering the pandemic.
I have been very cautious when choosing the dates
for my future flight in 2021 considering the pandemic.
Concern: I was strongly taking into account the possible travel
Travel restrictions when booking a flight.
restrictions I have been very cautious when choosing the dates for
and scheduling .788
future accommodation booking in 2020 considering the
(for flights and pandemic.
accommodations)
I have been very cautious when choosing the dates for
future accommodation booking in 2021 considering the
pandemic.
I was strongly taking into account the possible travel
restrictions when booking accommodation.
I was very cautious when choosing a travel destination
in 2020 considering the pandemic.
I was very cautious when choosing a travel destination
Concern: in 2021 considering the pandemic.
Destination
I was concerned about social distancing regulations
and virus
implemented by the chosen airline company. .707
(social distancing
and infection I considered the safety regulations (COVID-19-related)
fears) implemented by the accommodation when choosing and
booking a place to stay.
I was very concerned regarding the possibility of contacting
the COVID-19 virus.
I was very careful when choosing the airline company
in terms of the refund policy.
I was worried that the chosen airline company may cancel
my booking due to unforeseen COVID-19 restrictions.
Concern: I was more likely to choose an airline company
Refunds and with a flexible booking policy rather than one
cancellations with a no-change policy .847
(for flights and I was concerned about not receiving the refund quickly
accommodations) (or at all) from the booked airline company.
I was careful when choosing the accommodation in terms
of the refund policy.
I was very concerned about not receiving the refund quickly
(or at all) from the booked accommodation.
504
Cronbach’s
Factor Item Alpha
(std.)
I was more likely to choose accommodation with a flexible
booking policy rather than one with a no-change policy.
I was worried that the chosen accommodation may cancel
my booking due to unforeseen COVID-19 restrictions
I was anxious about planning a trip in 2020 and 2021 due
to COVID-19.
I was anxious about having to quarantine due to COVID-19
(at destination or when back home).
My psychological well-being was affected by the restrictive
Travel anxiety travel.
and pacifying I considered planning trips inside my own country instead
choices of abroad due to COVID-19 risks & restrictions.
.706
(domestic, I was more likely to choose an internal trip (inside my
familiar or country) rather than an external one (outside my country).
tailored trips)
I was more likely to explore my city rather than visit
another one (within my country) taking into account the
pandemic.
I was more likely to choose a tailored trip rather than a short
and disorganized one due to the higher risks when travelling
during the COVID-19 pandemic.
All factors have reliability values >0.7, with adequate inter-item correlations to
allow for factor analysis, p<0.001, and adequate sampling, KMO>0.5. The five
factors explain 50.85% of the variance.
With the exception of the “I was more likely to explore my city rather than visit
another one (within my country) taking into account the pandemic” item (M = 3.26,
SD = 1.669), for which the respondents manifested slight disagreement, p<0.05,
all the other items had statistically higher means compared to the Likert scale
midpoint of 3.5, showing a level of agreement with the statements, p<0.01. No
statistically significant difference was found between rating the level of travel
in 2020 vs. 2021, p>0.05.
The following index variables were constructed for each factor through
arithmetic mean of their items: LESS (for the “Less travel in 2020 and 2021” factor);
C:RESTR&DATE (for the “Concern: Travel restrictions and scheduling” factor);
C:REF&CL (for the “Concern: Refunds and cancellations” factor); C:DEST&VIR
(for the “Concern: Destination and virus” factor); ANX&PR (for the “Travel anxiety
and pacifying choices” factor).
505
Figure 2. Answers distribution for the five index variables
As presented in Figure 2, the index variables follow a non-normal distribution

with negative skew, Kolmogorov-Smirnov showing a significant departure from
normality for all factors, p<0.001. The results show that the respondents were highly
inclined to say they travelled less during the COVID-19 pandemic, being concerned
with the travel restrictions, scheduling, refunds and cancellations when selecting
flights and accommodations, and manifesting travel anxiety and infection fear, being
cautious when selecting a destination, and having a preference for prudent trips
(domestic, familiar, or tailored).
The index variables have moderate tendencies to vary in the same direction
(Table 3). The demographic variables have very weak associations with the five
index variables, Eta coefficients < 0.19. No statistically significant differences
were found in the way each of the demographic variables (gender, age, occupation,
income, continent) rated the index variables, Mann-Whitney and Kruskal-Wallis
p>0.05.
Table 3. Pearson correlations between the index variables

(1) (2) (3) (4) (5)
LESS (1) 1
C:RESTR&DATE (2) .492** 1
C:DEST&VIR (3) .362** .459** 1
C:REF&CL (4) .195** .486** .405** 1
ANX&PR (5) .260** .408** .485** .322** 1
**p<0.001; Source: Dataset analysis in SPSS.
The dataset was split into two clusters based on the age, occupation and income
variables, as resulting from hierarchical cluster analysis using the Ward method,
followed by the k-means cluster analysis. The gender and continent items were
not deemed significant for clustering. Figure 3 offers a visual representation of
the clusters.
506
Figure 3. Dataset clustering based on age, occupation and income,

as represented by the cluster center values
Cluster 1 has 161 cases and is comprised of the younger generations (87%
18-25 years old, 11.2% 26-35 years old and 1.8% 36-45 years old) who are
approximately 50% employed and 50% students, having an average monthly net
income of zero to 2000 EUR in the last 12 months. Cluster 2 has 63 cases and is
represented by the respondents who are at least 26 years old (55.6% 46-55 years old,
25.4% 26-35 years old, 15.9% 36-45 years old, 3.1% over 56 years old), 100% being
employed, with average monthly net incomes of 600 to over 4000 EUR in the last
12 months. The clusters have very weak associations with the five index variables,
Eta coefficients < 0.19. No statistically significant difference was found between the
ways the two clusters rated each of the index variables, p > 0.05.
A multiple linear regression (MLR) was performed for the predictors of LESS.
The model found that C:RESTR&DATE, C:DEST&VIR and age make a significant
contribution to the prediction of LESS, p<0.05. There are no multicollinearity
concerns, VIF≈1 (<10), Tolerance≈0.75 (>0.2) and the regression residuals follow
a normal distribution. C:RESTR&DATE makes the strongest contribution in
explaining the outcome, with Beta = 0.392, p<0.001, as available in Table 4.
Table 4. Summary of MLR for the predictors of LESS

95% 95%
Std
Adj. conf. conf.
R . Predict
Dep. var. R F Df1 Df2 Interc. int. for Beta β int.
Sq. Err or
Sq. intercep for β
.
t
C:REST
.79 28.602 [0.164, 0.392 [0.362,
LESS 0.281 0.271 3 220 1.055 R&DAT 0.539
6 ** 1.946] ** 0.715]
E
C:DEST 0.188 [0.067,
0.210
&VIR * .0352]
0.125 [0.009,
age 0.101
* 0.193]
*p<0.05; **p<0.001; Source: SPSS.
507
28.1% of the variance in LESS is explained by the regression model. The model
is a statistically significant predictor of the outcome, with p<0.001 and is defined by
equation (1).
𝐿𝐸𝑆𝑆𝑖 = 1.055 + 0.539 ∗ 𝐶: 𝑅𝐸𝑆𝑇𝑅&𝐷𝐴𝑇𝐸𝑖 + 0.210 ∗ 𝐶: 𝐷𝐸𝑆𝑇&𝑉𝐼𝑅𝑖 + 0.101 ∗ 𝑎𝑔𝑒𝑖 + εi (1)
The respondents were asked if they believe “we will go back soon to what we
used to know as normal travelling”, the results showing a slight agreement with the
statement t(223)=2.550, p<0.05 (M=3.75, SD=1.494, Skewness = –0.078, Kurtosis
= –0.943). People living in Europe were marginally more optimistic, p<0.05. To add,
there was no inclination for investing or not “in travel insurance due to the risks
presented by the pandemic”, p>0.05 (M=3.39, SD=1.804, Skewness=0.060, Kurtosis
= –1.381), and the respondents had almost 50-50 chances to report they were
spontaneous when it comes to a trip considering the COVID-19 virus. People who
were not from Europe were strongly disagreeing with being spontaneous when
planning trips during the pandemic, p<0.05. However, the comparative analysis of
people living in and outside Europe is limited by the small number of non-Europeans
in the sample.
5. Conclusion
The tendency to travel less during the COVID-19 pandemic was particularly
influenced by the unease with the travel restrictions and scheduling when
considering flights and accommodation. Moreover, being older, and the fear of
getting infected as a result of the trip increased the likelihood of travelling less.
There was a preference for prudent travel choices, such as domestic, familiar or
tailored trips; however, this did not seem to reduce travel anxiety enough to
produce a substantial increase in travel. Besides, a study based in South Korea,
suggests that even if there are no strict travel restrictions for particular domestic
destinations with low COVID-19 infection rates, the overall national situation
impacts the citizens’ decision to travel to those places (Ren et al., 2022).
Similarly, choosing airlines and accommodations with flexible booking and
customer-friendly refund policies did not seem to reduce the concern of getting
the trip cancelled (or not receiving a refund) enough to markedly increase the
number of trips in 2020 and 2021.
The gender, occupation, income, and continent were not found as predictors of
the level of travel during the pandemic taken individually, and neither was the
combination of age, income and occupation.
The high number of extreme cases on the agreement side when considering
various travel worries might capture strong collective emotions influenced by peers,
travel restrictions, government regulations and information circulated in the
mainstream media, social media and academic papers. However, there is a slight
optimism when considering the idea that normal travel will resume soon.
While the pandemic forced states, institutions, and individuals to take decisions
under remarkable uncertainties and pressures, it is critical to consider the cultural
508
and economic implications of pandemics and contemplate ways to avoid prolonged

and cascading failure.
tourist arrivals worldwide have been brought to pre-1990s levels, the travel and
hospitality industry being one of the most affected industries during the
pandemic. This paper contributes to the understanding of the determinants of
the individual decision to travel less during the COVID-19 pandemic, providing
insight for governments, marketers, and industry players. However, this study
has a demographically unbalanced sample, covering mainly the experience of
younger Europeans, and did not account for multiple travel types (business, leisure,
family visits, etc.) or other transport types apart from airlines. Thus, further studies
could develop on this exploration by increasing the focus on specific issues, such
as business travel, destination selection, or travel marketing receptiveness in a
post-pandemic context.
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pandemic. SchengenVisaInfo, https://www.schengenvisainfo.com/news/etc-foresees-
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510

June 16-17, 2022
Preliminary Research on the Auditing of Material

and Financial Resources in the Healthcare System –
The Case of Romania
Claudia BOGHICEVICI1
DOI: 10.24789788367405072-046
Abstract
The hereby paper introduces the reader to the intricacies of the healthcare system by
resorting to a rigorous audit of the organizational resources that the healthcare system has
access to, namely the financial resources, the human resources and last but not least the
material resources. By resorting to a complex mixed methodology, the paper sheds light on
the healthcare system in Romania. a) This is a panoramic analysis of the entire health system,
thus differing from a simple audit mission of an institution in this field. b) Alignment with the
UN and the EU policies in the healthcare system is paramount in order for Romania to rank
better in terms of medical services rendered to its population, and as such the focus of
policies should be on ensuring organizational, human, material, and financial resources.
c) The research methodology used to investigate the phenomenon in question is based on
audit procedures established in the specialized practice, which is extrapolated from
scientific research and adapted to the audit field. By employing the previously mentioned
methodology, the present paper seeks to answer the main research question, which is: How
does the increase in the health budget influence the quality of medical services provided in
Romania? d) The main findings indicate that the Ministry of Health is unable to satisfy the
different requests for financing and, concerning material expenses, in 2020 they have
decreased significantly. e) One of the main contributions of the paper resides in deep
practical character and can be used by professionals from all fields for activities such as
substantiating public policies, government evaluations, and further research projects.
Keywords: health, healthcare, healthcare system, organizational resources,

Romania.
JEL Classification: H75, I10, I15, I18.
1 University of Craiova, Craiova, Romania, [email protected].
© 2022 C. Boghicevici, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
1. Introduction
Over the past decades, the complexity of the healthcare systems has increased
progressively, as well as the challenges that it has to respond to and the shortcomings
that it faces. The Sustainable Development Goals (UN, 2020) mention, among the
seventeen goals, reaching good health and wellbeing which translates into reducing
mortality from all sorts of causes, strengthening prevention and treatment, and
achieving universal healthcare coverage (UN, 2019), which is an underlying
principle according to which the citizen of the countries should be able to have
undeniable healthcare access without facing financial adversity or distress. Countries
trying to attain these objectives should create the premises for enhancing financing,
strengthening policy (Calder, 2021), and, implicitly, improving service towards
population (Adebisi et al., 2020).
In the light of the presented context, the paper aims to answer the main research
question: How does the increase in the health budget influence the quality of medical
services provided in Romania? To achieve this, the paper will meet the following
specific objectives:
1. evaluation of the legislative, institutional, and organizational framework in the
Romanian health system;
2. evaluati the impact of investments and endowments in the Romanian health
system;
3. evaluating the efficiency of financial allocations at the level of the Romanian
health system;
4. elaboration of recommendations on each research axis.
The paper is based on the results of a performance audit report in the field of
human resources in the health sector, as well as on a documentation on the hospital
infrastructure in Romania. Starting from the existing specialized literature, as well
as through the contribution of its own research, the thesis will cover four
fundamental axes of audit for the diagnosis of the entire healthcare system in
Romania: Axis 1 – organizational resources audit, Axis 2 – human resources audit,
Axis 3 – material resources audit, Axis 4 – financial resources audit, however, the
main focus will stay on Axis 3 and Axis 4.
Since Romania joined the European Union, it had to shift from a rather
centralized healthcare system and heavily underfunded and underperforming
(to certain extents, characteristic for a formerly communist country) to a more
patient-oriented system that brought major improvements in the life quality of its
citizens (Pop et al., 2020). Although Romania is trying to align with the EU levels,
it is still one of the countries with the lowest share of health expenditure to GDP,
attracting one of the lowest levels of expenditure per inhabitant (Romania insider,
2017).
As portrayed by Pop et al. (2020), in order to ensure better quality of the lives of
our people, more attention should be paid to two fundamental issues: the brain-drain
of medical professionals (Suciu et al., 2017) – which is a stringent problem because
512
the state pays for the education of the future medical professionals, however, they
leave taking jobs in other countries and causing the state not only to incur no return
on its investment, but also the actual loss of population, on the one hand, and on the
other hand the necessary infrastructure in order to render high quality medical
services to the population as stated by the Romanian Constitution. The healthcare
system in Romania is organized on three levels: primary (general practitioners),
secondary (also referred to as outbound – specialized ambulatory services), and
tertiary (provided in hospitals). The universal condition for ensuring the proper
implementation of public health policies is the existence of a functional system of
active, competent, and responsible authorities, which have the power to effectively
distribute the available budget (Smith, 2018).
The Romanian health system is provided by health units, respectively, hospitals,
national health institutes, public health departments, county ambulance services,
county health centers, which are subordinated to the Ministry of Health, local public
administration authorities, Ministry of Transport, The Romanian Academy, the
Ministry of National Defense, the Ministry of Internal Affairs, the Ministry of
Justice, the Romanian Intelligence Service and other units.
In Romania, the health system remained largely centralized, to the detriment of
the efforts of the authorities regarding the decentralization of hospital units, a first
step being the adoption of the Government Decision G.D. No. 303/2011 for the
approval of the National Strategy for the rationalization of hospitals. The Ministry
of Health aimed to increase efficiency in providing medical services, maintaining
their accessibility and quality, reducing costs in hospital units, which will allow a
redistribution of resources to other segments of health care (primary medicine,
outpatient care, day care, home care, etc.), which can ensure the treatment of a larger
number of patients, with lower costs than those of hospitals.
These are the premises conducive to the elaboration of the current paper.
3. Research Methods
The methodology proposed for the purpose of this research is based on
audit procedures established in the specialized practice, which is extrapolated
from scientific research and adapted to the audit field. The procedures will be
used to achieve the specific objectives and to pursue the four avenues of research.
These are: a) audit procedures used to obtain audit evidence, namely: direct
observation, examination of documents and questionnaires, and b) analytical
audit procedures, quantitative and qualitative, used for the analysis of audit
evidence, which explains the findings and establishes the cause-effect link. This
category includes: comparative analysis (Benchmarking), cost-benefit analysis,
cost-effectiveness analysis.
a) Audit procedures used to obtain audit evidence
The observation represents the pursuit in order to obtain audit evidence of the
various activities carried out within the healthcare system, processes, or internal
procedures performed by the persons within the audited entities;
513
The document analysis is a form of qualitative research, and it consists of the

analysis of the information contained in the documents of the entities related to the
audit objectives in order to disclose meaning.
The interview of people with responsibilities in the field is one way of collecting
information during an audit and is essential for helping the auditors understand the
entity beyond the documented processes and reveals duties which are not comprised
in procedures or instruction.
b) Analytical audit procedures, quantitative and qualitative
The comparative analysis is an audit procedure used to analyze audit evidence
consisting mainly in examining trends, identifying ways to improve performance,
and increasing economy in ensuring human resources (health personnel) in the
national public health system.
The cost-benefit analysis is an audit procedure used for the analysis of audit
evidence, which is performed by studying the relationships between the costs of
providing human resources (health personnel) in the national public health system
and the benefits derived from this action.
The cost-effectiveness analysis is an audit procedure used for the analysis of audit
evidence and is performed on the relationships between the costs of providing human
resources (health personnel) in the national public health system and the results
expressed in costs per unit of obtained result.
4. Findings
In the previously presented context, normative acts were approved regarding the
transfer of health care management subordinated to the Ministry of Health to local
public administration authorities, as well as the list of public health units with beds
for which health care management is done by local public administration authorities
and Bucharest City Hall (Government Decision G.D. No. 529/2010).
Additionally, most of the health units are subordinated to the local public
administration authorities, some are subordinated to the Ministry of Health, and
some health units are subordinated to other ministries and public institutions, which
shows that both the subordination and financing of the health system are mixed.
According to the provisions of Law no. 95/2006 on health care reform, as well as
by G.D. no. 529/2010, the financing of the Romanian health system is ensured from
several sources, as follows:
- from the state budget and from own revenues (excises) through the Ministry
of Health;
- from the budget of the Single National Health Insurance Fund;
- from the local budgets that participate in the financing of some administration
and functioning expenses, respectively, goods and services, investments, capital
repairs, consolidation, extension and modernization, endowments with medical
equipment of the public sanitary units of county or local interest;
514
- from the ministries and institutions of the system of defense, public order,
national security, and judicial authority, through its own budget, which
participates in the financing of some expenses for the administration and
functioning of the sanitary units from their structure;
- other sources (non-reimbursable funds, donations, sponsorships, etc.).
An essential aspect of the health system in the vision of the Ministry of Health is
the reversal of the pyramid of medical services, namely increasing the efficiency of
medical services, accessibility in disadvantaged areas, and the ability to respond to
beneficiaries of medical services.
In order to perform the audit of material resources, the existence of the following
premises in the research activity will be considered, as they are highlighted in the
financial statements of the Ministry of Health.
Table 1. Statements of investment expenditures at the level of the Ministry of Health,

during 2016-2020
Year 2016 2017 2018 2019 2020
Thousand lei Requested Financed Requested Financed Requested Financed Requested Financed Requested Financed
TOTAL
Allocated
2.512.484 419.986 1.912.593 159.925 1.965.787 180.255 2.798.814 991.807 2.765.173 559.933
funds, of
which:
TOTAL
CAPITAL 2.380.749 401.341 1.870.003 145.916 1.930.290 166.112 2.729.498 982.352 2.682.041 520.860
TRANSFERS
TOTAL
CAPITAL 131.735 18.645 42.590 14.009 35.497 14.143 69.316 9.455 83.132 39.073
EXPENSES
Source: Ministry of Health Financial Statements, 2021.
As depicted in Table 1, capital expenditures registered a downward evolution

in the period 2016-2018. Also, expenditures on goods and services had an upward
trend in the period 2016-2018, followed by a significant decrease in the period
2019-2020. In terms of investments, the Ministry of Health received requests
for investment funds in the amount of 11,954.851 thousand lei and allocated
funds through capital transfers and capital expenditures (from the state budget
and excise duties) in the total amount of 2,311,906 thousand lei, respectively 19%.
After the audit, the detailed situation of the types of investments financed
from the budget of the Ministry of Health in the period 2016-2020 is presented
in Figure 1.
515
Figure 1. The structure of capital transfers carried out between 2016-2020

(OY axis thousand lei)
1.200.000
982.352
1.000.000
800.000
520.860
600.000
401.341
400.000 166.112
145.916
200.000
0
2016 2017 2018 2019 2020
Medical equipment 280.601 85.917 125.775 871.390 422.271
Investments in hospitals 61.283 33.727 28.780 75.908 63.057
Major repairs 59.457 26.272 11.557 35.054 35.532
TOTAL 401.341 145.916 166.112 982.352 520.860
Investments in hospitals are rather fluctuating and investments in hospitals as

depicted in Figure 1 undergo a downward trend, as well as the investment in medical
equipment. This dire situation resulting from Table 1 and Figure 1 is a consequence
of the lack of legal allocation procedures. Such procedures should be in place in
order to consider also past requests of each hospital/unit and they should be evaluated
in terms of scores for receiving the funding they need.
When it comes to the financial audit at the level of the Romanian healthcare
system, after a careful analysis, we concluded that, between 2016 and 2020, the funds
allocated to health have incurred an increase.
Figure 2. Structure of expenditures (OY axis - lei)

of the Ministry of Health 2016-2020
12.000.000 11.326.823
10.000.000 9.470.104
7.767.939
8.000.000
5.912.019
6.000.000 5.566.919
4.000.000
2.000.000
0
2016 2017 2018 2019 2020
Expenditures from own
1.378.913 1.503.320 1.863.142 76.000 76.235
revenues budget
State budget expenditures 4.188.006 4.408.699 5.904.797 9.394.104 11.250.588
Total funds allocated 5.566.919 5.912.019 7.767.939 9.470.104 11.326.823
516
With respect to the revenues collected, the highest share is represented by

revenues coming from excise (94.59% in 2016, 94.46% in 2017 and 90.78% in
2018). Own expenditures registered an increasing trend in the period 2016-2018,
followed by a significant decrease in the period 2019-2020, respectively, by over
90%, because the Ministry of Health no longer collected excise revenues, due to
legislative changes.
Figure 3. Detailed situation of expenditure (OY axis - lei) categories at the level
of the Ministry of Health in the period 2016-2020
6.000.000
5.000.000
4.000.000
3.000.000
2.000.000
1.000.000
0
2016 2017 2018 2019 2020
Staff expenditure 969.866 1.508.180 1.860.395 2.035.955 2.262.133
Goods and services 1.699.632 1.814.367 2.025.444 3.626.707 4.827.776
Transfers between public
1.306.736 990.308 1.762.360 3.513.798 3.834.908
administration units
Other transfers 7.412 4.843 4.695 4.344 6.543
Post-accession FEN-funded
131.265 8.085 12.792 11.800 0
projects
Projects with FEN funding for
the 2014-2020 financial 4.031 5.402 12.588 11.937 59.203
framework
Other expenses 1.194 975 9.863 10.998 12.195
Expenditure on reimbursable
48.449 76.000 216.000 168.596 208.478
funding programs
Capital expenditures 19.421 539 660 9.969 39.352
The main conclusion we gather from the analysis of Figure 3 is that Personnel
expenditure has generally been on an upward trend; Expenditures on goods and
services had an upward trend in the period 2016-2018, followed by a significant
decrease in the period 2019-2020; the expenses with the transfers between units of
the public administration registered a downward evolution in the period 2016-2018,
later (in the period 2019-2020) this type of expense has disappeared, and lastly,
capital expenditures generally displayed a downward trend.
517
5. Conclusions
The Romanian healthcare system is characterized by a lack of integration
between different sectors, so the Ministry of Health initiated legislative proposals as
a result of which the G.E.D. no. 18/2017 on community health care. This legislative
amendment aims to introduce community healthcare that contributes to improving
the health of the population by ensuring equitable access to health services for all
people in each community, regardless of socio-economic status (Vlădescu et al.,
2016), level of education, its location in rural or urban environment or remote from
the provider of medical services.
Currently, most health services are provided directly in the hospital, this segment
being oversized, and the services provided in the community are provided much
below the need (e.g., maternal and child health insurance services, home care
services for dependent patients, and monitoring services for patients with various
diseases). An anticipated evolution is foreseen by providing outpatient services, so
that they have a much greater weight in the provision of specialized medical services
and to contribute to the effective reduction of avoidable hospitalizations.
Regarding the financing of investment projects related to the infrastructure of the
public health system, the conclusion was that it is not based on objective
prioritization criteria, as it is necessary to adopt a normative framework to establish
a uniform methodology for providing the necessary financial resources to the
network of hospitals at the national level. The proposals focused on establishing
unique criteria for granting investment financing.
The originality of the research comes from it being a panoramic analysis of the
entire health system, thus differing from a simple audit mission of an institution in
this field; moreover, the study is based on a diverse and complete range of data
available for research; the research results can have a deep practical character and
can be used by professionals from all fields for activities such as substantiating
public policies, government evaluations, further research projects. Future lines of
research should focus on organizational and human resources.
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519

June 16-17, 2022
Mapping Industry 4.0 in the Portuguese Industry

Rui FERREIRA1, Luis FONSECA2*,
Teresa PEREIRA3, Fernanda A. FERREIRA4
DOI: 10.24789788367405072-047
Abstract
With Industry 4.0 and digital transformation, organisations have undergone enormous
changes in business models, engineering, manufacturing, processes, and technologies.
Hence, the need to investigate the status of its current knowledge and maturity. This
research, supported by a survey for data collection (fifty valid responses), aims to analyse
the knowledge and maturity (on a five-scale level) of Industry 4.0 in Portugal from the
perspective of industrial companies. The conclusions highlight that the Portuguese
organisations will have to adapt to the impact of Industry 4.0 on how their business is
being developed and encompass the digitisation with new technologies. Unfortunately,
adopting the concepts and methodologies inherent to Industry 4.0 is still incipient in
Portugal, suggesting a possible lack of knowledge and poor leadership. Companies need to
strategically change towards business models that are more flexible to the potential of
technology and have a closer relationship with customers, ensuring increased operational
autonomy and repositioning products and services. Having a team dedicated to digitisation
increases the Industry 4.0 maturity level. Companies with a maturity Medium/High level of
Products and Innovations have a higher level of perception based on their capacity for
innovation, supported by new digital models and tools. Concerning Human Resources, the
digitisation of knowledge management means and the promotion of new ideas for digital
transformation increases its I4.0 maturity level. This study contributes to the start of the art
of Industry 4.0 in Portuguese companies, mapping its present status, and providing insights
for its future enhanced adoption.
Keywords: Industry 4.0; digitization; Portuguese industry; maturity level.

JEL Classification: O39, L60, C38.
1 ISEP (Instituto Superior de Engenharia do Porto) - P. Porto and INEGI (Instituto de Ciência e Inovação
em Engenharia Mecânica e Engenharia Industrial), Porto, Portugal, [email protected].


4 ESHT (Escola Superior de Hotelaria e Turismo) - P. Porto and UNIAG (Unidade de Investigação
Aplicada em Gestão), [email protected].

© 2022 R. Ferreira, L. Fonseca, T. Pereira, F.A. Ferreira, published by Sciendo. This work is licensed under the
1. Introduction
Industrial revolutions contributed to significant enhancements in the output and
productivity of the manufacturing industry. Industry 4.0 is transforming the
manufacturing firm business models and can support production flexibility,
efficiency, and productivity (GTAI, 2014; Ibarra et al., 2018; Rüßmann et al.,
2015), fostering innovation, competitiveness, and improved industrial system
sustainability (Müller et al., 2018; Stock, Seliger, 2016). The Industry 4.0
technologies adoption in companies and industries is a highly relevant topic
(Luthra, Mangla, 2018; de Sousa Jabbour et al., 2018; Kiel et al., 2017). However,
it is unclear how Industry 4.0 technologies can be integrated into existing
production systems and what processes they can support (Kolberg, Knobloch,
Züehlke, 2016).
Due to the lack of research encompassing the adoption of Industry 4.0 in
Portugal, this research aims to analyse the knowledge and maturity of Industry 4.0
in Portugal from the perspective of industrial companies. The reaming of the
paper is structured as follows: Section 2 provides an overview of the scientific
literature in the industry 4.0 field. Section 3 details the Research Questions, and
Section 4 the Research methods. The results and discussions are explained in
Section 5, and Section 6 is devoted to conclusions, limitations, and suggestions
for future research.
Industry 4.0 leads to digital transformation where everything is
interconnectted with a corresponding virtual representation, namely, business
models, environments, production systems, machines, operators, products, and
services (Alcácer, Cruz-Machado, 2019). Industry 4.0 is based on advanced
manufacturing and engineering technologies, such as Cyber-Physical Systems
(CPS). The CPSs integrate information technology with the physical system
comprising the operational technologies, e.g., the production facilities and
smart machines and storage systems (Kagermann et al., 2013; Qin et al., 2016).
Furthermore, the Internet of Things (IoT) connects the CPS elements by
monitoring the status of physical objects, capturing meaningful data, and
communicating that information through networks to software applications
(Blunck, Werthmann, 2017).
The enabling technologies for Industry 4.0, also called the nine Industry 4.0
pillars, have been identified as: Big Data Analytics, optimisation and simulation,
cloud technology, virtual and augmented reality (VR/AR), horizontal and vertical
system integration industrial IoT, additive manufacturing, autonomous robots,
and cybersecurity (Rüßmann et al., 2015; Wee et al., 2015).
The main reported benefits of Industry 4.0 include: the enhanced integration of
business processes across the entire value chain (Bonilla et al., 2018); innovation,
flexibility, agility, productivity and efficiency improvements, in addition to cost
reductions (Alcácer, Cruz-Machado, 2019; Oesterreich, Teuteberg, 2016); Support
521
for new business models supporting novel ways of value creation, e.g.,
cloud-based, service-oriented, process-oriented business models (Kiel et al., 2017);
Ecological sustainability, e.g., more efficient resource utilisation, and social
sustainability, e.g., workers more supported to do their job (de Sousa Jabbour
et al., 2018).
Although Industry 4.0 is increasing notoriety, many organisations face obstacles
to adopting the Industry 4.0 and are still trying to identify Industry 4.0 implications
and challenges and what the required competencies are (Sanders et al., 2016).
Moreover, it is often difficult for companies to establish their current state
concerning Industry 4.0 development, failing to identify specific priorities, actions,
and projects (Erol, Schumacher, Sihn, 2016). Nevertheless, several few roadmaps
or maturity models have been proposed by academics, practitioners, and
consultants, to support Industry 4.0 successful adoption. Namely Lee, Bagheri,
and Kao (2015), Anderl (2014), the German Government (Schumacher, Erol,
Sihn, 2016); Leyh et al. (2016); Ganzarain and Errasti (2016), Leyh et al. (2016),
Pessl et al. (2017), Akdil et al. (2018), and PwC (2020).
However, the successful adoption of Industry 4.0 faces several challenges.
Namely, the need for adequate training and education to overcome resistance to
change (Yaseen et al., 2017), increased capital requirements and issues of data
ownership (Brous et al., 2020), and to address privacy and security concerns
(Oesterreich, Teuteberg, 2016). Moreover, academic research indicates that a lack
of Industry 4.0 integration with the overall business strategy can negatively impact
environmental performance (Oláh et al., 2020; World Economic Forum, 2018).
Therefore, Industry 4.0 successful adoption requires strong leadership, the right
human competencies, work ethics, and suitable management systems (Fonseca,
2017; World Economic Forum, 2018).
Several researchers investigated the application of Industry 4.0 in companies in
specific countries. For example, Hamzeh, Zhong, and Xu (2018) present the results
of a survey conducted in the New Zealand industry, where Industry 4.0 will be
implemented to update and transform small and medium-sized enterprises (SMEs)
in the future. Other researchers that studied this theme include Dalenogare,
Benitez, Ayala, Frank (2018) in Brazil; Kim (2018) in South Korea; and Müller,
Buliga, and Voigt (2018) in Germany. Furthermore, the consultancy firms Deloitte
(“Industry 4.0 – at the intersection of readiness and responsibility”, 2019) and PwC
(“Global Industry 4.0”, 2016) made relevant contributions to this topic.
Specifically, Hamzeh, Zhong, and Xu (2018) analysed the contribution of Industry
4.0 to the business of the participants, the application of IT tools, and what
are these tools, the window of possible implementation, the benefits, and obstacles
of it, and thus determined the level of perception. Hence, this work provides
valuable insights for the present research encompassing the adoption of Industry
4.0 in Portugal.
522

To successfully start the digital transformation process, companies must have a
clear view of their current situation, their desired future state, and a strategic plan
to achieve their goals (Rajnai, Kocsis, 2018). Therefore, it is essential to support
corporations by providing them with guidelines for the required digital changes.
However, due to the lack of research encompassing the adoption of Industry 4.0 in
Portugal, namely empirical studies on the perception, knowledge, application and
maturity of Industry 4.0 in Portuguese companies, the authors ask the following
research questions: Q1: What is the perception and knowledge about Industry 4.0
by companies operating in Portugal?; Q2: What is the state of application of the
tools and methods of Industry 4.0 by Portuguese companies?; Q3: What are the
most critical factors for defining the maturity level of the implementation of
Industry 4.0 in Portugal.
4. Research Methods
This study is framed with a quantitative methodology supported by an email
survey encompassing a sample of 50 Portuguese companies. The survey featured
distinct parts: Company characterisation; Industry 4.0 with six related companies'
dimensions: Strategy and Leadership (SL); Customer Experience (CE); Operations
(O); Products and Innovations (PI); Information Technology (IT); Human
Resources (HR). After the survey validation, an email was sent to a total of
700 companies identified through a ranking of the largest companies in Portugal in
2019 and contacts made available by this research author(s). The data collection
period was active between July and August 2020, and in total, 50 valid answers
were obtained (response rate of 7.1%). Furthermore, the analysis of the sample
survey results according to the company's characteristics suggests that this
distribution is consistent with the distribution of the population. According to the
proposed research questions, descriptive statistics were performed.
5. Findings
5.1 Characterisation of the Companies

In the 50 responses obtained, it was possible to observe a wide range of
business branches, such as Services (20%), Metalworking (16%), and Automobile
(12%) 72% of the companies were in the North of Portugal. More than 75% of
employ more than 50 employees, and around 78% had a turnover greater than
€1 million in 2019, of which 60% exceeded €5 million. Regarding the respondent's
positions in the company, 30% hold Administration positions. These positions are
closely followed by Owners, who represent 20% of respondents and Operations
Managers, with 18%. Lean Manager and i4.0 Manager positions only represent
2% and 4% of respondents, respectively.
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5.2 Industry 4.0 Companies’ Tools Investments Analysis

Regarding the second part of the questionnaire, 60% of the respondents
consider that the Industry 4.0 tools will have a contribution to the improvement
of Production: more than 68% of the companies said that they use IT tools in
Production Planning, Quality Management, Accounting and Finance and in
Purchasing and Inventory Management, the latter having the highest usage rate
(82%). Concerning the potential benefits of applying Industry 4.0, Increased
Agility in Operations with 76% was chosen as the main benefit, followed, with
64%, by companies considering Improved Services to be offered to customers, and
Reduced Production Costs as the second most significant benefit. In the opposite
direction, when questioning companies about potential obstacles to implementing
Industry 4.0, we can observe that the great focus is on the possible high-time
investments and funds, being the options on which more than 60% of the
companies focused. Furthermore, almost half of the respondents have difficulty
accessing collaborators with the necessary knowledge to apply the changes implicit
in the digitalisation of processes.
22% of the respondent companies have already implemented Industry 4.0
concepts, 26% have implementation forecast for the near future, up to 24 months,
and almost one-third of the organisations have no plans for future implementation
now. Regarding Industry 4.0 pillars, Augmented Reality, 3D Printing, Autonomous
Robots, and Virtual Simulation are the least used in the companies participating in
the study. Conversely, IoT/IoS (26%), Cloud Computing (24%), and Cybersecurity
(20%) have the highest percentages of high usage (Figure 1). IoT/IoS and Cyber
Security have usage rates above 72%. Horizontal and vertical integration of
systems is the pillar more unfamiliar to the respondents.
Figure 1. Level (%) of use of the tools of the Industry 4.0 Pillars
Cyber Physical Systems& Cyber Security 6% 22% 20% 32% 20%

Systems Horizontal & Vertical Integration 10% 28% 18% 30% 14%
Big Data 8% 28% 18% 28% 18%
Cloud Computing 0 34% 12% 30% 24%
Virtual Simulation 2% 58% 18% 10% 12%
augmented reality 4% 74% 18% 04%
Autonomous Robots 0 56% 10% 26% 8%
Internet of Things (IoT) Internet of Services…0 26% 24% 24% 26%
3D printing 0 68% 8% 20% 4%
0 0,2 0,4 0,6 0,8 1

Do not know Not used Little used Used widely used
Source: authors' own elaboration based on data.
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5.3 Level of Perception of Industry 4.0
Considering Hamzeh et al. (2018)’ survey, when comparing the Portuguese

self-assess level of maturity perception of Industry 4.0 with the results obtained
from the survey conducted in New Zealand, as shown in Figure 2, the level of
perception observed in the New Zealand study is higher than the Portuguese one.
Figure 2. Level of Perception of Industry 4.0
35%
15%
-5%
1 (Very Poor) 2 (Poor) 3 (Average) 4 (Good) 5 (very good)
Portugal (PT) New Zealand (NZ)

Source: authors' own elaboration based on data and compared.
5.4 Industry 4.0 Companies’ Dimensions Analysis

Companies were analysed with six related company dimensions: Strategy
and Leadership (SL); Customer Experience (CE); Operations (O); Products and
Innovations (PI); Information Technology (IT); Human Resources (see Figure 3).
Figure 3. Mean assessment average of the surveyed companies
Human Resources (HR)

Information Technology (IT)
Products and Innovations (PI)
Operations (O)
Customer Experience (CE)
Strategy and Leadership (SL)
2,60 2,70 2,80 2,90 3,00 3,10 3,20 3,30
Source: authors' own elaboration based on data.
6. Conclusions
Overall, the research objectives were achieved by analysing the perception and
knowledge about Industry 4.0 by companies operating in Portugal, ascertaining
the state of application of its tools and methods in the national panorama, and
determining the essential factors for defining the maturity level of the
implementation of Industry 4.0.
Concerning the Research Question (RQ) 1 “What is the perception and
knowledge about Industry 4.0 by companies operating in Portugal?” the Portuguese
organisations will have to adapt to the impact of the Fourth Industrial Revolution
on how their business is being developed. Furthermore, considering that the
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industrial revolution is promoted with a solid technological base, organisations will

need to enter the new reality of digitisation with new technologies.
Regarding RQ2, “What is the state of application of the tools and methods of
Industry 4.0 by Portuguese companies? Unfortunately, the adoption of the concepts
and methodologies inherent to Industry 4.0 is still incipient in Portugal, suggesting
a possible lack of knowledge and poor leadership”.
Finally, concerning RQ3, “What are the most critical factors for defining
the maturity level of the implementation of Industry 4.0 in Portugal?” it is required
to prepare and adapt to the successful adoption of Industry 4.0. E.g., by strategic
change towards models that are more flexible to the potential of technology and
have a closer relationship with customers who should be integrated into these
services. Furthermore, greater autonomy and decentralisation will be needed at the
level of operations. In addition, the adoption of the I4.0 paradigm also presupposes
the repositioning of products and services.
In conclusion, although respondent organisations are aware of the potential
benefits of Industry 4.0 implementation, they still look at this paradigm shift with
some reticence. Namely, concerns with high monetary and time investments and
insufficient human resources knowledge are difficult to obtain, which aligns with
Sony's (2020) literature review. Therefore, there is a need to support the business
case for I4.0. Furthermore, employees will have to develop new skills and
qualifications since companies will demand a different employee, much more
versatile, agile, and connected.
Nevertheless, the research results indicate that their actual Industry 4.0 level
of knowledge is slightly higher than they initially assumed. This finding should
be linked to the fact that, although they know and use industry 4.0 methodologies,
they do not associate them with Industry 4.0 because they are unaware of their
basic concepts.
Additionally, factor analysis and comparison of averages were performed,
concluding that companies with a team dedicated to digitisation at the strategic
level and making a cross-cutting effort to translate this digitisation at all levels
increased their Industry 4.0 maturity. Furthermore, companies with a medium/high
customer experience maturity level have a higher level of perception based on
interaction with customers across multiple digital channels, continuously collecting
information to improve products and services. At the level of Operations, the
respondent organisations surveyed that have integrated management software for
monitoring and process control with remote access increased their level of maturity
in Industry 4.0 in this factor. This dimension causes a significant difference
between companies with high maturity and low maturities. Moreover, the
organisations with a medium/high product and innovation maturity level have a
higher level of perception based on their innovation capacity, supported by new
digital models and tools. Concerning Human Resources, the digitisation of
knowledge management and the promotion of new ideas of transformation
increases the level of maturity I4.0 of the Human Resources block. However, most
companies do not have a dedicated team to do so.
526
Comparing this research results with Hamzeh et al. (2018), Portuguese

companies report lower perceptions of Industry 4.0 than New Zealanders.
However, companies in both countries have very similar hopes and fears regarding
the implementation of digitisation. Finally, when comparing the results with
previous studies by PWC and Deloitte, it was possible to conclude that Portuguese
companies have not yet reached the scanning levels expected for 2020. Despite the
increasing allocation of monetary and human resources to digital development.
The author(s) acknowledge that, despite their efforts, this research may suffer
from the limitations inherent to the limited sample size and the survey
methodology (e.g., possible bias). Concerning suggestions for future research,
additional studies with increased sample sizes and further statistical analysis
(e.g., the difference between sectors or organisation size) are proposed.
Acknowledgment
UNIAG, R&D unit funded by the FCT – Portuguese Foundation for the
Development of Science and Technology, Ministry of Science, Technology and
Higher Education, under the Project UIDB/04752/2020.
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529

June 16-17, 2022
Five Steps for Sustainable Business Modelling

in The Metaverse
Ilinca HOTARAN1, Dalia POLEAC2*, Nicolae VRANA3*
DOI: 10.24789788367405072-048
Abstract
As we start experiencing the 4th industrial revolution, with the rise of the new Internet,
people’s physical and digital lives blend and new business opportunities arise for the next
generation. We are still at an early stage of development for what we call “the metaverse”:
a real-time immersive world to be populated by avatars, digital twins, and all sorts of digital
goods powered by an exponential rise in creators. In this context, all industries will have to
redesign their business models to ensure a sustainable transition towards the next-generation
engagement. Our paper proposes a framework for innovation consisting of 5 essential steps
any company should take when approaching transformation in Web 3.0. In order to
sustainably transition, businesses have to find the most suitable place in the digital space,
ensure their presence, activate their community, co-create digital artifacts, and connect them
with physical products. To deliver our paper we will build our research on qualitative and
quantitative study, with the focus on exploring new-gen business case studies and conducting
a series of interviews with experts from the international metaverse community.
Keywords: innovation, metaverse, business transformation, road map, sustainable,

transition.
JEL Classification: M13, L10, L25, M30, O10, O32.
1. Introduction
“With the global outbreak of the COVID-19 pandemic, many people around the
world have to stay at home and lack social interactions, leading to a surging demand
for novel applications of social media” (Cheng et al., 2022). In this context, new
digital platforms are creating room for more diverse opinions, encouraging peer-to-

© 2022 I. Hotaran, D. Poleac, N. Vrana, published by Sciendo. This work is licensed under the Creative Commons
peer interaction, learning, and co-creating. These spaces are mostly shared virtual
worlds, providing real-time immersive experiences, developed on gaming platforms.
Virtual worlds have been present in the online space for decades. Second Life,
launched in June 2003, recreates the real world and gives its users the possibility to
be whatever they want, generating at the same time an economy dependent on real
money. Users are called residents, and they inhabit the digital world with their
avatars. They meet and interact at social gatherings, experience live concerts, own
digital assets, attend press conferences, and college classes. We can say that Second
Life is a Web 2.0 metaverse, in the sense that it has three core elements: experience,
economy, and community. In comparison, there are other current examples of more
evolved versions of these digital worlds which are the closest to what we imagine
as the metaverse, like Decentraland and Sandbox: they have their communities,
economy, user-generated content and customized experiences, and they run on a
blockchain infrastructure.
In this section, we explained the main factors standing at the basis of our research.
For this scope, we provided the main definitions of the concepts set as a background
for our paper.
Metaverse is the new interface that will take human-computer interaction to a new
level. We will define it by extracting from the literature the terms that build this
ecosystem, especially in technology: blockchain, AI, IOT, Cloud. In relation to the
topic addressed in the research we will also introduce the terms crypto currency,
gamification, and NFT. Metaverse is a term that does not yet have a universal
definition; we know it was first mentioned in 1992 in Neil Stephanson's book Snow
Crash (Joshua, 2017). On a general level, the metaverse is intended to have the ability
to provide users with near-reality experiences and to enrich the quality of the
experience, an action that involves advanced technology (Yuheng et al., 2022).
How do we define blockchain, IOT and cryptocurrency? A cryptocurrency is a
digital form of exchange that uses encryption technology to develop and transfer
funds. A blockchain records all the transactions that occur and is the basis of the trust
protocol. At present, the Internet of Things (IoT) represents technologies such as that
adopted for smart homes, smart sports activities, or smart transportation, applications
developed to improve human life. Even though the IoT is currently undergoing
continuous development, it is hampered by security, integrity, and data protection
issues. Blockchain was created to help the use of cryptocurrency, but it needs to be
integrated with IoT systems to mitigate the challenges it raises. (Ahamad et al., 2022)
Introducing AI. The literature identifies several starting points for the need to
adopt AI. In the first phase, we can discuss the ability of AI to process large databases
to discover repetitive patterns needed to generate value, increase efficiency and
support decision making. From another point of view, AI is a solution to eliminate
human errors through automation. We have noted throughout the research the need
to integrate all terms into the AI ecosystem, because in the ever-evolving virtual
531
world, power and dependency are constantly negotiated between interconnected

partners. (Keegan et al., 2022)
The term gamification was first developed in 2002, is still developing and should
not be confused with other terms such as play, traditional games, or loyalty systems.
The unique and differentiating element is the extension of the game term and the
involvement of management in solving tasks. (Patricio et al., 2022).
Based on blockchain technology, NFTs have captured the interest of the public by
being defined as tradable rights that can be registered as non-fungible tokens based
on the aforementioned technology. (Hyungjin et al., 2022). NFTs are in fact
cryptographic tokens and determine the ownership of certain objects such as songs,
events, art, or other particular items. They can be sold or exchanged like any other
cryptocurrency; the difference being that, unlike cryptocurrencies, their value is
not equal but depends on the characteristics of the product they represent (Chalmers
et al., 2022).
There is still not an established official definition of the term “metaverse”.
Matthew Ball, venture capitalist and essayist, explains that the metaverse is a
persistent and interconnected network of 3D virtual worlds that will eventually serve
as the gateway to most online experiences, and also underpin much of the physical
world (Ball, 2022).
However, with all the technology available, we are currently at the level of dial-
up Internet phase of the metaverse. It is still very early, we are at peak hype, but the
technology takes time to develop. Ultimately, the metaverse is the next evolution of
the internet and will converge: IoT, blockchain technology, AI, augmented and
virtual reality tools, cloud storage, and 5 and 6 G, which will connect all these
innovations to build and maintain the metaverse. According to Tommaso Di Bartolo,
entrepreneur and Faculty at the University of California Berkeley, the metaverse
provides an immersive experience for consumers, with “self-sustaining, community-
driven economy at its centre”, and for companies, it enables them to create a next-
generation type of engagement, “that empowers brands to make consumers part of
the product versus being sold a product”.

Becoming a metaverse enterprise is the natural transition that brands should
prospect, from all sectors and industry, from media to fashion, travel, and hospitality.
The initial question that founded our research is: How does the metaverse
transform businesses and which are the steps companies should consider to
successfully pivot and become a metaverse enterprise?
532
5. Research Methods
The research methods used:
• Documentation in the literature, in order to synthesize the context of scientific
research, especially in the field of the new environment dominated by the
metaverse;
• Comparative analysis between different types of methods and steps used by
companies in order to fulfill the needs of the market;
• One-on-one exploratory interviews, held virtually, on the Zoom platform. Using
this qualitative research method, we covered the interlocutor’s experience in the
field of consulting brands that design products and services for the metaverse;
interlocutor’s research findings and methodologies in relation to the new business
ecosystem; metaverse definitions and the range of tools and platforms which can
be used to design and navigate virtual worlds.
6. Findings
Jon Radoff is an American game designer and entrepreneur, considered one of
the 30 most influential people in the metaverse. His work revolves around the
concept of the metaverse, designing market maps, consulting brands, and creating
transformational methodologies. Teddy Pahagbia, from BLVCK PiXEL is currently
based in Paris and is known as Mr. Metaverse. He is a keynote metaverse speaker
and he supports companies transform through digital innovation in Web 3.0.
In 2021 we interviewed both specialist and worked closely with Teddy in a
workshop designed for creative people who want to lead change in the metaverse.
Through both experiences we collected notes and observed patterns which we further
researched by analysing case studies, in order to propose a framework for transition.
The main finding is the urgency for businesses to transform in the context of the
exponential rise in technologies which are shaping up Web 3.0 and the metaverse.
According to Jon Radoff, the last 18 months have accelerated this transition. A habit
started to be observed where people are getting accustomed to the idea that the
Internet is becoming a place they go to participate in activities of all types, whether
it is a game, a work collaboration, or an immersive social experience. Therefore,
companies started to design strategies to enter the space and deliver to the new needs
of the market: experience, community, and economy. Some companies operate at
the level of technology, which means they are creating the infrastructure, others are
designing tools, worlds, or experiences. Another insight is that games are going to
lead the future of the metaverse, dematerialising physical space and building worlds
where brands and consumers will live, co-create, share, and earn. Content for the
new Internet is designed and proposed in collaboration with consumers, called user
generated content.
After analysing the current ecosystem in which different metaverses are being
built, and conducting interviews with experts in the field, we noticed that there are
5 important steps to take into consideration when pivoting towards metaverse
business modelling.
533
6.1 Explore the Online Worlds

Online games mostly refer to games that are played over the Internet using PCs
and game consoles (Papagiannidis et al., 2008). Web 3.0 evolution generates
immersive, tactile, and decentralized Internet, and eventually human augmentation
such as digital and augmented reality wearables, and brain-computer interfaces.
There are several metaverse experiences rising in the digital space like Ready
Player One, Fortnite Concerts, Gaming, Virtual Real Estate platforms. Axie Infinity
is a good example of a Web 3.0 metaverse. With a revenue generation of over
300 million U.S. dollars in August 2021, according to a research published on
Statistica by Raynor de Best, the video game is a case in point of how to build
decentralized finance protocols running on blockchain that increasingly generate
more money and are, therefore, more appealing to users and brands.
Crypto is the currency of the metaverse, and NFTs are its capital. Since live music
performances to large crowds disappeared almost overnight with the COVID-19
epidemic, the music industry has been forced to innovate and find new ways to reach
their fans (Pryor, 2022). Sectors such as music and fashion are the ones which
innovated the most in the space of the metaverse, generating monetizable
experiences for their audience such as: Justin Bieber’s concert on Wave, Travis
Scott’s collaboration with Fortnite, Gucci and Roblox cross industry value creation
with Gucci Garden and Decentraland platform organizing the first metaverse
fashion week where 70 brands among which Estée Lauder, Dolce & Gabbana,
Forever 21 showed their style.
Gaming is informing the future of the metaverse. All these examples show the
variety of possibilities in designing experiences and which are the typologies of these
collaborations: new gaming intersections are remodelling businesses such as fashion,
film, fitness, e-commerce and events; meaningful connections are established on
new social media platforms; diverse representation by giving users the freedom to
digitally embody any type of avatar, from human to animals or tailored characters;
immersive escapism and joy is unlocked by performing the act of playing especially
with AR or VR tools; seamless brand experiences which encourage co-creation with
consumers rather than advertising products.
“Although most companies embrace the Metaverse’s concepts and vision,
cautions and doubts also emerge. While both Apple and Microsoft have virtual
space applications, they consider that seamlessly connecting the Metaverse and
the physical world is a key to its success, if not more important than the
Metaverse itself.” (Cheng et al., 2022). For the metaverse to really function,
developers need to enable technologies which allow seamless interoperability among
users and platforms.
In the last years, the Internet has radically changed. Such a pattern cannot pass
unnoticed, since both academic and business worlds have shown great interest in
such changes (Cagnina, Poian, 2009). We strive to offer a broad vision of the
potential benefits which virtual worlds may provide for improving learning and
collaboration (Acosta et al., 2013).
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6.2 Ensure Brand’s Presence in a Metaverse

To sustainably pivot, brands need to develop a metaverse lifelong strategy that
suits the needs of their consumers. To generate value for the community, companies
are practicing collaborations and are looking for partners that are going to
provide for them the right infrastructure or perspective to further develop
common worlds and products. To date, the experiments we have seen fall into the
following categories: creation of immersive experiences for audiences in the music
industry; launching digital coins like in the case of the rock band Portugal The Man;
selling virtual assets or NFTs to extend brand experience into online worlds;
generating experiences; trading and building on virtual real estate projects on
platforms such as Upland.
Finding the right partner in the metaverse is acknowledging that, whereas once
customers were only consumers of content, they are now content-creators and
content-amplifiers as well. In the metaverse, the community will set the prices, and
the value added to a virtual good will not be based on cost or utility but relationship.
“Importantly, high levels of local presence create user perceptions of virtual
content as “being here” (i.e., within their physical environment due to high levels of
realism or high levels of contextual embedding). Low levels of local presence
indicate a more “functional” integration of virtual content, such as textual
information. In contrast, telepresence in VR describes the degree to which users
perceive themselves as being in the virtual world independent of their actual physical
location.” (Rauschnabel et al., 2022). VR is a technology that combines multisensory
stimuli to generate the feeling of being present within computer-generated
environments (Dozio et al., 2022).
6.3 Activate Brand’s Community

Brands need to think of creative ways to build community and content. Because
the metaverse is only as interesting as the content inside. If there is nothing to do
when users enter the worlds, no one is going to come back.
When Mark Zuckerberg introduced the successor of Facebook, he described
Meta as “a set of virtual spaces where you can create and explore with other
people who aren’t in the same physical space as you.” (Huynh-The, 2022). Meta will
build its own metaverse and create for their audience a wide range of experiences,
for both business and fun: from virtual meeting rooms like Horizon space, to
playing minigames.
This is one example of a company pivoting towards becoming a metaverse
enterprise, that will influence the mass adoption of the technology and enable
brand collaborations in the space. To activate a community for next-generation
engagement, companies will have to revolve around finding partnerships that make
the most sense for their audience and provide meaningful and inclusive experiences
with the technologies available. Besides this, the content generated by the brand has
to be a story of how to live forever by constantly adapting to users’ needs and desires
and allowing them to contribute. Digital game designers understand this philosophy.
535
When they develop a character, the basic structure is fixed and the player sees
customization options which mix and combine to enable an infinite number of
possibilities. Companies develop episodes, events, or movies in the current
metaverse space. We see successful collaborations such as Upland and NFLPA
Legits, where users collect Football NFTs that represent the most iconic players and
trade them in Upland's open marketplace.
Table 1. Understanding NFLPA Legits
First layer
Category Second Layer aspect
aspect
Build Fan Score
One of a kind
NFLPA Legits Overview Collect essentials
memento
Trade NFLPA Legits
Essentials, replicas, spotlights
Terms and Types
Minting, Existing, Total, Ending
General Terms
Bundle Description, Bundle
NFLPA Glossary Bundles
Delivery
Mechanism and
Fan points, registering for
Features
mementos. Stadiums
Upcoming Features: fan shops, trading, registering for spotlights, autographs,
Collections, Leader boards
Source: http://community.upland.me/.
6.4 Co-create Artefacts

According to recent data from ARK Invest, the percentage of game revenues
from selling digital items will rise 95% by 2025. Co-creation, in the context of a
business project, is the process in which input from consumers is used to design
services and products and plays a central role from beginning to end.
Figure 1. Understanding Co-creation in Metaverse
Technologies Blockchain
Introduction
Involved Adoption
to Metaverse
in the Metaverse in Metaverse
Metaverse as a
History of Web and product of Extended Blockchain Overview
evolution of Web 3.0 Reality
What is Augmented
Reality (AR) Need of
Decentralization in MV
What is Virtual Reality
Metaverse History
(VR)
Understanding Tokens
What is Mixed Reality
(MR)
What is Metaverse? Artificial Intelligence Understanding the NFT
(AI) Introduction in
Metaverse
536
Tools Required
Use-cases
to Build Metaverse
Unity3D Gaming in Metaverse
Meetings in Metaverse
Unreal Engine
Virtual Learning in Metaverse
Amazon Sumerian
e-commerce in Metaverse
SparkAR
Travel in Metaverse
Cybernetics Digital Identity in Metaverse
Source: blockchain-council.org.
In the metaverse, the real value behind a digital product is the opportunity
given to users to be involved in the process of creating that particular item or
experience. This process of co-creation brings consumers a sense of ownership and
belonging, and even financial independence by creating their own personal
economy. With games like Axie Infinity, people can support themselves financially
only by playing and trading digital goods. Hatsune Miku is a character in a manga
series named Maker Hikōshiki Hatsune Mix, written by Kei Garō. Hatsune is one
example of how communities come together to co-create with their aspirational
brands: she has transitioned from vocal synthesizer to adored “collaboratively
constructed cyber celebrity with a growing user community across the world”,
according to its creators. She is Japan’s beloved virtual superstar. Since her release
in 2007, her popularity has escalated, and her image was licensed for all types of
goods, games, and products.
6.5 Connect Digital and Physical Worlds to Enhance Experience

Virtual worlds have become an arena for user-generated innovation enabling
a new wave of entrepreneurs to extract real-world value from virtual property
(Zhou et al., 2018). Brands are generating NFTs or creating virtual retail experiences
on gaming platforms to offer both their digital and physical products to a wider
target.
However, according to venture beat, “The massive amount of data storage needed
to develop the metaverse might undermine sustainability goals, based on the rapid
growth required” (Parker, 2022). Brands need to include emerging global issues in
their digital strategy. In July 2021, Coca-Cola launched an NFT collection that
fetched $575,000 in an online auction. The company relied on the power of its brand
to push forward its collection and raise over $500.000 for charity within 72 hours.
The project House One Family Forever proceeds from each NFT purchase and funds
537
a safe home for one homeless family. Each NFT design is unique and linked to one
IRL house that is about to be built for a family in Mexico or El Salvador.
The metaverse is also a societal evolution, not just a new technology or a
marketing channel. As the world is undergoing great changes due to the exponential
development of new technologies and the humanitarian and planetary crisis we
experience, the role of brands is to generate purposeful collaborations with real
impact.
7. Conclusions
The metaverse is a visual world that blends the physical world and the digital
world (Zhao et al., 2022). The metaverse is expected to turn imagination into reality
through the convergence of various technologies and should be considered as a
medium for sustainable education, free from the constraints of time and space (Park,
Kim, 2022). Driven by experience, community, and digital economy, worlds build
as the metaverse have unique attributes depending on how businesses transfer their
values, vision, and mission in a digital setting. However, a layer of sustainability
needs to be added in order to generate massive adoption from consumers as well as
inspire them to collaborate and co-create with brands. From our analysis, we
extracted 5 concrete steps companies should consider when looking to pivot and
become metaverse enterprises: Explore, Ensure, Activate, Co-create, Connect.
Figure 2. Steps for Sustainable Business Modelling in the Metaverse
Source: Author’s personal contribution.
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[2] Ball, M. (2022). The Metaverse And How It Will Revolutionize Everything. W.W.
Norton, July 2022 to be published.
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Artificial Intelligence for the Metaverse: A Survey. arXiv:2202.10336v1 [cs.CY] 15 Feb.
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value of NFT: Evidence from a portfolio analysis using mean – variance framework,
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539

June 16-17, 2022
Entrepreneurship Business Restart Readiness

Vyara KYUROVA1, Dilyana YANEVA2,
Teodora KIRYAKOVA-DINEVA3*
DOI: 10.24789788367405072-049
Abstract
The new reality of COVID-19, as well as the present post-pandemic situation, have
caused and continue to cause issues to most of the business activities. Many company owners
and employees were forced to reorganize their usual ways of working. In fact, this led to
turbulent restructurings in many spheres of the economic and social life, both directly and
indirectly. In turn, the overall change has also necessitated the wider use of information and
communication technologies, for which companies were more or less open.
The purpose of this research is to explore the readiness for a recovery of the
entrepreneurship business from the post-COVID-19 pandemic challenges in the context of
the Bulgarian business operators. Pursuing this particular line of investigation, the authors
examine the difficulties of the entrepreneurship business in the specific timespan, the
attitudes toward maintaining work in a digital environment after the pandemic, and
adaptability to cope with the crisis. The role of government measures to support business
handling the post-pandemic survival easier is another research inquiry.
As a research method, we apply the survey method comprising of closed-ended and open-
ended questions pursuing to gain insight in to the post-pandemic business situation.
The results confirm the complexity of the business recovery and reorientation processes
of companies, the need for a more active work in the digital environment, as well as the
necessity for intensive tripartite meetings on issues related to business restart readiness.
Keywords: entrepreneurship, business recovery, digitalization, adaptation,

measures.
JEL Classification: A11, E22, J08, O15.
1. Introduction
The coronavirus pandemic has caused drastic changes for all human beings as
well as for the business world. The COVID-19 crisis has adversely affected many
1 South-West University “Neofit Rilski”, Blagoevgrad, Bulgaria, [email protected].
© 2022 V. Kyurova, D. Yaneva, T. Kiryakova-Dineva, published by Sciendo. This work is licensed under the
companies by forcing them to adapt their activities to the external changes, or even
to stop their business operations. Many of the service companies stopped functioning
altogether, and well-acknowledged standards such as competitiveness, growing
revenue, and increased business volume stopped to be the leading criterion. The
protection of human health and the need for a paradigm shift in businesses provoked
new ways for businesses to function. In addition, many employees were forced to
work in extremely stressful situations, and some of them could not cope with the
burnout effect. It was also not uncommon for some of the employees, or to some of
their family members to lose their lives. In these complex circumstances of social,
health and occupational insecurities, it is now clear that COVID-19 was not only
unconquerable, but it showed that life and business have to proceed. The question
that theoreticians and practitioners are concerned about, both in social and
humanitarian sciences, is what advantages society can gain and whether business and
society are ready for a quick restart from the crisis. In this context, a relevant question
is how business recovery occurs in the context of some Bulgarian companies.
Other issues subordinate to the main goal are questions about the specific
difficulties in relation to the business operators. When summarising these answers,
it will allow an assessment to be made, weaknesses to be more explicitly identified
so that opportunities for future action plans to be better envisaged. The research
conducted is based on 18 survey questions related to the business activities, the
challenges in operations, and especially their adaptability to external and internal
company problems. The main body of research is directed to subsets of business
restart readiness from a post-COVID-19 situation.
The issue of business recovery takes on an exceptional acuteness in any period of
upheaval. A recent example of this can be associated with different reflections after
the global crisis of 2007-08 (Tcholakova, Sotirova, Tzvetanova, 2017; Belova,
Hadzhipetrova-Lachova, 2014). Based on this experience, and given the financial
indicators of such events, more and more issues of recovery prospects in a global
aspect (Desai, 2011; Floyd, 2011), and business performances and recovery mode
are examined by other authors (Moutray, 2020; Caraiani et al., 2022), in particular.
This type of management is particularly significant against the backdrop of both
business-to-business markets (Döscher, 2014) and business-to-customer markets.
Much in this vain, competitiveness (Alpopi et al., 2018) still remain strong
indicators, along with loyalty (Russo, Confente, 2017) and customer satisfaction
(Khan, Ghouri, 2018).
Alongside the main theoretical issues, opportunities from the field of business
recovery testing are also being included (Watters, 2013). Similarly, the COVID-19
pandemic has given publicity to optimization and buzz response primarily in
financial markets (Seven, Yılmaz, 2021; Yarovaya, Matkovskyy, Jalan, 2020).
A particularly strong need for a rapid recovery has also been noted in the
manufacturing and supply chain fields (Moutray, 2020; Paul et al., 2021). The call
for urgent measures was also particularly strong for small and medium-sized
541
businesses, for which two types of approach appear to be defining - towards Business
Continuity on the one hand, and towards Disaster Recovery Planning on the other
(Slade, 2021; Das, 2022). The levels of overall disruption due to the COVID-19
epidemic are also triggering responses for new sales channels, innovative digital
solutions, and also encouraging thinking about the appropriateness of supporting
measures in the pandemic periods.
In 2020, the European Commission adopted a temporary framework for state aid
measures to support the economy during the outbreak of COVID-19. These measures
regulated various forms of aid in the form of direct grants, loans, as well as subsidies
paid to employees to prevent redundancies during the epidemic situation, which had
national applicability for each member state.

This study represents the results of a case study which was conducted in
46 companies in South-West Bulgaria. The goal of the study is to gain a closer look
at the difficulties businesses experience as a result of the COVID-19 crisis and on
this basis to assess their readiness for business recovery. However, this is a
problematic research endeavour related to a problem of a multifaceted socio-
economic nature (business survival under conditions of health pandemic without
clear vision neither for the company, nor for the employees). Admitting that this
research scope is related to objective and subjective settings, the authors aim to gain
some basic information about the companies’ adaptability to a post-pandemic restart.
4. Research Methods
This study has used primary data. The primary data was collected through a
survey which was distributed to 75 representatives from the managerial level, such
as business owners, managers, HR directors and company’s representative bodies of
small and medium-sized enterprise businesses in Bulgaria.
The study was sent electronically; it was limited in time and place. The survey
was conducted between February and March 2022 in Bulgaria. Using a questionnaire
as a research instrument enabled the collection and analysis of quantitative data by
using descriptive statistics. Data was collected from 46 enterprises using an own
questionnaire applying open-ended and closed-ended questions related to their
readiness for business restart in the post-pandemic situation.
The discussion of the survey results was based on the quantitative method, aiming
to analyze and evaluate the results obtained using the approaches of grouping and
graphical representation.
5. Findings
5.1 Sample Structure (Industry, Size, Age of the Enterprise)

Directly related to the problem under study is the determination of the profile of
the enterprises studied according to three main criteria. Taking into account that an
542
important element of the business characteristics is the choice of the sphere of

economic activity, the results of the study reveal that among the surveyed enterprises
with the highest market presence are those in the field of trade (43.5%), followed by
those with manufacturing activity (30.4%) and, lastly, are enterprises with the main
activity of services (26.1%). In terms of the sample structure of the enterprises,
according to their size, it was found that micro enterprises predominated (47.8%),
followed by small enterprises (28.3%). It is noteworthy that the share of large
enterprises is also relatively high (23.9%).
In regards to the distribution of enterprises according to the time of registration,
it is significant that those operating for more than 10 years predominate (54.4%).
The share of enterprises operating for 5 to 10 years is also significant (23.9%). At
the same time, it is observed that the share of enterprises with a market presence of
less than 5 years is the lowest (21.7%). Due to the sampling method used, there are
no enterprises registered within the last 1 year.
5.2 Difficulties for Entrepreneurial Business

In order to investigate the state of businesses in Bulgaria during and after the
crisis, respondents were asked a question concerning the emergence of difficulties
in the COVID-19 period. It turns out that the majority of businesses (56.5%)
experienced serious difficulties and ¼ experienced partial difficulties (26.1%).
17.4% of the respondents mentioned that they had no difficulties in their operations
during the pandemic. A more detailed examination of the question reveals that these
are large companies with long market experience, effectively studying the market
situation and quickly adapting to the dynamic changes. These companies are the ones
that specify that they are not currently experiencing any difficulties in their
operations (19.6%).
However, it is a worrying result to have 28.2% of respondents categorically
stating that they are still unable to cope with these problems. It is found that these
enterprises are micro (84.6%) and small enterprises (15.4%) operating in the field of
production and trade. For one in two enterprises (52.2%), the difficulties still
continue after the pandemic, but only partially.
Figure 1. Difficulties for entrepreneurial businesses
in the post-COVID-19 crisis period
28,2%
Yes
52,2%
No
19,6%
Partly
Source: Authors’ survey, 2022.
543
The survey data indicates that the main problems are rooted in the uncertainty
and insecurity of the socio-economic environment (67.4%), customer churn (52.2%)
and staff sickness issues (41.3%). This, in turn, has led to the need to suspend
business activities for a period of time (26.1%), a contraction in production (26.1%),
and redundancies for some staff (32.6%).
Although one in three enterprises cited the lack of financial means to carry out
operations as a major difficulty (34.8%), the proportion of those (15.2%) who
thought that additional means to respond to a COVID-19 situation would solve these
problems was not particularly high. It is interesting to note that no respondents
mentioned the need to use credit as a key difficulty.
The study of attitudes and trends towards the immense use of ICT and the
digitisation of business in the periods during and after the crisis is important to
achieving the objectives of the study. The results indicate that one in three businesses
operated online during certain periods of the pandemic (32.6%).
On the other hand, about 10% of the investigated companies had to go online
during the whole period (10.9%). However, the vast majority of organisations
(56.5%) did not have to resort to working in a digital environment. Due to the nature
of the business, this was the case for 100% of manufacturing businesses, 40% of
commercial businesses and 16.7% of public service organisations.
The main difficulties of working in an online environment appear to be the need
faced for businesses to quickly reorganize operations (30.4%) and the lack of
knowledge in relation to the tools that support employees to work in a digital
environment (21.7%). Thus, company management faces problems such as
inadaptability and lack of staff preparation (17.4% each). For 8.7% of the
respondents, these difficulties would not have existed if the staff had participated in
trainings about working in an online environment before the COVID-era.
The reorientation of enterprises’ activities towards working in an electronic
environment has led to a reluctance to work for a large proportion of staff.
Employees cite uncertainty (21.7%) and inability to adapt (32.6%) as their main
motives. Another part of the respondents pointed out problems with communication
with the Internet (26.1%), the inability to work as a team (19.6%), and dissatisfaction
with the results (8.7%). This, in turn, was caused by lack of experience (17.4%),
knowledge (21.7%) or demotivation (4.3%). For 46% of the respondents, the
negative attitude was due to the workload and performing additional activities that
were not materially rewarded.
Despite these issues, 80% of businesses consider keeping some of the processes
to work in an electronic environment as an effective business recovery option.
However, one in five companies believes that there are no appropriate ways to deal
with the crisis.
544
Figure 2. Attitudes towards maintaining processes for working

in an electronic environment after the pandemic
20%
Yes
80% No
Source: Source: Authors’ survey, 2022.
The state and trade unions have a key role to play in rebuilding entrepreneurial
businesses. Respondents were almost unanimous in their opinion that tripartite
meetings on these issues should be organised (97.8%). Only 2.2% are skeptical of
the issue.
5.3 Role of the Recovery Measures

The 60/40 scheme is a short-term instrument for an emergency support from the
state to businesses to maintain employment and guarantee the income of employees.
The results of the survey show that only 21.7% of employers have benefited from
the compensation provided (for 3 months - 30%; for 6 months - 60%; from the
beginning to now - 10%). It appears that these are mostly micro and small enterprises
engaged in commercial activities. It is noteworthy that the majority of employers
have not shown interest in this measure - 78.3%. The reason for this is that 32.6%
consider it to be partially effective, 45.7% - somewhat effective, and 8.7% -
ineffective. 13% did not answer. None of the enterprise representatives considers
this instrument to be fully reliable and effective in dealing with the crisis.
Only 2.2% of all enterprises received compensation under another measure, the
Keep Me Employed project. The remaining 97.8% did not benefit from any other
incentives from the state to cope with the crisis.
As part of NextGenerationEU, Bulgaria has developed a national recovery and
resilience plan in 2021. The main objective of this mechanism was to facilitate
economic and social recovery from the crisis caused by the COVID-19 pandemic. In
this regard, 23.9% of the respondents mentioned that they were familiar with the
Plan in detail, while 43.5% knew only some of its parameters. Unfortunately, 1/3 of
enterprises in Bulgaria are not familiar with the advantages offered by this tool.
When asked whether the Plan would provide an opportunity for business
recovery, 56.5% of respondents thought that it could be of partial help. Only 6.5%
are strongly convinced of the effectiveness of this instrument. It is noticeable that
these are only manufacturing enterprises. Unfortunately, a very high proportion of
respondents (37%) find the measure ineffective. Detailed research of the question
545
shows that representatives of all types of enterprises, regardless of their size, age, or
field of activity, think so.
Figure 3. Need for tripartite dialogue to find ways to manage

the socio-economic and health crisis
2,2%
Yes
No
97,8%
Source: Source: Authors’ survey, 2022.
From all respondents, 17.4% identify gaps in the National Recovery and
Sustainability Plan. However, the majority (82.6%) do not find any gaps or
weaknesses in the Plan, citing insufficient knowledge of its parameters rather than
its potential as the main reason.
6. Conclusions
Admitting that periods of crisis, disasters, and pandemics always confront
humankind with a wide set of uncertainties, both for business and society, there is
an objective need to better understand the nature of such challenges. This research
was designed for that purpose and had the aim to reveal the readiness of the
Bulgarian entrepreneurship business for a quick post-pandemic restart.
Obviously, the coronavirus crisis has affected all businesses, their strategies for
survival in terms of processes, resources, and business operations for an easy
recovery. Both the theory and the topicality of business recovery confirmed the wide
range of issues studied so far, mainly in the field of recovery management, but also
in terms of the specifics of recovery planning as well as the specific actions of the
business in times of uncertainty. This sheds further light on entrepreneurial
businesses and situates the problem in the context of preparedness of the economy
for the disaster management.
The findings of this study confirm some of the authors’ assumptions, that the
companies are now facing difficulties in most of their business operations, but that
they are ready to restart. However, it was additionally found that some of the
companies managed to adapt well, on time and successfully to the challenges posed
by the COVID-19 outbreak. Apart from the negative consequences, it appeared that
it was possible to exploit new business processes and to rethink working distantly.
This research showed that in the context of this crisis, the investigated companies
faced serious difficulties and they took significant risks for their survival. Businesses
546
were not able to fully meet their needs and completely adapt during the times
of uncertainties.
The analysis of the results of this research proved that the additional government
measures were a good opportunity, but rather had a restricted effect. An explicit
finding of the survey is that the measures proposed by the state, which are the main
instruments for supporting business, are not sufficiently used due to their insufficient
duration. At the same time, the already adopted National Recovery and Sustainability
Plan in Bulgaria, which is also a significant tool for the whole economic sector,
contributes to the business recovery process and contributes to more successful
intersectoral relations.
Despite having faced serious complications in carrying out their activities during
the lockdowns and pandemic, the position of business managers, owners, and
directors reveals that they feel ready for business recovery. They hope to overcome
the post-pandemic stage soon.
In conclusion, without denying some of the limitations in the study (employees’
viewpoint, size of the population sampling and economic activity of the business),
this research confirms the importance of the business recovery discussion.
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548

June 16-17, 2022
The Role of Insurance Companies in Sustainability

and Disaster Risk Reduction in Palestine
Hasan MAKKAWI1
DOI: 10.24789788367405072-050
Abstract
Natural disasters are a source of economic risk in many countries, especially small and
low-income countries, and risk management requires advanced planning. Insurers and the
Palestinian government have different, and sometimes contradictory, interpretations of the
emerging new paradigm of "sustainable disaster risk management," which prioritizes
nonstructural management measures over existing defenses. The current lack of agreement
between the Palestinian government and the private insurance sector on the future of
insurance against natural disasters such as floods, storms, earthquakes, and droughts is an
excellent example of this. More research is needed to compare the outcomes of insured and
uninsured properties, especially to better understand the role of insurance in climate
adaptation. Given the anticipated changes in the insurance industry in Palestine, which has
gone through conditions and stages that no other insurance industry in the world has gone
through, beginning with reliance on neighboring countries such as Jordan and Egypt, as well
as deliberate marginalization, in a time when the Israeli economy is so reliant on it, the
diversity of opinions on the best approaches to disaster risk management is examined in this
article. It considers ways to improve the use of insurance by vulnerable countries and
suggests ways to judge the adequacy of insurance. The long-term viability of society in areas
prone to natural disasters is one of the topics investigated. Finally, the research critically
evaluates alternative approaches that could be used in the future to protect more disaster-
prone sites while staying consistent with long-term policies for managing the risk of natural
disasters, based on international experience.
Keywords: sustainability, risk management, insurance companies, disasters, reduce

uncertainty.
JEL Classification: Q01, G32, G22, Q54, D81.
1. Introduction
Since 1994, the Palestinian Authority, the authority authorized to supervise and
control the insurance sector in Palestine, has been established. Since 2004, the
© 2022 H. Makkawi, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
Capital Market Authority has been established to supervise and control the insurance
sector, as a specialized body in this sector, and the General Insurance Federation of
licensed companies has been established. The Palestinian Road Accident
Compensation Fund, the beginning of the features of Palestinian legislation and
insurance law (Palestinian Economic Policy Research Institute MAS, 2016).
The cost of natural disasters that stormed Palestine, millions of dollars over time,
which posed a problem to the economy, especially for those who manage the risks
of the economy, the insurance sector (Qandilou, 2020).
In the event of natural disasters, the state of Palestine suffers a lack of insurance
coverage and support (Regional Assessment Report for Disaster Risk Reduction in
the Arab Region, 2021).
Natural disaster insurance was not available before the establishment of the
Palestinian Authority because the Palestinian territories were administratively
subordinate to the Israeli government; as a result, there is no governmental or
institutional support for insurance companies to cover natural disaster risks. The lack
of insurance coverage for those who have been harmed by a lack of insurance
services raises concerns about insurance companies' willingness and ability to cover
these costs for those in more vulnerable areas of natural calamities.
If companies cannot recover from risks and crises or cannot adapt to them, they
will be threatened with collapse; therefore, insurance companies face challenges in
the Palestine insurance sector, weakness, and distortion, especially in its early stages
as a result of the political changes that Palestine has undergone, hence the urgent
need for an active insurance sector capable of achieving sustainability and facing
disasters and crises that we are facing, which are sudden unexpected changes
(Al-Jabari, 2021).
And because insurance companies in Palestine must bear a large part of the
responsibility in the case of disasters, especially the compensation of property in the
event of a disaster, the researcher considered it necessary to study the role of
insurance companies in sustainability and disaster risk reduction in Palestine.
At present, there is a global interest in the preservation of human life on Earth
management as an important scientific trend toward which most studies and research
are directed, especially in these countries that are working hard to achieve
sustainable development in all its aspects, but in particular, they aim to achieve this
in the insurance sector through sustainable risk management. One can note that the
rapid developments the world is witnessing such as population growth are serious
challenges for human beings in order to preserve their rights and the ability for future
generations to continue in a dignified life far from dependence in all its forms
(Al-Sabbagh, 2009).
Sustainable development is about meeting the needs of current generations
without affecting the ability of also the future generations to meet their needs through
the optimal use of resources.
The optimal use of resources in insurance companies can be attained through the
application of proper risk management steps and improving business performance.
550
This would lead to improving management, reducing risks, and increasing the wealth
of owners in line with sustainability.
Caraiman et al. (2020) clarifies that risk management is an integral part of the
way any organization works and the basis of management approaches. Therefore, it
should not be separated from the daily activities of any organization where risk
management is necessary. Because as long as there are always doubts about the
nature of the threats facing companies, and as uncertainty is an everyday reality, the
reaction to uncertainty must become a permanent and a highly essential concern.
Philip et al. (2015) explains that Enterprise Risk Management (ERM) means the
integrated management of all the risks an organization faces, which inherently
requires alignment of risk management with corporate governance and strategy.
ERM proposes that companies should manage all their risks comprehensively and
coherently, instead of managing them individually. A company's overall strategy and
strategic choices significantly influence its risk, and the uncertainty associated with
high-level strategic choices poses challenges for ERM.
The study of Nugraha et al. (2022) examined the effect of implementing risk
management on the financial performance of companies, which has a positive impact
on market performance. The objective of the study is to demonstrate that financial
performance has positive impacts on market performance. This study concludes that
companies implementing ERM had better market performance and financial
performance compared to companies that did not implement ERM.
The study of Zbar (2014) indicates the role of reinsurance complexes in covering
major risks and how to reinsurance in the insurance industry sector through these
complexes. The study clarifies that the greater the area of the complexes, the greater
the insured area, which helps in controlling the risk, as it encourages the
establishment of insurance complexes in the countries, especially when it comes to
the insurance of possible major risks. Basically, the risks are greater due to natural
disasters, which enables these companies to control them; therefore, reducing the
risks of natural disasters.
Al-Badawi, Sh. (2014), expands on the necessity of applying sustainable planning
in order to reduce disaster risks. The study explores and evaluates the Palestinian
situation through the mechanism of work of the administrative system for disaster
risk reduction, which shows that there are problems in the laws and procedures
designed to deal with disasters. Also, there is an absence, on a regional level, of the
process of sustainable planning for disaster reduction.
The study recommends activating the role of authorities and laws that help protect
natural risks and disasters and developing financial policies with clear budgets to
make insurance sustainable.
Salama (2014) indicates that it is necessary to plan for disaster response
assessment of contingency response plan in governmental institutions. This study
provides an emergency response plan for the Palestinian government institutions,
and it also studies the most important challenges and problems faced by planners
facing disasters. Moreover, it indicates that the system of risk and disaster
management and emergencies in official institutions that are concerned with
551
responding to emergencies are weak and are not well-prepared to respond

to emergencies.
The study recommends the necessity of integrating the concept of risk reduction
and prepared programs within strategic plans and the development of their
institutions with the need to develop laws and legislation for disaster management.
In addition, it recommends the consolidation and development of a national
reference for disaster management in order to focus on the risks of natural disasters
that harm everyone.
Hattab’s (2012) study demonstrates the responsibility of insurance companies to
compensate victims of road accidents and it specifies the amount of compensation.
Also, it clarified the position of the Palestinian law regarding compulsory insurance
in terms of compensation coverage. In conclusion, the study finds out that Palestinian
insurance is characterized by limited coverage of material damages and that in the
Palestinian law there is nothing that obliges insurance companies to accept
compulsory insurance. Finally, the study recommends that the Palestinian legislators
should apply compulsory insurance to compensate for the material damage.
The study of Biswal, S. (2014) aims at reviewing the plans, policies, and laws
followed by the Government to reduce disasters and face risks. The study concludes
that the administration often fails to face disasters alone, which leads to the need
to transferring part of the money from other allocations to implement disaster
response plans.
We can summarize the previous studies, considering that achieving good risk
management in insurance companies and improving business performance for
sustainable development in this sector makes management better in addition to
reducing risks and maximizing the wealth of owners, with a focus on the biggest
risks that may sustainably affect the risks of natural disasters that harm everyone. In
the previous literature, the focus was on each factor individually, but in this study it
was clarified in a coherent manner so that it became clear that risk management is
important in achieving sustainable development.
From here, we clarify the main problem of the study, the weak role of insurance
companies in sustainability and disaster risk reduction in Palestine.

The aim of this study comes in light of the circumstances that Palestine is
experiencing, in an attempt to improve the role of risk management in achieving
sustainability in the insurance sector. The sub-objective is towards improving risk
management and focusing on the risks of natural disasters.
We clarify here the central question: Is there a role for risk management in
achieving sustainability in the insurance sector?
The sub-question: Does risk management address the risks of natural disasters in
the insurance sector?
The need for this study is the current role in the insurance sector for such a study
and its assistance in solving the problems of risks and disasters and their current and
future impact on the population.
552
4. Research Methods
The current study uses a theoretical presentation of previous literature showing
the achievement of sustainability through the role of risk management in the
insurance sector through collecting data and information from books, press articles,
online research, and annual reports.
Based on available literature, this study was conducted in a manner that uses
descriptive research to shed light on the role of risk management in achieving
sustainability in the insurance sector with a focus on the risk of natural disasters.
Data sets were in the form of words or information about risk management
presented by various sources of data, such as texts, articles, reports, and doctoral
dissertations relevant to the research topic were noted, written in a draft, and then
analysed, The criterion of papers was, according to date, and according to proximity
to the subject and place of research, also assisted with the process of obtaining semi-
structured interview questions.
Forty research articles related to the topic under study were reviewed. Eight
articles were included from the literature point of view and were referred to in the
study. Only papers that discussed the role of risk management related to the risk of
natural disasters, achieving sustainability, or better managing or minimizing risks,
or those that dealt with the same topic in the context of insurance, were selected.
The data was analyzed and collected from the papers that were referenced to
match the study’s goal.
Four representatives of the major insurance providers in Palestine, namely, Trust
Company, National Insurance Company and two industrial bodies, were interviewed
in semi-structured interviews in the local market. Data were collected from the
05/01-20/03 of 2022, for the age group of 30 to 60 years of Palestinians residing in
the West Bank.
Representatives of these organizations who were involved in the policy-making
process were chosen, the following experts were selected for the interview: a
regional insurance manager, a risk manager, and two general managers.
The responses to the questions were objectively analyzed (Table 1).
Table 1. Question Analysis

General Specific
Adequacy and connectivity of basic
Information about the risk of natural disasters information, including information
on natural disaster defense.
Natural disasters - Risk management planning Insurers' participation
Resistance and resilience measures Excess costs and policy adoption
Calculation of policy/excess within
Natural features / characteristics
a catchment risk area
Source: This is the work of the researcher.
553
In the context of reducing the impact of natural disasters on buildings and

following standard usage, "resistance" refers to measures designed to reduce the risk
of floods and resist earthquakes.
Two focus groups were held with residents from two different areas in Palestine
at the beginning of 2022; each group consisted of four people, both of whom had
recently experienced natural disasters, although at different times. The following
topics were discussed in these focus groups:
If insurance costs rise after the current mutual support agreements expire, there
could be consequences for families.
The trade-offs that families may have to make between raising the cost of
domestic insurance policies and increasing policy abuse.
At the household level, there is awareness and understanding of flood risk
reduction measures. How many people have heard of proprietary level metrics and
used them? Is there anything else the homeowners did to protect their property (either
individually or collectively)? Have insurance companies noticed this, and if so, how?
Opinions on how to secure a "fair" model for future home insurance, particularly
publicly funded subsidies.
5. Findings
The researcher used a set of previous studies related to the subject, and interviews,
of the study and discussed the role for risk management in achieving sustainability
in the insurance sector. The need for this study is the current role in the insurance
sector for such a study and its assistance in solving the problems of risks and disasters
and their current and future impact on the population.
The researcher concluded that the the risks that are associated with management
and planning, the cost of compensation is less than the unregulated and planned risks,
in other words, designed natural disaster defenses provide more certainty in risk
projection than unstructured natural disaster defenses. Although it is obvious that
these insurers recognize that other measures may reduce the risk of natural
catastrophes in principle, and the risk management in Palestinian insurance
companies does not have sufficient speed to pay compensation, and it must work to
compensate property in case of disasters. Also, the use of risk management and
planning steps to be able to secure risks and disasters, and thus achieve sustainability.
In other words, the risk management in Palestine does not have the best management
to deal with the risk of natural disasters, and therefore it must focus on how to deal
with the best management so that the risk management deals with the risk sustainable
natural disasters.
If a future model for residential flood insurance is to be fully "sustainable," it
must meet certain criteria. Ideally, it should provide incentives for homeowners to
take as much ownership of the flood risk issue as possible and minimize the risk to
their properties in the short term while also advancing the longer-term goal of
reducing the extent of residential occupancy of flood-risk areas. In addition to these
criteria, the treatment of flood risk must reflect societal agreement on whether it is
554
individualistic, reflecting only individual household risk levels, or solidaristic,

involving 'pooling' risk and premium costs.
High costs are why insurers do not consider using unstructured measures in their
current accounts to manage risks. In a similar vein, another representative observed
the following: There needs to be a type of safety net for these people [in disaster-
prone areas] so that natural disaster defense can be established according to
appropriate standards.
There is weakness in Palestinian law with regard to the laws related to the
insurance sector, and there is nothing in it that obliges insurance companies to accept
compulsory insurance, which leads to restricting the role of insurance companies in
facing risks and disasters due to their weakness.
The focus group participants generally agreed that once explained, the current
mutual support arrangement is a fair process model. The view that such an
arrangement should continue if it worked to cover the costs of those living in high-
risk areas who might not be able to afford to insure their homes received widespread
support in the two focus groups. Furthermore, most participants agreed that all
policyholders, not just those in high-risk areas, should provide mutual support or, as
one participant put it: The focus group participants generally agreed that, once
explained, the current mutual support arrangement is a fair process model. The view
that such an arrangement should continue if it worked to cover the costs of those
living in high-risk areas who might not be able to afford to insure their homes
received widespread support across the two focus groups. Furthermore, most
participants agreed that all policyholders, not just those in high-risk areas, should
provide mutual support, or, as one participant put it:
It is probably about solidarity. I think I can pay a little more for insurance in order
to create a more level playing field for people - there are a lot of things we pay for
but don't use. There is a bigger picture here, and we need to keep that in mind.
It has been difficult to strike a balance between these objectives. Eliminating
incentives for housing development in high-risk areas should be a priority to provide
long-term management of the risk of natural disasters in Palestine. Previous research
has shown that comprehensive insurance guarantees have a negative impact on
development in high-risk areas. Furthermore, as a result of this situation, housing
prices do not reflect the true level of risk of natural disasters on the property; any
post-flood drop in the value of submerged properties appears to be limited and only
temporary.
After answering the main research question in the interview, it was found that
75% of the interviewees proved that risk management contributes to achieving
sustainability in the insurance sector, while 25% answered that it does not contribute
to achieving sustainability, especially in the field of natural disaster risks.
555
Figure 1. Contribution of risk management to achieving sustainability

in the insurance sector,
Contribution of risk management to achieving
sustainability in the insurance sector
from the interviewee's point of view
Contribute Doesn't contribute
Source: this graph is the work of the researcher according to the results.
The findings, however, reveal a disconnect between the acceptability of a suitable

environment for managing natural disasters in the future and persistent differences
in light of the specific measures that can be taken to reduce natural disaster risk. In
the management of natural disaster risks, there is a general trend toward
decentralization. Whether this decentralization occurs at the community or
individual property level, questions remain about how specific measures will be
formulated within the existing insurance framework, given insurer reservations and
the apparent lack of incentives available to landlords.
6. Conclusions
After exploring the previous literature that dealt with risk management in
insurance companies, achieving sustainability, and focusing on the risks of natural
disasters.
Therefore, this study attempts to raise awareness of the role of risk management
in achieving sustainability, and after insurer interviews, it was found that because
resilience is defined as the inability to completely prevent natural disaster damage,
it is impossible to completely prevent natural disaster damage.
The findings of this research show that there is still a long way to go to close the
gap between the policy focus on long-term management of natural disaster risk and
the implementation of the policy in practice.
This gap is pertinent and urgent for some societies at high risk for natural
disasters. The reliance on the private sector risks creating an environment in which
only those who can afford high insurance premiums can survive in areas known to
be vulnerable to natural disasters. Given the insurance industry's current position on
specific interventions aimed at increasing property and community resistance and
resilience, direct government assistance in the form of special assistance zones can
be an effective way to secure natural disaster insurance and a shift toward the "new
556
paradigm" of long-term disaster risk management. Combining this strategy with risk
pooling would be extremely beneficial.
According to this study, they have public support, but it raises the pressing
question of the availability of public funding. Whatever the future model emerges,
social justice and equity require policymakers to consider the availability and
affordability of insurance when making decisions about specific measures to manage
long-term risks of natural disasters. By doing so, progress could be made toward
ensuring the long-term viability of communities in high-risk areas, as well as
presenting a policy change in favour of a new paradigm for long-term natural disaster
risk management.
It was noticed that there is insufficient interest and research in this field in
Palestine.
In conclusion, decision makers in the insurance business sector must be fully
aware of the impact of risk management on helping their business achieve
sustainable development through, better management, and reduce the risks
associated with the risks of natural disasters because of their problems on all aspects
of economic and social life through cooperation with all parties and working
continuously to develop a sustainable development strategy in this sector.
References
[1] Al-Badawi, Sh. (2014). Legislative and institutional aspects as a basis for sustainable
planning for the reduction of disaster risk in the Palestinian territories, Master’s thesis
of An-Najah National University, Nablus, Palestine.
[2] Al-Jabari, S. (2021). Prospects and Contributions of Insurance Companies in Disaster
and Crisis Risk Reduction in Palestine, Master's thesis An-Najah National University,
Nablus, Palestine.
[3] Al-Sabbagh, J. (2009). The era of sustainable development, Master's thesis, Birzeit
University, Palestine.
[4] Biswal, S. (2014). Disaster and Its Management Machinery in India, International
Journal of Public Administration and Management Research (IJPAMR), 2(3), pp. 50-54.
[5] Caraiman, A., Mates, D. (2020). Risk Management in Corporate Governance,
Proceedings of the International Conference on Business Excellence, 14(1), pp. 182-201,
https://doi.org/10.2478/picbe-2020-0018.
[6] Hattab, H. (2012). The responsibility of insurance companies to compensate the Victims
of road accidents and the amount of compensation " A comparative study", Master's thesis
An-Najah National University, Nablus, Palestine.
[7] ISO (2018). ISO 31000:2018 (EN) Risk management. Guidelines, retrieved from
www.iso.org/obp/ui/#iso:std:iso:31000:en.
[8] Regional Assessment Report for Disaster Risk Reduction in the Arab Region (2021).
https://www.undrr.org.
[9] Nugraha, D.P., Rizal, S., Ganika, G. (2022). Analyze Enterprise Risk Management
Implementation: Empirical Study on Financial Performance and Market Reaction in
Indonesia, 1st Virtual Workshop on Writing Scientific Article for International
Publication Indexed SCOPUS, https://doi.org/10.2478/9788366675827-015.
557
[10] Philip, B., Michael, M., Anil, N., Elzotbek, R. (2015). Enterprise Risk Management:
Review, Critique, and Research Directions, Long Range Planning, 48(4), pp. 265-276,
ISSN 0024-6301, https://doi.org/10.1016/j.lrp.2014.07..005.
[11] Palestinian Economic Policy Research Institute MAS (2016). file:///C:/Users/SAQERpc/
Downloads/20162502101522-2-1640017088-pdf.pdf.
[12] Salama, A. (2014). Planning for Disaster Response Assessment of Contingency Response
Plan in Governmental Institutions, Master's thesis An-Najah National University,
Nablus, Palestine.
[13] Qandilou, N. (2020). Protection of the insured as a consumer in the insurance contract in
Palestin, Master's thesis An-Najah National University, Nablus, Palestine.
[14] Zbar, A. (2014). The role of reinsurance complexes in covering major risks A case study
of the Algerian reinsurance complex, Master's thesis, Farhat Abbas University, Setif 1,
AlgeriaBran, F., Manea, G., Ioan, I., Rădulescu, C. (2006). Economia în clepsidra
antropică [The economy through the entropic hourglass]. Bucharest: Economica
Publishing.
Appendix
Interview questions
1. Is there a role for risk management in achieving sustainability in the insurance
sector?
2. Does risk management address the risks of natural disasters in the insurance
sector?
3. How does the company plan to manage its risks?
4. How do companies classify natural disasters?
5. How do companies encourage residents to take out insurance?
6. What are the characteristics of the natural risks in Palestine facing insurance
companies?
7. How do companies use the safety net to manage risks?
8. How do society and companies resist natural disasters?
9. What are the best ways to manage risks sustainably?
10. Is there an encouragement to secure real estate in high-risk areas?
11. Do insurance companies prevent harmful risks such as natural risks?
12. Do you think your company is taking enough risk management for natural
disasters?
13. Is there community collaboration for disaster risk management?
14. Is your company prepared for unplanned risks
15. Can a new risk management model be created?
558

June 16-17, 2022
Artificial Intelligence Algorithms and the Facebook Bubble

Emanuel SANDA1
DOI: 10.24789788367405072-051
Abstract
Products and services incorporating Artificial Intelligence are an ever-increasing
presence in consumers’ lives. Simply by browsing one's social media feeds, calling the bank,
or asking one's smartphone to create a calendar appointment, individuals interact with AI
daily, conscientiously, or unconscientiously. AI is not without controversy, starting with the
basic task of defining it. Usually, a broader definition is adopted, leading to several
categories representing current AI applications: recommender algorithms, intelligent digital
assistants, chatbots, and intelligent robots. These have many things in common, but none like
their dependency on being able to feed on enormous amounts of user data. This opens the
door to how this data, largely personal in nature, is used, and the underlying privacy issues.
Compounding the problem, some promote the idea that AI could evolve into what is called
Artificial General Intelligence (i.e. independent, self-reliant robots), with all the threats this
presents to the very future of humanity. Meanwhile, the recommender algorithms, most
prominently employed for curating users' feeds by social media platforms, represent the most
impactful form of AI at present with a high potential for creating bubbles, which can trap
users in their own thoughts, biases, but also product usage and discovery. This paper
presents the results of a survey conducted in 2021 among Romanian Facebook users to
understand their perceptions, experiences, and desired level of control over their news feed.
It identifies both current states and attitudes, as well as risks and concerns they might have
in this regard. It opens the door for further research and discussion on the balance between
the benefits of AI-driven algorithms in helping users navigate the deluge of information at
their disposal, and the kinds of levers and controls those companies and authorities could
allow consumers in order to escape the risk of a closed-in bubble.
Keywords: Artificial Intelligence, algorithms, Facebook, filter bubbles, consumer

behaviour.
JEL Classification: M30, M31, M39.
© 2022 E. Sanda, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0 License.
1. Introduction
Artificial Intelligence is one of the most debated topics today, both by
academics and the general public. The term AI is used liberally, most frequently
in relation to products and services developed by using recent technological
advancements, which consumers rely upon on a daily basis. To some extent, AI is
also used to refer to potential evolutions which could affect such change that our
future might bear little resemblance to our present. It is the paradox of our times
that while basic needs are yet to be fully satisfied for large proportions of our fellow
humans (such as clean water or basic sanitation), those same people own a phone
with an Internet connection and capable of running AI-based applications, such as
face and speech recognition, to name the most common ones.
Because the concept of AI is seeing such broad use, one of the first questions
one may ask is what AI actually is. What do people mean by AI when bringing
the topic up in casual conversations, academic papers, or news reports? Is there
a red thread connecting these conversations or are we dealing with various
understandings of the phrase?
This paper focuses on presenting a summary of the current chatter around AI,
looking at some of the definitions, and then assessing the current state of AI
development, with emphasis on AI algorithms, how they are implemented in social
media platforms news feeds, and the potential bubble effect they may create. Finally,
we present a series of findings from a survey aimed at capturing the attitudes,
perceptions, and concerns of Romanian users related to their experience with
Facebook's algorithmically driven news feeds.
2. Artificial Intelligence – Definition, Implementation, Challenges
2.1 Defining AI
While Artificial Intelligence is defined in various ways by various parties,
whether people in the academic field, technology writers, engineers, as well as
laymen, common elements could be identified and a unified vision could be gained
in this regard. (De Bruyn et. al., 2020) The challenge comes from the second half of
the phrase – what is and how do we define intelligence itself? Depending on who is
asking the question, whether a psychologist, a neurologist, or maybe even a
philosopher, the definitions of intelligence itself could be many (Legg, Hutter, 2007).
One of the most accepted definitions of AI is “intelligence demonstrated by
machines which would otherwise be observable only in humans” (Shieber, 2004). It
follows that, like human intelligence, artificial intelligence should be able to learn,
understand, reason, apply logic, solve problems, and be able to make decisions,
while the next level would be self-awareness. The latter could lead to an even greater
debate, as human consciousness itself still seems to be intensely debated among
experts.
When we look at the different features of intelligence as mentioned above, we
can conclude that much of what is nowadays called AI is actually Machine Learning
560
(ML), which could be most easily understood as the intersection between statistics
and computational techniques, the result being software programs capable of making
certain predictions, based on certain inputs, leading to specific actions or decisions
(Jordan, 2019). ML is not new and could be considered the forerunner of Artificial
Intelligence, representing the first efforts in the field of computer use to analyse data
and find models based on which certain predictions could be made, which in turn
would trigger specific decisions. ML dates back several decades, ever since
engineers began manifesting a preoccupation for automating industrial processes.
When dimensions such as self-learning, self-awareness, sentient machines are
added to ML, we move to a level where AI morphs into AGI (Artificial General
Intelligence) which some researchers consider to be the only level at which we
could truly speak of AI - the only one that bears a genuine appearance of
human intelligence (Goertzel, 2015; Haenlein, Kaplan, 2019). By contrast, the forms
and implementations of AI of today would be more appropriately called narrow AI
– AI which is good at performing only very specific tasks well, without scalability
to other tasks.
Consequently, along the broad spectrum of definitions, as well as expectations
from AI, either everything could be called AI (i.e. any statistical model, no matter
how simple, any algorithm processed by a machine and producing a certain result),
or nothing could (as long as we are still far from generating a form of AGI, as defined
above) (De Bruyn et al., 2020).
In addition to the way in which the scientific and technological communities
position themselves towards AI and what it means, greater concern should be
manifested towards how the general public, the millions and billions of users of
products and services powered by AI, perceives and relates to AI as an emerging and
potentially disruptive technology for our times.
2.2 Implementations of AI – Present State and Prospects

Opting for a broader definition of AI, we now look at the current
implementations, incarnations, and applications of Artificial Intelligence that the
general public is most likely to encounter on a day-to-day basis. Following is a
review of the most common services and products which espouse some form of AI,
with no claim of exhaustiveness or comprehensiveness.
Recommender Algorithms: perhaps the most common form of applied AI and
one that is present in the lives of individuals at every step. Today, from the moment
we wake up in the morning, the first thing most of us do is look at our phones. The
screen can display information such as the current weather conditions and
forecast for the day, traffic status from home to school or work, and future
calendar appointments. An algorithm running on the phone corroborated this data
from various sources residing on the phone to assemble the most relevant image
of our day.
As the day progresses, we may find ourselves in need of writing a message or
e-mail, at which point the predictive keyboard will try to guess and recommend
words or phrases that might fit what we are trying to do or say. Opening your
561
favourite search engine from your web browser and typing only the first few letters
of a search will trigger a list of suggestions relevant to our needs at that time and the
location we find ourselves in.
As we place our next order online, whether for groceries, or routinely used
products, or perhaps the rarer purchase of an expensive item, all e-commerce
platforms will be ready to assist us with recommendations based on our own socio-
demographic profile, past purchases, as well as those of millions of other buyers that
an AI algorithm deemed similar to us (Smith, Linden, 2017).
At the end of the day, we sit in front of the TV for a few moments of relaxation
and entertainment, when Netflix or YouTube will be ready to serve us the next
episode of a series we watched, or a movie or video that has a high probability of
providing us with maximum pleasure and satisfaction (Haenlein, Kaplan, 2019).
All of the above are powered by algorithms that are sometimes simpler,
sometimes more complex, but all abundantly fed with a multitude of data points,
sometimes in huge quantities. All algorithms aim to guess, predict, anticipate what
should follow – based on our varied experience as individual consumers, based on
our personal history and that of million other users “like us”.
According to some sources, AI-powered recommender algorithms have
become critical for Amazon (accounting for about 35% of its revenue)
(Forbes, 2018) or Netflix, where 80% of subscriber content is influenced by its
revenue-generating recommendation system, to the tune of $1billion per year
(Gomez-Uribe, Hunt, 2016).
Intelligent Personal Assistants: Growing in popularity (and ubiquity), these
personal assistants (e.g. Apple's Siri or Amazon's Alexa) can help with simple tasks,
such as finding quick answers to specific questions, scheduling calendar
appointments, setting reminders, texting, or placing orders online. Largely based on
algorithmic logic, fuelled by large amounts of data, and augmented with natural
language processing (NLP) skills, these assistants are becoming a growing presence
in our lives, an opportunity for the general public to experience and assess the current
progress in the field of AI, but also its most obvious limitations: along with artificial
intelligence comes a respectable amount of “artificial stupidity” (Lo, 2019).
Chatbots: An increasing number of customer support centers are equipped with
software robots capable of having simple conversations with customers. Whether we
call the bank for basic information (e.g., how to open an account, check our balance),
or go online to the help or customer contact page of a company or brand, most likely
a robot using NLP will meet us - another variety of technology-based algorithms and
predictive models that try to anticipate and answer a variety of questions we might
have while at the same time trying to “sound” as human as possible (Luo et al., 2019).
Intelligent Robots: In this field of AI manifestation, many harbour views of a
distant and sometimes dystopian future (recent example could be the robot Sophia
or the Boston Dynamics robo-dog).
Meanwhile, the most tangible form of intelligent robot is represented by the
autonomous vehicle - from delivery drones, to driverless trucks, to electric cars
replete with autopilot functions. Although a crowded field, with dozens of different
562
players involved and fierce competitors in this potentially huge market, autonomous
vehicles seem to be making slow and modest progress, not least due to intense
scrutiny from authorities, but also the general public. As an example, a fatal accident
in April 2021 in Texas, involving a Tesla car in which two passengers were riding
on autopilot, received wide media coverage, while hundreds of fatal accidents in the
same geographical area, but involving traditional cars and drivers, go largely
unnoticed and unreported.
Add to potential consumer scepticism disclaimers subtly propagated by some of
the players themselves, to understand that autonomous vehicles still have a way to
go. For example, Waymo, one of the more prominent players in the field, admits that
autonomy will always have some constraints, despite the fact that the way they try
to position their service is “driving anywhere, anytime, in all conditions” (Tennant,
Stilgoe, 2021).
2.3 Risks and Challenges in AI

Although the growth of AI has been exponential and will continue at the same
pace for the foreseeable future, penetrating every facet of our lives, there is more
and more talk about the challenges and threats posed by this technology and
the impact it will have on individuals and companies alike. Increasingly, academics,
business people, and regulators are getting involved and shaping what is now a new
field – AI ethics.
Following the line of AI applications detailed above, some of the biggest
concerns related to AI are dealing with (Du, Xie, 2020):
- algorithmic biases and the incorporation of ethical values of target consumers -
from the perspective of the product itself (Howard, Borenstein, 2018);
- control over personal data and privacy, as well as cyber security threats and
concerns - from a consumer / user perspective (Gwebu et al., 2018);
- the impact on the social fabric and human interactions, the potential loss of jobs,
unemployment, and the rise of the so-called useless class – from a broader social
perspective (Harari, 2019).
In terms of direct interaction with AI, individuals (as consumers) seem to have
ambivalent feelings about these technologies: while most seem to receive and enjoy
the benefits, novelty, or excitement when using products and services based on even
partially developed forms of AI, at the same time many nurture feelings of fear and
anxiety resulting from the potentially evil manifestations of such technologies
(Mick, Fournier, 1998).
2.4 AI-Driven Recommender Algorithms – the Facebook News Feed

Algorithms may be viewed in a variety of ways: from a purely technical
perspective, they are a set of instructions written in computer code (Knuth, 1998),
but when that piece of software meets the human user, it turns into something that
has the potential to impact our own existence (Kitchin, Dodge, 2011). This usually
563
happens largely without the users' participation or awareness of the presence,

influence, and impact of the algorithm, particularly given the hidden and elusive
nature of this particular piece of technology (Bucher, 2016). With Facebook adoption
and usage levels at their highest among individuals of all profiles, compared to any
other social media platform in existence today, it follows that the likelihood of
people encountering, interacting (unknowingly), and being influenced by the
algorithmic news feed of the platform is by far the most common and likely
experience in this regard.
A common occurrence of late to which only some seem to be alert is this: a user
might be talking to others about a particular product or brand or entity or idea, or
might perform a search, or read a particular article, all outside Facebook’s
not-so-walled garden, and next time they open their FB news feed, an ad about
exactly the same product or brand pops up. Is Facebook eavesdropping on us? Is it
reading our entire activity on (and off) the web? This is perhaps the most glaring
touchpoint where users might become aware of the existence of an invisible force
guiding the content tailored just for them, and a constant presence in our everyday
lives (Eslami et al., 2015).
The pervasive presence of algorithms in our lives today is an uncontested reality,
and obtaining an understanding of the impact on people's emotional responses should
be the focus of researchers' endeavours. As algorithms impact in our lives is only
deemed to continue to intensify with every day that passes, our preoccupations
should be related to learning to live, understand, and use these hidden forces for
good. As a technology based on AI where explainability is quite elusive, it is equally
important to strive to understand the inner workings of algorithms, how they
"perceive" their users, and the extent to which they influence even their own sense
of self (Bucher, 2016).
In principle, FB's algorithmic news feeds should serve two main purposes: one is
to display whatever content is deemed appropriate for every single user, so that
important stories are not somehow overlooked, while at the same time prioritizing
those posts which have the potential to generate the highest user engagement
(Owens et. al., 2016). Given the design choices behind a recommender algorithm
such as the one employed by Facebook, an area of concern remains the extent to
which these tend to create a closed-loop (or "bubble") in which users find themselves
trapped in, with all the consequences deriving from this phenomenon. After all, the
Facebook feed is where individuals spend a good part of their day, a true space of
their daily reality, which cannot remain without impact on all other facets and
dimensions of their lives. The identification and even avoidance of the potential
negative outcomes of this phenomenon by trying to better understand the underlying
workings of algorithms and design choices should be a real preoccupation of both
researchers and engineers alike (Rader et al., 2015). It seems that the manner in
which Facebook’s algorithms are supposed to work - powerfully addictive to users,
irresistible to advertisers – is by design, as illustrated in the numerous patents
developed and registered by the company throughout its existence, patents aimed at
564
creating almost the equivalent of a rabbit hole for users' experience on the platform
(Harris, 2021).
The concept of online bubbles, understood to mean the prioritisation by
algorithms of that content which would seem of interest to users, while securing
engagement on the platform, while at the same time hiding the content that may
diverge or challenge existing views (Pariser, 2011) has become a growing concern
in recent years as a real threat to contemporary society. This reality is mostly brought
up in the socio-political context, accompanied by concepts such as polarization,
misinformation and the hotly debated topic of ‘fake news’ (Solon, 2016). While
bubbles mainly encapsulate users in a particular thought and idea universe, by
extension, the same user could be viewed as a consumer entrapped in a finite
universe of brands, products, services, experiences where choices are obvious and
exposure to "new" or "different" rather limited. Filters tailored to a user's preference,
past history, or connections can, at the same time, limit the variety of things to which
we are exposed, thus affecting the way we think and learn. This reading of the
bubbles presents us with a world dominated by an algorithmic will and suggests that
there is very little left for us to do. At the same time, because algorithms are self-
feeding animals incorporating newer and more data generated from past
recommendations and user behaviour, there is a risk of creating a common
experience across users where items and content benefiting from more data will be
prioritized over less popular ones. In a sense, while some things may look new to
individual users, the same things will be fewer and narrower in scope for all users
combined (Fleder, Hosanagar, 2009).
In theory, the Internet, as a gigantic repository of data, should increase the
possibilities of access to the most diverse data, as well as lead to an increase in the
amount of information for all. Yet, our network interaction modes today have shown
some restrictions in this universe of possibilities. Online bubbles are a real
phenomenon which show how certain modes of interaction on the internet can lead
us to be closed in very restricted and familiar universes instead of providing us
with the experience of the unknown in order to discover it. At the same time,
although algorithms are powerful tools in guiding interactions and choices, it is
possible to affirm that the reception and appropriation of products is a complex social
process, involving a continuous activity of interpretation and assimilation of
significant content by individuals and groups. Thus, despite playing a key role in
limiting exposure to different points of view, we can affirm that algorithms are not
the only element with a role in filtering content and affecting individual agencies
(Franco et. al., 2017).

We will now look at the results of a survey conducted in 2021 among Romanian
Facebook users. The objective of this research was to uncover some of the attitudes,
perceptions, and concerns that FB users might have in relation to their experience of
browsing the daily Facebook news feed.
565
4. Research Method
For this research, 180 individuals were interviewed in Bucharest, arguably the
most forward-looking and digitalized area in Romania. The sample was designed to
be representative, taking into account the socio-demographic structure of the city's
dwellers aged 20-65 years old. Given Facebook's penetration of 93% in urban areas
in Romania (Spark Foundry, 2021), the sample ensures a margin of error of 3.73%
at a 95% confidence level. Probabilistic sampling was applied with respondents
being randomly selected in a multistratified approach, to account for the city's
population structure in terms of age and gender groups. The survey was conducted
using online structured interviews. Data collection was performed in July 2021.
5. Findings
The first piece of information we look at is users perceptions towards their news
feed. As shown, more individuals agree that their Facebook news feed is
overwhelming and that they waste a lot of time navigating all of it. This could be
interpreted as a shortcoming of the algorithms behind these news feeds, the purpose
of which is to curate, select, simplify, and focus the user experience.
Figure 1. Perceptions towards volume of news feed
The volume of posts and

13% 28% 39% 13% 6%
info is way too high
I waste a lot of time

14% 31% 32% 18% 6%
navigating my news feed
I feel overwhelmed by the

9% 26% 42% 14% 8%
volume of news and info
Totally agree Agree

Neither agree, nor disagree Disagree
Totally disagree
Source: author's own research and data processing.
When it comes to some of the benefits perceived by Facebook users, such as

making them entertained or better informed (Chart 2), we see quite a few differences:
opinions are rather split between those who agree and those who are rather neutral
in terms of the news feed providing a means to relax and feel entertained. The
percentages of agreement drop when it comes to obtaining a sense of being better
informed as a result of browsing the news feed regularly.
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Figure 2. Facebook feed - the positives
The posts I see make me

11% 39% 37% 8% 6%
relax / entertain me
I feel better informed as a

result of what I see on my 10% 28% 41% 13% 7%
feed
Totally agree Agree

Totally disagree
At the other end of the spectrum, when probing for the potential negative
experiences generated by their news feed (Chart 3), only a minority of respondents
agree that their news feed creates a sense of anxiety in them, while most are rather
undecided. However, in terms of the feeling that some of what they see in their news
feed is rather false or wrong, a clear majority agrees that that is the case.
Figure 3. Facebook feed - the negatives
The posts I see create a

4% 21% 40% 17% 17%
sense of anxiety in me
Some of the posts in my

news feed seem wrong / 16% 46% 27% 6% 5%
false
Totally agree Agree

Totally disagree
On the topic of what kind of bubble effect the Facebook feed may create
(Chart 4), users' opinions are both split and conflicted. A significant percentage
cannot appreciate whether they miss or discover new products, things, or experiences
thanks to what they see in their news feed. A similarly large percentage both agree
that their news feed is keeping things away from them (the proverbial 'FOMO – fear
of missing out') and at the same time allows them to discover new things –
broadening their horizons.
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Figure 4. Facebook feed – the bubble effect
I feel like I don't see all the

12% 31% 36% 14% 8%
posts I should in my feed
I feel like I miss certain things

because they are not shown 13% 29% 36% 13% 8%
in my feed
I feel like I discover new things

thanks to what I see in my 9% 39% 38% 8% 6%
feed
Totally agree Agree
Totally disagree
Finally, on the topic of taking back control over their news feed (Chart 5),
a clear majority across all age groups agree that they would like to have a higher
degree of control over what their news feed displays. Surprisingly, it is the very
youngest users who seem to be less inclined in having the option to exert some
control over their feed.
Figure 5. I would like to have more control over the posts and info I see in my feed
37%
19%
3%
7%
34%
Totally agree Agree Neither agree, nor disagree Disagree Totally disagree
6. Conclusions
In this paper, we looked at the current state of AI development, starting from
the ongoing debate about how we define AI, followed by an overview of some
of the most common current AI implementations with which individuals and
consumers experience increasing levels of interaction, then looking at some of
the challenges posed by AI at present and potential emerging threats in the future.
568
We then looked specifically at the most common form of AI-driven technology that
individuals experience perhaps on a daily basis – the recommender algorithm – with
a focus on its implementation in the Facebook news feed and the potential risk it
poses for creating bubbles and encapsulating users in an echo chamber of their own
thoughts, biases, experiences, but also product usage and discovery.
In the end, we looked at some of the findings of a 2021 survey among
Romanian Facebook users to understand their perceptions toward, positive and
negative experiences with, and the level of control they would like to have over their
FB newsfeed.
The paper calls for further empirical research aimed at identifying and measuring
the correlation and level of influence that the above-present dimensions of the user
experience have on their cognitive states and the extent to which the filter bubbles
and echo chambers that feed people's confirmation bias predispositions affect their
ability to continue to learn and develop by opening their horizons and universes in
which they manifest themselves as users, consumers, politically and socially active
citizens. Such research and potential findings would be useful for both marketers,
companies, advertisers, as well as authorities, in their efforts to create a better digital
future for all.
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June 16-17, 2022
The Performance of Governmental Digital Platforms

in Romania during the COVID-19 Pandemic
Vanesa Madalina VARGAS1*, Marian OANCEA2,
Bogdan-Paul SAFTIUC3
DOI: 10.24789788367405072-052
Abstract
The development of user-friendly government platforms that can be easily accessed and
provide important information on public matters became even more obvious during the
COVID-19 pandemic, when public entities from all over the world faced the challenge of
correctly informing the public on the situation by providing trustworthy sources. Apart from
normal channels, such as TV, radio, and newspapers, the opportunity to use the Internet also
arose, and the Romanian government together with an NGO developed various platforms
that were designed to keep the public correctly informed and avoid fake news. This paper
aimed to analyze how citizens used two of these platforms, ‘cemafac.ro’ and ‘stirioficiale.ro’
in order to gain a better understanding of how they performed during the COVID-19 crisis
and provide some insight on how the users interacted with them. Among the results, we found
that most of the visits came from smartphones and that there is a need to optimize the display
of information so that users can access it more easily when needed.
Keywords: digitalization, digitization, e-government, COVID-19, public authorities,

digital transformation.
JEL Classification: O52, M15, M21.
1. Introduction
Digital platforms are currently used by most types of organizations that want to
streamline the transmission of information quickly and efficiently. This was also the
case with the Romanian government during the COVID-19 lockdown in 2020, when
it had to find solutions to correctly inform citizens on the pandemic, thus providing
a place where citizens can get true information and circumvent fake news.

© 2022 V.M. Vargas, M. Oancea, B.-P. Saftiuc, published by Sciendo. This work is licensed under the Creative
In the case of informing the public, the Romanian government chose to

collaborate with an NGO called Code for Romania, which aims to aid governmental
entities with software solutions that benefit citizens. Through this collaboration, a
number of software solutions were developed, and this article aims to analyze and
compare the usage of two of the platforms, called cetrebuiesafac.ro and
stirioficiale.ro:
• Stirioficiale.ro – The website's material is the official source of information for
the public and media organizations on the situation created by the spread of
the Coronavirus. This information contained on this platform was composed of
press releases, links to other useful platforms, frequently asked questions,
legislation, and sanitary conduct.
• Cemafac.ro – This platform is a website that contains suggested guidelines for
contact, action, and conduct during the COVID-19 pandemic emergency
scenario. It aims to educate the public about fundamental guidelines that the
authorities prescribe in order for citizens to better manage the situation.
Discussions around digital transformation are becoming more and more common
in the academic environment because this process not only improves operations, but
can also greatly impact services and industries (Ivančić et al., 2019). Due to the
rapidly changing private sector when it comes to this topic, the expectations of the
public are also raised regarding the public sector (Mergel et al., 2019), a fact that
also put a lot of pressure on the Romanian government regarding how it chose to
communicate during the COVID crisis, which proved to emphasize the importance
of the public sector’s ability to tackle emergencies (Mazzucato, Kattel, 2020).
After the COVID-19 outbreak, the lockdown accelerated the adoption of digital
solutions at an entirely unexpected rate (Budd et al., 2020; Paraschiv et al., 2022),
opening up unexpected potential for scaling up alternative methods of conducting a
social and economic existence. According to Hantrais et al. (2020), families have
been shown to have become ‘digital by default’, as children were exposed to online
risks and opportunities, while Alexopoulos et al. (2020) claim that people are turning
more and more to digital platforms to aid their mental well-being.
Digital globalization is a new form of globalization (Schilirò, 2020). It brings
significant adjustments to cross-border commerce, the flow of economic gains, and
participation development. Ratten (2022) presents the ClickforVic government
digital platform that was launched during the first 2020 lockdown in Melbourne,
Australia, as a way for rural farmers to connect with urban consumers.
In the case of websites, there is a need to incorporate a lot of information,
while also keeping pages simple, so that they can be easily navigated (Chen, 2020),
which is a challenge, especially when it comes to developing websites containing
important public information. This endeavor becomes even more complicated with
the rapid rise of smartphone usage and access to websites through mobile phones
(Rashid et al., 2020).
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3. Methodology
This article aims to examine the official platforms "Stiri oficiale" and "Ce trebuie
să fac", which were built by Code for Romania in collaboration with the Authority
for the Digitalization of Romania, to see the usage of each of these two platforms by
the public. The data that was of interest was the type of device used in order to access
the websites, the countries from which it was accessed, rejection rate, pages per
session, and average session duration.
In order to gather the information, we approached the Authority for the
Digitalization of Romania and asked for the official data for the websites
"www.stirioficiale.ro" and "cetrebuiesafac.ro." In the backend of these websites, a
Google Analytics module was set up, so it could keep track of the number of people
who visit the website and all of the public information that we required.

Taking each of the data sets into consideration, some trends were noticeable
regarding each platform, which will be detailed in the following pages.
In the case of the "Stiri oficiale" platform, the most popular device for accessing
it was the smartphone, with 78% of total visits coming from mobile devices, 20%
coming from personal computers, and 2% from tablets.
Figure 1. No of users by device category stirioficiale.ro
204.420; 2%
2.677.493; 20%
Mobile
Desktop
Tablet
10.358.259;
78%
Source: Own representation based on data retrieved from the Authority

for the Digitalization of Romania.
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Table 1. Stirioficiale.ro digital platform

Average
Device Bounce session
category Users Sessions rate Pages/session duration
Mobile 431.381 491.546 27,90% 4,39 113,75
Desktop 121.044 137.440 44,53% 2,71 97,54
Tablet 8.196 9.618 26,77% 5,02 152,76
Total 560.621 638.604 31,46% 4,04 110,85
Table 2. Cemafac.ro digital platform

Average
Device Bounce session
category Users Sessions rate Pages/session duration
Mobile 10.358.259 23.228.861 60,17% 1,99 78,07
Desktop 2.677.493 8.069.890 46,28% 2,58 149,38
Tablet 204.420 548.417 51,04% 2,31 104,24
Total 13.240.172 31.847.168 56,49% 2,15 96,59
In the case of Stirioficiale.ro, the number of sessions (times the website was
accessed) is more than double the number of users that have accessed the platform
in the case of tablets and mobile phone visits, and almost triple in the case of personal
computer visits. This would suggest that the citizens found the platform useful
enough to warrant returning for more information. Although this type of data
collection does not account for transfers from one device to the other or the number
of users that returned to the website, it does help in providing an overview of how
the platforms performed with regard to recurrent visits.
Figure 2. Evolution of sessions stirioficiale.ro
25.000.000
20.000.000
15.000.000
10.000.000
5.000.000
0
Mobile Desktop Tablet
Users 10.358.259 2.677.493 204.420
Sessions 23.228.861 8.069.890 548.417
Users Sessions
574
The bounce rates of the "Stiri oficiale" platform are significantly higher than the
bounce rate of cemafac.ro, as seen in Table 3. The bounce rate is the number of users
who viewed only the first page without performing any other action. In the case of
"Stiri oficiale" the percentages could be explained by the fact that most of the
relevant information is posted on the first page, without needing the users to access
subsequent other pages.
Table 3. Bounce rates of stirioficiale.ro and cemafac.ro platforms
Stirioficiale.ro Cemafac.ro
Device category
Bounce rate Bounce rate
Mobile 60,17% 27,90%
Desktop 46,28% 44,53%
Tablet 51,04% 26,77%
Total 56,49% 31,46%
By comparing the performance of the two platforms, several differences could be
observed.
A. As can be observed in Tables 1 and 2, the number of users and sessions on the
cemafac.ro platform is significantly lower than that of stirioficiale.ro. This could
be explained by the fact that stirioficiale.ro was more heavily marketed in the
public space, both on the television and online, whereas cemafac.ro was mainly
advertised on the stirioficiale.ro website. This would mean that most of the visits
on cemafac.ro could be from stirioficiale.ro, however, this data was not available
for analysis.
B. Unsurprisingly, the highest percentages of users accessing both websites were
from Romania, but there were also a number of users from other countries, as can
be seen in Table 4. This might account for Romanian citizens residing in those
countries, wanting to find out information on restrictions or actions taken by the
Romanian government regarding the COVID pandemic.
Table 4. Location of the users
Location Cemafac.ro Cemafac.ro Stirioficiale.ro Stirioficiale.ro
users ratio users ratio
Romania 492.909 87,92% 11.156.403 84,26%
United 11.336 2,02% 310.223 2,34%
Kingdom
Italy 10.600 1,89% 297.370 2,24%
Germany 8.998 1,60% 271.627 2,05%
Spain 4.091 0,72% 158.394 1,19%
Moldova 3.403 0,60% 117.450 0,88%
Belgium 3.212 0,57% 105.453 0,79%
France 3.191 0,56% 93.842 0,70%
Austria 2.530 0,451% 81.724 0,61%
Netherlands 2.487 0,44% 77.050 0,58%
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C. When comparing the number of sessions and users on both platforms, there is a
large difference between them regarding the returning number of users. While in
the case of stirioficiale.ro there is a significantly high difference between the
number of users and the number of sessions, with the latter being the largest, in
the case of cemafac.ro, the difference is not significant in the case of cemafac.ro.
This might suggest that users did not consider the information on cemafac.ro
useful enough to warrant multiple visits to this website.
Figure 3. Number of sessions and users on stirioficiale.ro and cemafac.ro
stirioficiale.ro cemafac.ro
25.000.000 600.000
20.000.000 500.000
400.000
15.000.000
300.000
10.000.000
200.000
5.000.000 100.000
0 0
Mobile Desktop Tablet Mobile Desktop Tablet
Users Sessions Users Sessions

D. As can be seen in Figure 4, users accessed more pages per session in the case
of cemafac.ro. This could be explained by the fact that stirioficiale.ro has all
the information on the front page, whereas cemafac.ro has the information
structured in multiple pages. This also explains the high bounce rate of
stirioficiale.ro, the counter of which only goes up if users leave the site after
looking at the home page.
Figure 4. Pages per session on stirioficiale.ro vs cemafac.ro
Pages per session stirioficiale.ro vs cemafac.ro
Tablet 5,02
2,31
Desktop 2,71
2,58
Mobile 4,39
1,99
0 1 2 3 4 5 6
Cemafac.ro Stirioficiale.ro
576
E. There is also a difference between the two platforms in terms of the average
duration of the session, which can also be seen at the level of device used. In the
case of mobile devices (smartphones and tablets) the sessions were longer on
cemafac.ro, whereas in the case of personal computers, the longer sessions were
on stiroficiale.ro. This could indicate the fact that the stirioficiale.ro is better
designed for being accessed on personal computers, whereas the information on
cemafac.ro is better adapted to mobile devices. The longer average session
duration on stirioficiale.ro can also be due to the fact that if a user only accesses
the home page and does not click on any button, Google analytics counts the
session as being a bounce, with a duration of 0 (zero), which might significantly
lower the average session duration of pages with high bounce rate.
Figure 5. Average session duration on stirioficiale.ro and cemafac.ro
Average session duration

stirioficiale.ro vs cemafac.ro
Mobile
Desktop
Tablet
0 20 40 60 80 100 120 140 160 180

Cemafac.ro Stirioficiale.ro

5. Conclusion
Although the large number of users who accessed these two platforms suggests
the fact that they were successful, there is a noticeable difference between them. The
study suggests the fact that more citizens chose to use the stirioficiale.ro platform
that has all of the information centralized and conveniently displayed on the front
page. There is also a noticeable difference between the number of pages visited and
the popularity of each platform. Even though there were more pages visited and
longer sessions in the case of cemafac.ro, this did not predict the popularity of the
platform, in comparison with the more widely used stirioficiale.ro platform. In the
case of device used, there is a very large percentage of users that accessed the
platforms on mobile devices (especially smartphones), which confirms the fact that
more attention should be paid to how information platforms should be designed in
order to better accommodate visits from smartphones and tablets.
577
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578

June 16-17, 2022
Online Teaching – Analysis and Solutions Instrumented

by Quality Engineering Methods
Irina-Virginia DRĂGULĂNESCU1*, Gabriela ȚIGU2,
Narcisa VALTER3, Mihaela Cornelia SANDU4
DOI: 10.24789788367405072-053
Abstract
Under current conditions, due to an unprecedented coronavirus pandemic, COVID-19,
since the beginning of 2020, online education has become compulsory in most countries of
the world. Classical face-to-face education has completely moved into the online
environment, becoming distance learning. In this case, the danger of declining student
performance is very high, especially in terms of the possibility of exam fraud. Our goal is to
decipher the strengths but also the sensitive points of online education, from the student's
point of view. To achieve the results, we used the tools and methodologies provided by
Quality Engineering. These tools help clarify the issue, identify the most damaging trends,
and design prevention methods. The main analysis tools of our research were: statistical
evaluation of the answers provided by the students, SWOT analysis, Interrelationship
Diagram and Quality Function Deployment diagram (QFD). The case studies concern the
university environment, more precisely, the students of the Politehnica University of
Bucharest and of the University of Bucharest.
Keywords: online university education, quality engineering tools, student

performance, avoid fraud, false values.
JEL Classification: A20; C18; H12; H84; I23; O21; O35.
1. Introduction
It is important to distinguish between normal e-learning and emergency
e-learning developed quickly and with the bare minimum of resources and little time
due to the COVID-19 pandemic. Thus, the education of about 900 million students
in the world was compromised: universities closed, Erasmus programs, and even

3 Politehnica University of Bucharest, Bucharest, Romania, [email protected].
© 2022 I.-V. Drăgulănescu, G. Țigu, N. Valter, M.C. Sandu, published by Sciendo. This work is licensed under the
exams and graduation sessions suspended. Universities have experienced in a very

short time a very strong digital acceleration of their teaching processes, and certainly
this can be seen as an added value, even when returning to university classrooms for
frontal lessons. To interact with colleagues and teachers it is necessary to have a
sufficiently stable internet connection and often the geographical configuration
represents a limit. Among the reasons that push students to choose a particular
university are: the right course, the availability of computers, the quality of the
library facilities, the good reputation of teaching, the availability of "quiet" areas for
self-study, and the friendly attitude toward students. A good educational alternative
can be a blended mode, in which it is possible to alternate face-to-face activities with
others online. After all, what matters is the teacher-student educational relationship,
the love and the passion that the teacher is able to transmit in teaching, the students'
ability to learn by falling in love with knowledge. This is what makes the difference
between a good education and a teaching given only for official duty.
The main factors that contribute to student satisfaction in online courses
(Bollinger, 2004) are: teacher performance, communication, technology, course
management, educational platforms, and interactivity. Student satisfaction must be
at the heart of any teaching method and indicates whether the information and
knowledge learned meet student expectations. According to Oduma et al. (2019), e-
learning can help universities increase student satisfaction, even if face-to-face
learning is perceived as more satisfying. However, online courses present a number
of challenges: distance learners may never have visited the physical campus location,
and may have difficulty establishing relationships with teachers and other students,
etc. Scholars' views on online and conventional learning are contradictory.
According to Fortune, Shifflett and Sibley (2006) there is lower overall satisfaction
with online courses, Artz (2011) considers student satisfaction higher in attending
online courses, while Lin et al. (2019) agree that there is no difference in student
satisfaction between conventional and online courses. While Platt, Raile and Yu
(2014) pointed out that students do not find online courses equivalent to traditional
lessons, perceiving online courses as easier, Bali and Liu (2018), highlight that
online learning is also somehow beneficial, even if perceived as lacking in social
interaction and communication.

Our paper concerns the reality of Romania with an increasingly common culture
suited to mass universities. Compared to innovative teaching experiences of other
countries that already experiment with models based on the use of metaverse,
Romania, due to its economic and social conditions, cannot in a short time take
different paths from those currently in force. So, this contribution aims to deepen
and interpret the experience lived by Romanian university students in the field of
distance learning, in order to formulate some proposals to improve the sensitive
580
aspects of online teaching in a context of transformation and innovation of

Higher Education.
4. Research Methods
We use statistical tools for analyzing the results collected from students through
online questionnaires and managerial tools and methodologies provided by Quality
Engineering. These tools allow clarifying the issue, sorting out the most harmful
trends, and designing prevention methods. So, we use the following analysis tools:
SWOT analysis, Interrelationship Diagram and Quality Function Deployment
diagram (QFD). To determine the perception of students about online classes during
the COVID-19 pandemic we developed a questionnaire of 20 questions. Questions
have simple, multiple, Likert scale (1 = strongly disagree, 5 = strongly agree) or open
answers. The questionnaire was distributed online on social networks to students
from University of Bucharest (UB) and University Politehnica of Bucharest (UPB).
The respondents to the questionnaire are mainly from the Faculty of Aerospace
Engineering with about 1200 students from the Polytechnic University of Bucharest
and from the Faculty of Administration and Business with about 2800 students from
the University of Bucharest, where the authors of this research are tenured
professors. The sample was formed of 462 respondents. Using SPSS, we performed
an exploratory analysis of the questionnaire and tested some hypotheses.
5. Findings
The core purpose of our paper was to detect the problems met during the
lockdown related to university teaching in undergraduate courses with technical
direction from the Polytechnic of Bucharest (UPB) and humanities degree courses
at the University of Bucharest (UB).
5.1 Exploratory Analysis of the Questionnaire

Most of the respondents, 73.1%, were female. About 94% of the respondents
were 19-25 years old and almost 71% were from the urban area.
The online platforms used for online classes are: Moodle 28.7%, Zoom 15%,
Google Classroom 13.2%, Microsoft Team 9.6%. In terms of teaching methods used
during online classes, 70.7% said classical teaching using PPT, 13.2% video classes
(voice over PPT), and 13.8% interactive teaching methods. The most used evaluation
method was Google forms, 52.1%, followed by Microsoft forms, 26.3%, and
Moodle, 7.2%. We had an open-ended question about why students trust or not the
evaluation method. The majority, 89.2%, said they trust the professor so they trust
the assessment method, many students said they liked getting the results instantly,
and they are also confident that for multiple choice test the platform used in
evaluation cannot make a mistake. Among those who did not trust the evaluation
method, the majority said that the time for exam was not enough because the
professors were afraid the students will cheat during the exam; also, the students said
that during the online evaluation it is easier to cheat on the exam. Comparing the
581
responses received from students from UB and UPB for confidence in online
evaluation, 9.09% students from UB and 20.83% students from UPB said they don’t
trust online evaluating methods.
In terms of problems encountered in online teaching, 43.7% declared internet
connection, 30.5% the lack of motivation, 7.2% the poor ability to use online
platforms. Most of the students said that the main advantage of online teaching is
access to classes from the comfort of their home, 38.9%, so 29.3% do not waste time
on their way to the faculty, 20.4% can do other activities during the online classes
and 5.4% do not have to pay the rent. In terms of disadvantages of online classes,
44.3% declared lack of interaction with professors and colleagues, 24% direct
communication with the professor and colleagues, 13.2% time spent in front of the
computer, 5.4% loneliness, and 4.8% lack of practical application in the laboratory.
Figure 1 (a), shows student’s perception of online classes and online evaluation.
In the case of online classes, 28.14% of students prefer online and traditional classes
alike, 25.75% prefer online classes more and 23.95% strongly agree that they prefer
online classes more.
Figure 1. Student’s perception about online teaching and evaluation

a) online teaching b) online evaluation
Legend: score assigned by
respondents on the 5-point 4,19%
11,38%
Likert type scale, in % 10,18%
23,95%
10,78% Strongly disagree/blue, 33,53%
Disagree/orange, Neither agree 20,96%
25,75% 28,11%
nor disagree/grey,
Agree/yellow and Strongly 31,14%
agree/light blue
Source: The authors' own research based on the questionnaire.
In case of online evaluation, Figure 1 (b), 20.96% of students prefer the online
and traditional evaluation equally, 31.14% said they agree they prefer online
evaluation more, and 33.53% strongly agree they prefer online classes more.
In terms of efficiency of online classes compared to traditional ones (Figure 2),
16.77% said they strongly agree and 20.96% agree that online classes are more
efficient. On the online evaluation compared to the traditional one, 24.55% said they
strongly agree and 28.14% agree they strongly agree that online evaluation is more
efficient than the traditional one. In case of an option to choose online classes and
online evaluation in the future, 40.12% said they strongly agree, and 25.75% agreed
they would prefer to choose online classes. Regarding the online evaluation
compared to the traditional one, 20.96% agree and 16.77% strongly agree that they
will choose online evaluation if possible in the future; nearly a quarter of students,
25.15% said they did not see any difference between these two types of evaluation.
As for the overall perception on the attending online courses, 51.50% said it was
rather positive and 14.37% said it was rather negative.
582
Figure 2. Efficiency of teaching methods and evaluation in case of online classes

a) teaching methods b) evaluation
Legend: score assigned by
respondents on the 5-point
11,38%
16,77% 17,37%
Likert type scale, in %
24,55%
Strongly disagree/blue, 13,77%
Disagree/orange, Neither
20,96% 19,76%
agree nor disagree/grey,
28,14% 22,16%
25,15%
Agree/yellow and Strongly
agree/light blue
Source: The authors' own research based on the questionnaire.
5.2 Hypotheses Testing

In this part of the paper we tested some hypotheses to see if there is any difference
of opinion between the UB and UPB students about online classes and evaluation.
The hypotheses tested for this purpose are the following:
H0a Compared to UPB’ students, UB’ students prefer online courses to traditional ones
H1a Compared to UPB’ students, UB’ students don’t prefer online courses to traditional
ones
H0b Compared to UPB’ students, UB’ students prefer online evaluation to traditional
one
H1b Compared to UPB’ students, UB’ students don’t prefer online evaluation to
traditional one
H0c Compared to UPB’ students, UB’ students think that online teaching is more
efficient than traditional teaching
H1c Compared to UPB’ students, UB’ students don’t think that online teaching is more
efficient than traditional teaching
H0d Compared to UPB’ students, UB’ students think that online evaluation is more
efficient than traditional evaluation
H1d Compared to UPB’ students, UB’ students don’t think that online evaluation is
more efficient than traditional evaluation
H0e Compared to UPB’ students, UB’ students would like possibility to have online
classes in the future
H1e Compared to UPB’ students, UB’ students wouldn’t like to have the possibility to
obtain to online classes in the future
H0f Compared to UPB’ students, UB’ students would like possibility to have online
evaluation in the future
H1f Compared to UPB’ students, UB’ students wouldn’t like possibility to have online
evaluation in the future
In this case with two populations, students from UB and UPB, we applied a t-test.
If the p-value is less than the significant level 0.05 we will reject the null hypothesis.
The results of this test are shown in Table 1. After applying the t-test, we obtained
the following: compared to UPB’ students, UB’ students don’t prefer online courses
to traditional ones but prefer online evaluation to traditional one; compared to UPB’
students, UB’ students consider that online teaching and evaluation is more efficient
583
than traditional ones; compared to UPB’ students, UB’ students would not like to get
an online classes in the future, but would like to get online evaluation in
the future.
Table 1. Results for t-test used for hypothesis testing
Mean in case Mean in case
Null
of online of traditional
Hypothesis t-statistic p-value hypothesis
teaching/ teaching/
is accepted
evaluation evaluation
H0a 3.30 4 -2.52 0.012 False
H0b 3.37 3.87 -0.36 0.716 True
H0c 2.92 3.45 -1.82 0.069 True
H0d 3.40 3.41 -0.03 0.969 True
H0e 3.53 4.29 -2.69 0.007 False
H0f 3.82 4.12 -1.14 0.252 True
Source: The authors’ elaboration.
5.3 Online Teaching: Pros and Cons from the Teachers' Side using
SWOT Analysis
Our analysis regarding the period of pandemic, in which we had to teach and test
exclusively online, was performed by us-teachers from UPB and UB to analyze the
concrete situation encountered. In Figure 4 we built a SWOT analysis in which we
highlighted the most important pros and cons from the point of view of teachers.
According to Figure 3, we can consider as pro-online categories "Strengths" and
"Opportunities" and against the topics gathered in the categories "Weaknesses" and
especially "Threats".
Figure 3. SWOT – analysis from teachers’ point of view; pros and cons

We believe that the pro-online education arguments in the Strengths and
Opportunities represent a clear and opportune way for the future of education in the
world. These arguments show that online education is cost-effective, reduce costs
for all involved, and save valuable time. Thus, the arguments of Weaknesses and,
584
above all, of Threats, require the urgent solutions in order not to affect the quality of
higher education and not only. Some themes of these last two categories, such as
Lack of institutional support; Lack of necessary equipment for online activity; Lack
of skill in using online platforms and Lack of practical applications, have obvious
solutions and can be solved immediately by educational institutions, with further
allocation of attention and budget. Instead, the arguments as the Possibility of test
fraud; Corrupted evaluation due to unlimited online copy sources and Creation of
false values, require the development of new methods, not found in traditional
education. Comparing the responses of two participating parties, we see that students
are pro-exams online, unlike the teaching staff, who believe that online exam results
may be false due to the widespread possibility of copying from the online
environment, and because the students cannot be seen in what they consult during
the exam. These false results can eventually lead to the launch of false values in
society. Moreover, some graduates may access positions in society for which they
are not well prepared and which will seriously affect society as a whole or, through
the decisions they will take, in ignorance.
5.4 Some Proposal for Improving the Sensitive Aspects of Online Education
using Specific Tools of Quality Engineering
To find solutions to the main "Weaknesses" and "Threats", we have constructed
an Interrelation Diagram (Figure 4), in which the causes leading to the main threat
"Creation of false values" are related on three levels.
Figure 4. Interrelationship Diagram for the basic problem of online exams
585
The main causes leading to the delicate issue of the creation of false values in
society (red triangle), resulting from a corrupt online exam due to unlimited copying
possibilities, are written in a circle. The pink rectangle represents the second-degree
cases, relative to the main cases, and in the blue rectangle the third-degree cases. By
analyzing the cascade of causes that determine the main problem of the online exam
and analyzing their interrelation, we can easily find solutions to the main problem.
To the problem caused by "Lack of practical practice", it is easy to see that the
solution would be for teachers to have the ability to film the laboratories/workshops
and make the lessons attractive to students. But this can only be seen as possible with
the full support of the educational institution, allocating special funds and specialized
personnel for this newly created field. Regarding the issue "Examination not adapted
to the online environment" and "Inaccurate knowledge assessment", it is clear from
the diagram that the solutions should go towards more complex exams, avoiding grid
tests and avoiding group projects, with more than 2 students.
Following this approach, the authors designed an analysis based on the Quality
Function Deployment methodology. QFD – is the methodology that allows the
translation of the beneficiary's wishes in technical and quality characteristics of the
product, using the quality tool - matrix diagram, which in the literature is also called
"House of Quality". We have adapted this specific quality engineering tool to the
issue of exclusively online education, in order to find the best solutions to solve the
most pressing problems highlighted above (Figure 5), and we have issued seven
possible solutions to the most sensitive issues raised by online teaching.
Figure 5. The QFD tool applied to find the best solutions
586
A cause can have several results and one result, several causes. The correlations
according to the legend, demonstrated the following: Solution no. 1 - Testing with
"essay" type subjects; avoid grid tests”; solution no.2 "Testing" flash "after each
chapter taught" and solution no.4 "Various and attractive test subjects and applicable
in the chosen field", respond very well to most of the problems raised (those on the
left of the matrix), which required a corrupt evaluation of the possibility of unlimited
copying from the online environment, but they also respond very well to the issue of
loss of motivation and lack of practice. Frequent testing through essay-type tests
trains and motivates the student, developing interest to subjects, and making
connections between these. Solution no.3 "Courses based on several case studies
solved" responds both to the first four problems raised by teaching in the online
environment but successfully answers the problem "Loss of motivation" and "Lack
of practical applications". This requires additional staff involved in proofreading and
grading, and thus is quite difficult to manage even economically by the educational
institution. Solutions no.5, 6 and 7 strongly depend on the involvement of the
educational institution, both budgetary and with the use of qualified staff. In the
second QFD matrix, called in the literature “the roof of the House of Quality”, built
above the first matrix, the compatibilities established between the solutions found
were highlighted.
It is observed that the solutions found are perfectly correlated with each other and
mutually enhance each other, but with one exception, they are economically
sensitive. Solutions no. 1 and no. 2 are very helpful in problem solving, but
unfortunately it involves additional effort on the part of both teaching staff and
educational institutions. Therefore, teachers need to spend a lot of time to correcting
non-grid tests, and they should devote even more time to "flash" tests after each
chapter taught.
6. Conclusions
In this paper, we have carried out a comprehensive analysis of the unprecedented
situation created by the pandemic, forcing educational institutions to adopt
teaching exclusively online. In the first part, the positive and above all negative
aspects of online education were analyzed. We explored the topic in the academic
field to find the best ways to improve teaching exclusively online and the
student-teacher relationship; more precisely, in the two universities where the
authors are teachers, a questionnaire was launched among students, specially
designed for the case study. At the macro level of the two Universities, the sample
was not sufficiently representative of the student population given that the University
of Bucharest has more than 30,000 students while the Politehnica University of
Bucharest more than 25,000 and therefore this can be seen as a limitation to the
study, while at the faculties’ level the sample was large enough. The analysis of the
responses received to the questionnaire, performed with specific statistical tools,
highlighted the strengths, but also the sensitive points of online education, from the
student's point of view.
587
To find the optimal solutions for a correct and attractive online teaching, we
performed a new analysis using specific tools of quality engineering, also taking into
account the opinions expressed by teachers. Therefore, we perform SWOT analysis
that helps to create Interrelationship Diagram to better highlight the main problems
related to online examination activities and consequent creation of false values. This
diagram has been built on three levels, so that the remedies to solve these problems
can be highlighted, and we designed seven solutions to these problems based on
responses received from the students and teaching staff. To assess the extent to which
these solutions respond to the identified problems, we used the QFD methodology
and built a "house of quality" made up of two matrices. The basic matrix helps to
study the degree of relationship of the solutions found with the problems highlighted
by the interviews or by the analysis of questionnaire. The secondary matrix, "the roof
of the quality house”, highlights the affinity, which is created or not, between the
solutions found and above all triggers an alarm signal if there is a negative
correlation. This negative correlation requires finding another solution that satisfies
the proposed purpose, without negative implications on the other solutions found.
Our analysis and especially the solutions found can be useful for the possible step of
higher education towards metaverse education.
References
[1] Artz, J. (2011). Online courses and optimal class size: A complex formula. A report
submitted to the Education Resources Information Center (ERIC), retrieved from
https://eric.ed.gov/?id=ED529663.
[2] Bali, S., Liu, M.C. (2018). Students' perceptions toward online learning and face-to-face
learning courses. IOP Conf. Series: Journal of Physics: Conf. Series 1108, p. 012094,
doi :10.1088/1742-6596/1108/1/012094.
[3] Bollinger, D.U. (2004). Key factors for determining student satisfaction in online courses.
International Journal on E-learning, 3(1), pp. 61-67.
[4] Fortune, M.F., Shifflett, B., Sibley, R.E. (2006). A Comparison of Online (High Tech)
and Traditional (High Touch) Learning in Business Communication Courses in Silicon
Valley. Journal of Education for Business, 81(4), pp. 210-214.
[5] Lin, C.H., Kwon, J.B., Zhang, Y. (2019). Online self-paced high-school class size
and student achievement. Educational Technology Research and Development, 67(2),
pp. 317-336.
[6] Oduma, C.A., Onyema, L.N., Akiti, N. (2019). E-learning platforms in business
education for skill acquisition. Nigerian Journal of Business Education (NIGJBED), 6(2),
pp. 104-112.
[7] Platt, C.A, Raile, A.N.W., Yu, N. (2014). Virtually the Same?: Student Perceptions of the
Equivalence of Online Classes to Face-to-Face Classes. MERLOT Journal of Online
Learning and Teaching, 10(3), pp. 489-503.
588

June 16-17, 2022
Entrepreneurial Traits in High School Students.

Imprints of Erasmus Experiences
Raluca Mariana GROSU1, Emilia BATROS2*
DOI: 10.24789788367405072-054
Abstract
The present paper aims to analyse the effects of Erasmus programs on high school
students in terms of their personal development, being oriented towards three main
directions: understanding the motivations behind the application for Erasmus programs;
identifying the expectations of the participants before the experience; acknowledging the
benefits of participating in Erasmus programs, in strong correlation with the development of
skills, with a particular focus on entrepreneurial traits. Based on qualitative research
consisting of carrying out interviews with high school students who participated in Erasmus
Mobility Programs between 2018 and 2020, the article outlines the benefits of such
experiences, emphasizing the development of skills and competencies linked with their
entrepreneurial traits. Important acquired and/or improved traits referred to: risk-taking,
managerial skills, teamwork abilities, creative thinking, communication skills, motivation,
optimism, and networking. The paper brings a novel approach to the scientific literature in
terms of the investigated population, high school students from Romanian institutions,
enriching at the same time the literature focused on the impact of Erasmus programs on their
participants. From a more practical perspective, the paper promotes the positive impact of
the Erasmus experience on high school students, aiming to raise awareness among them of
the benefits derived from the involvement in this kind of programs.
Keywords: entrepreneurial traits, Erasmus program, high school students,

development of skills, Romania, motivations.
JEL Classification: A20, I20.
1. Introduction
Erasmus represents the European Union program based on the promotion of
education among young people or people who need greater cultural and educational
support. This program has the purpose of helping young Europeans to evolve both

© 2022 R.M. Grosu, E. Batros, published by Sciendo. This work is licensed under the Creative Commons Attribution
4.0 License.
personally and professionally, contributing to the development of participants’

abilities and skills. (European Commission, 2021)
In the current context, highly marked by environmental degradation, post-
pandemic challenges, and armed conflicts in different regions worldwide, there is an
urgent need for young generations with strong values, oriented toward making the
world a better place for them and for future generations. Furthermore, under the
domination of major trends such as “sustainability” and “digitalization” (Francu,
Grosu, 2020; Amicarelli et al., 2021; Aytekin et al., 2021; Popescu et al., 2022),
people, especially the young generation, must be more aware of the results and
implications of their actions, demonstrating an original, unconventional attitude and
mentality toward minimizing their negative impacts on societies. A well-trained
young generation, both in terms of their knowledge and skills, with entrepreneurial
mindset, competencies, and traits oriented toward sustainable actions will play a
crucial role in building and developing competitive societies. Not only should they
become entrepreneurs, but they can manifest an entrepreneurial attitude at their jobs
either in a public or private institution, or even when practicing a liberal profession.
A strong education system, but also involvement in extracurricular activities,
participation in Erasmus programs included, might bring an important contribution
to the development of a competent young generation. Involvement in Erasmus
programs is linked with increased skills and competencies (Iriondo, 2020; Soares,
Mosquera, 2020), leading to the development of more conscious, better trained, and
skilled people. Romania urgently needs such a young generation that might bring
about the mentality shift it needs. Besides the already mentioned worldwide
challenges, Romania is confronted, at the same time, with a strong emigration trend,
especially of its highly skilled young adults (Petrescu, Bâc, Zgură, 2011; Grosu,
Constantin, 2013; Grosu, Dinu, 2016), making it imperious to form a young
generation with proper skills to contribute to a better Romania.
In such a context, the present paper aims to analyse the effects of Erasmus
programs on the development of young high school students. Therefore, the paper
is structured in six main parts, with introduction and conclusions included. The next
section presents a series of aspects specific to the literature review, being followed
by the outline of a series of methodological aspects and the main results
of the research.
The article approaches a topic that benefits from a vast scientific literature,
generally composed of studies on how the Erasmus experience contributes to the
personal and professional development of university students (Parey, Waldinger,
2011; Soares, Mosquera, 2020). In a more particular case, the literature on Romanian
students focuses on different aspects such as mobility flows; Erasmus student
experiences as tourists; values and benefits of their participation in mobility
programs; intercultural adaptation; etc. (Salajan, Chiper, 2012; Udrea, 2012; Stroe
et al., 2015; Tamaş, 2017; Marin-Pantelescu et al., 2022). However, when the nature
of the subjects approached is narrowed down from university students to high school
590
students, the literature in the area is not so vast anymore. The novel approach in our
paper consists exactly of the investigated subjects, more specifically high school
students from Romania that benefited from Erasmus Mobility Programs.
Even if the effects of the Erasmus Mobility Program on each participant depend
on many factors such as the institution from which the participants come, the
community in which they live in, the financial state, etc. (Rodriguez Gonzalez,
Bustillo Mesanza, Mariel, 2011), such programs mark the development of their
participants, both from a personal and professional perspective. For example, career,
adaptability, managerial, personal and teamwork skills, and employability are highly
developed due to enrolment in Erasmus Mobility Programs (Soares and Mosquera,
2020). More specifically, skills highly corelated to entrepreneurial traits such as risk-
taking, planning, networking, etc. (Salati Marcondes de Moraes, Sadao Iizuka,
Pedro, 2018) are frequently encountered in former Erasmus participants.
The motivations and desire of young people to apply in one of the Erasmus
programs represent another topic of interest for the paper. Motivations usually arise
from students’ desire to develop their language skills, to discover new cultures, and
to interact with people (Botas, Huisman, 2013).
Another aspect presented in the scientific literature on which this article is based
refers to the expectations of the students before the beginning of the program and
how they were met during the program. Usually, the expectations of the students are
completely exceeded at the end of the project (Jacobone, Moro, 2015).

The main aim of the paper is to analyse the effects of the Erasmus programs on
high school students, especially in terms of their personal development, with a
particular focus on entrepreneurial traits. From a more particular perspective, the
paper focuses on the following three objectives:
• Analysis of the main drivers for high school students to participate in Erasmus
Mobility Programs.
• Analysis of high school students’ expectations about the Erasmus Mobility
Program, before the experience.
• Analysis of the main skills and competencies, especially in the entrepreneurial
area, acquired and/or developed by high school students after participating in
Erasmus Mobility Programs.
4. Research Methods
Aiming to reach the established objectives, a qualitative research, based on
carrying out semi-structured interviews with high school students that participated
in Erasmus Mobility Programs, was developed in March 2021. The research was
carried out on high school students from the “Mihail Kogălniceanu” Economics
College in Focșani that participated in Erasmus Mobility Programs between 2018
and 2020. Seventeen teenagers who participated in Erasmus Mobility Programs
during their high school studies were contacted. However, the interviews were
591
carried out only with six of them, as the others were highly reluctant to participate
in the research, denying their participation. Considering confidentiality-related
reasons, the identity of the respondents is not revealed. The ‘findings’ section is
codified using codes from R1 to R6.
The interviews were based on an interview guide composed of 11 questions,
developed according to the purpose and objectives of the research. The interviews
were carried out via Zoom, these being in one-to-one format, lasting, on average,
around 35 minutes. Only in two interviews did some small communication barriers
occur due to disrupted factors such as pet noise or the sounds of other devices.
The results obtained from this research are presented in detail in the next section.
Considering the qualitative nature of the research, it is worth emphasizing that the
results are specific only to the interviewed high school students, generalization
neither being aimed at, nor applicable.
5. Findings
The interviewed high school students participated between 2018 and 2020, in
Erasmus Mobility Programs through internships and through active participation in
activities related to environmental awareness and promotion of a healthy lifestyle by
practicing sports activities. The basis of the mobilities in which the respondents
participated consists of the exchange of experiences between several high school
institutions in several European countries, such as Latvia, Bulgaria, Wales, and
Spain, for a period of one or two weeks.
The main motivations of the interviewed high school students for their
application to these Erasmus programs were related to the desire to have unique
experiences, through which they will be able to acquire certain skills and
competencies, especially English language skills. Their participation in a
multicultural context was highly assessed as the main trigger for acquiring or
developing new improved English communication skills. The opportunity to travel
to a foreign country was another important reason why they chose to participate in
Erasmus programs. For most of them, it was the first opportunity to be on their own,
in a place where they no longer had the help of their parents, but a place where they
could evolve and step outside of their comfort zone (“The fact that I was able to visit
a foreign country alone, without having my parents close, was a unique experience”
– R2). To participate in one of these projects, high school students needed courage
to overcome their fears and cope with the experiences deriving from having contact
with a new country; they were risk-takers. In that environment, their mother tongue
was no longer relevant, and they had to adapt to these new experiences (“One of the
strengths I valued in the project was my courage. I went to a foreign country for the
first time, on my own, without family or friends, where I had to manage and face all
kinds of situations by myself”- R5). Moreover, for some respondents, this was also a
way of bonding with their colleagues (“I like to travel, to speak foreign languages.
I like people, in general. That’s why I chose to participate in this project with some
of my friends.” - R4). Another reason for participating in the Erasmus projects was
their desire to discover other cultures, to analyse the traditions of the host states, and
592
to understand in a broader manner the mentality and behaviour of the locals. The
interviewed high school students wanted to observe the educational systems in the
host countries, also, especially in comparison with the Romanian one (“We saw
different cultures, types of music, food, how to dance, and what traditions each state
has. It was very interactive and fun.”- R4). As a general remark, an overall reason
why the interviewed high school students applied for Erasmus Mobility Programs
was not only to live a memorable experience, but also to evolve both personally and
professionally, to participate in interactive activities and projects (“Before leaving, I
was hoping to have fun, to learn as much as possible, and when I arrived in Bulgaria,
it was not just that I had fun and spent time with my friends, but also that I learned
a lot of new things” – R4).
The interviewed high school students did not have high expectations before the
start of the project, as this was the first experience of this kind for all of them. All
expectations were based on a unique experience, in which students were placed in
an international context, in which they were constrained by circumstances to do more
by themselves. High school students knew that they would communicate with other
people in a language other than their mother tongue, but thought that it would be too
much of a challenge and they would not be able to connect with students in those
countries, given the circumstances in which they were placed. Therefore, they had
the opportunity to discover how open-minded and friendly foreign students were,
giving them the opportunity to acquire beautiful memories and unforgettable
experiences (“I wanted to strengthen my relationships with my friends and
colleagues and make new ones, with whom I can create real connections and with
whom I can still communicate even after the end of the project” – R1). They wanted
to discover other cultures, to feel what life was like among the locals and to walk in
the shoes of a person living in that area. This way, they could improve their
knowledge of the host country and to compare that culture with their origin one
(“I expected a new world, to communicate with different people, to learn about a
culture that is in a way closer to us, but at the same time different from many points
of view” – R3). The interviewed high school students were very excited before the
project and did not expect to participate in so many different and interesting activities
(“Before the start of the program I was excited. [...] I did not expect to visit different
places every day, or to have such interesting and interactive activities” – R2).
All these expectations were fulfilled, even exceeded. The reality of the mobilities
compared to the expectations of those who participated was much more beautiful
and completely satisfying. One of the things that impressed the respondents was the
connection with the students from the host countries. They did not expect them to be
so sociable and open to relations with foreign students, especially because they did
not come from a country well known to all participants. The students from the other
participating countries were very kind and friendly to the respondents, showing
teamwork skills. That was because all the activities they performed were carried out
in teams with students from different countries and no groups were set up per
country, to avoid creating discomfort or causing no communication between the
participants (“I got along very well with everyone, I communicated with all the
593
groups from the other countries that participated. They did not form small groups
and collaborated on all activities with students from each country.” – R6). In
addition to the activities they carried out in the project, the interviewed high school
students developed stronger relationships with the foreign students. For example, in
their spare time, the students from the host countries carried out fun and interesting
activities, on their own, which led to a smoother integration of the Romanian
participants in the environment specific to the host country (“What impressed me the
most was the behaviour among young people in Bulgaria, different from that of
Romanians. They do not take into account how close the relationship is with those
around them or how well they know people. They make everyone feel welcome. I
liked that people were open-minded and open to activities with us.” – R4).
Moreover, the respondents did not expect to have the opportunity to participate
in activities such as cultural visits or admiring the surroundings (“When we had a
free day, our coordinating teacher took us on trips to important cities like Liverpool
or Manchester, organizing visits to museums and zoos.” – R1). All respondents were
pleasantly surprised to have the opportunity to participate in various interactive
activities, not only activities in which their knowledge was consolidated but also
activities in which they could relax and create close links with the other participants,
this way developing their networking skills (“The reality was not as I expected; it
was much better than I thought it would be, because I thought it would be a very
rigid program. I was expecting to spend more time in class, learning and sharing
experiences, but I was pleasantly surprised that we also had the opportunity to visit
places, to learn about them, both historically and culturally” – R5). Another aspect
that exceeded the expectations of the students was the level of knowledge they
gained from this experience, as well as the degree of endowment of the host
institutions. Given that the countries in which the participants carried out the
activities are developed countries, the receiving institutions were benefitting from
high-quality equipment, offering more opportunities for students, especially when
compared with the institutions from which they were coming.
The main strengths of the program from the perspective of high school students
were related to the development of communication and social skills. The fact that
they interacted with many students of similar ages and nationalities helped them
open up and be able to communicate more easily with those around them
(“I acquired important communication skills; even if my mobility was only for a
week, given that I was in an international context, the circumstances forced me to
get out of my comfort zone, even if I am quite shy. If you are an introvert and want
to change something, an Erasmus project would be a great choice for this.”-R4;
“I was not as good at speaking English, but due to the international context in which
I was placed, I managed to improve and expand my English vocabulary.” – R5).
Along with social skills and openness to new relationships with people of other
nationalities, which the high school students acquired during the program, they also
developed teamwork skills. They were encouraged to work in teams, especially
groups with students from each country (“I developed teamwork skills, which I am
not a fan of. In general, I was lonelier, I like working alone, but I had experiences
594
who needed to make this compromise, to gather my strengths to work with my

colleagues.”– R2). Most high school students also managed to improve their
self-confidence, gain some courage to experience more situations, and adapt to a
new environment (“Without this experience I was doubting myself, I could not
speak English and not even speak in public. After the Erasmus project, I managed
to gain confidence and I learned not to be afraid to participate in extracurricular
activities” – R1).
Additionally, public speaking skills, critical thinking, creative thinking, or
organizational skills, were also developed in the case of the interviewed high school
students. Due to the multitude of activities that the project made available to the
participants, they managed to develop their creative and artistic side (“I improved
my skills, I was more organized with my own time and money, because I had a limited
budget that we had to manage” – R3).
In addition to skills and competencies, the interviewed high school students also
improved their knowledge, related to both the specific topic of the mobility and the
culture of the receiving country. The variety of activities they performed during the
program, referring to the topic addressed in the project, was another strength of the
participation in Erasmus programs.
Involvement in the Erasmus program positively marked the personal
development of the interviewed high school students. Many entrepreneurial traits,
especially in the soft skills area, were developed or improved, as presented in
Figure 1.
Figure 1. Entrepreneurial traits of high school students, acquired or developed

after the Erasmus experience
communicati
on skills
(English
language
proficiency,
public
speaking)
creative
motivation
thinking
teamwork Erasmus risk-taking,

challenge
abilities experience acceptance
managerial
skills - self-
planning and
organizing, confidence,
decision optimism
making
'people skills',
personal
relationships,
networking
Source: developed by the authors.
595
Considering the general experience of mobility, the respondents want to

participate in another Erasmus program, because they want to have as many
memorable experiences as possible, to travel, and to observe as many cultures and
traditions as possible. They consider the Erasmus projects to be a great opportunity
for young high school students, and they encourage all those who have the
opportunity to apply to do so. Some respondents said that it would be a great
opportunity for them to participate in other types of Erasmus projects than the one
in which they have participated. Projects on other topics for a longer period of time,
as well as study programs for one semester or even one year, during the university
degree, were highly mentioned as potential options for future applications.
6. Conclusions
The present research aimed to analyse the effects of Erasmus programs on high
school students, especially in terms of their personal development, oriented toward
three main directions: understanding the motivations behind the application for
Erasmus programs; identifying participants’ expectations before the experience; and
acknowledging the benefits of participating in Erasmus programs, strongly in
correlation with skills development, with a particular focus on entrepreneurial traits.
The motivations behind the application of the interviewed high school students
to the Erasmus Mobility Programs were related to the desire to participate in
extracurricular activities and the opportunity to be placed in a multicultural context
in which, restricted by the circumstances, they can push their limits and improve
themselves. The difference between the perspective of high school students before
and after Erasmus mobility is considerable, because they did not expect the program
to bring them such a large amount of information, and the way the activities are
performed would be so varied and interesting. Given the complexity of the program
and the opportunities it brings to the interviewed high school students, several
positive aspects were observed in the research. The involvement in Erasmus
mobilities strongly impacted the interviewees in a positive way, especially in terms
of their personal development. Most of them managed to develop language and
communication skills through interaction with other participants, as well as through
the development of activities, due to the international context in which they were
placed. They were given the opportunity to manage themselves in another country,
where they could no longer receive help from parents or friends. In this sense, by
placing them in these circumstances, young people managed to gain more
self-confidence, teamwork skills, and even a better way of organizing both their time
and resources.
To carry out the activities and complete the project in a more memorable way,
high school students were advantaged by certain skills and competencies, such as the
English level, which helped them better interact with foreign participants. In
addition, their communicativeness, sociability, and creative skills helped them,
because they needed to create better connections with other students to complete a
unique and transformative exchange of experience.
596
The Erasmus experience was strongly perceived by all interviewed high school
students as transformative, with positive marks on their personal development,
directly contributing to the development of their entrepreneurial traits. All of the
interviewed high school students strongly promote and encourage participation in
such programs among other high school students, as well. Even they are willing to
have other Erasmus experiences in the near future.
The present paper, even with a strong limitation, deriving from the nature of the
employed research, related to the narrow sample of interviewees and their
concentration in the same area of investigation (the same high school), has two major
contributions, to both theory and practice. On the one hand, the paper adds value to
the scientific literature by investigating an under-researched group of subjects,
beneficiaries of Erasmus programs, respectively, high school students, most of the
studies in the field being focused on university students. Furthermore, the area of
investigation is also less studied. Through the investigation of Romanian high school
students, the paper enriches the literature in the field. Additionally, the paper draws
important starting points for future research, establishing the setup for developing
quantitative pieces of research, representative at the national level, for a more
complex and comprehensive approach to the investigated phenomenon. Considering
the qualitative nature of the present research, the outlined results are specific only to
the investigated sample, and their generalization is not applicable. However, the
paper promotes, among other aspects, the positive impact of the Erasmus experience
on high school students with the aim of raising awareness among them of the benefits
derived from the participation in this program. From a practical perspective, the
paper has the potential to give high school students a perspective on the worth of
their involvement in Erasmus programs. At the same time, the paper might stimulate
the motivation and desire of high school students to apply for Erasmus programs.
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598

June 16-17, 2022
The New Age of Metaverse and the Old School Universe:

Business on the Edge of Final Frontiers
Octavian-Dragomir JORA1, Alexandru GEORGESCU2,
Vlad I. ROȘCA3*, Paul Cristian VASILE4,
Carmen Maria CONSTANTINESCU5, Andreea DINU6
DOI: 10.24789788367405072-055
Abstract
The advent of the Fourth Industrial Revolution and its (un)expected follow-ups continue
to open up new dimensions of economic, political, and social interaction. The latest is the
Metaverse, striving to become as real as our own world for those enmeshed in it. It can be
described as an extended-reality-based space and is in the process of being conceived as an
emerging/evolving frontier to be conquered as terrestrial space was and as outer space may
one day be. The present article grapples with the intriguing question of whether the
Metaverse will be a surrogate/refuge from a physically and socially pressing existence or a
tool for/facilitator of the exploration of other frontiers – particularly, a substitute or a
complement for the ever-glorified expansion into outer space? We contend that there is a
degree of overlap between the envisaged Metaverse and man’s endeavours toward Cosmos,
in the context of resource scarcity, barriers of access, and the new functionalities of
command, control, and coordination in mastering outer space as well as other challenging
frontiers. Thus, the Metaverse implies, despite its apparent intangibility, scarce resources in
terms of matter and energy, and may justify these allocations through new applications and
functionalities related to space. Rather than representing an inward-looking frontier, it may
enable us to look outward, propelling human aims for immersing into the physical Universe.
Keywords: Metaverse, outer space, technology, scarcity, sustainability.
JEL Classification: L86, N70, O33, Q56, R40.

2 National Institute for Research & Development in Informatics, Bucharest, Romania,
[email protected].
[email protected].
[email protected].
© 2022 O.-D. Jora, A. Georgescu, V.I. Roșca, P.C. Vasile, C.M. Constantinescu, A. Dinu, published by Sciendo.
This work is licensed under the Creative Commons Attribution 4.0 License.
1. Introduction
One of the emblematic encounters between what would become the Metaverse
and the incessant outer space quest happened in the recent past of the futuristic TV
entertainment: the Star Trek’s Holodeck. While some Sci-Fi gadgets from the
famous series are current commonalities (e.g., mobile communicators, hand-held
tablet computers), other advances will be featuring for a while on revolutionary
to-do-lists (e.g., tractor beams, warp drives). The Holodeck appears to be a “work in
progress” if we scrutinize it against the background of the contemporary Metaverse
experiences. The former was a space in which, for recreational and reflective
purposes, the inhabitants of the spaceship could interact with “realistic” historical
characters in a very “tactile” (fully-sensorial) multi-parametrically programmable
environment. The latter is an unfolding offshoot of the internet/cyberspace, blending
artificial intelligence, computer graphics, and human-computer interface gimmicks.
Living in a world marred by the vicissitudes of scarcity and the vagaries of
sociality, humankind constantly finds challenges/risks/opportunities related to the
ascertainment of each and every “new frontier” during his expansionary existence.
Initially, man “conquered” pieces of land as an immediate basis for habitat and
harvest; then he “conquered” rivers and seas, restlessly moving in search of better
stability; then he “conquered” skies and, thence, all the geosphere came under his
command; then he “conquered” the electromagnetic fields, the basis of his IT&C-
enhanced life; then he understood that his planetary “conquest” is eventually
exhaustible and erodible, and the outer space may grant him not only answers to his
cosmological conundrums, but avenues for his endurance on/outside Earth
(minerals, energy). Or he might have found out as well that some inward, not
outward, frontier is available: a somehow “virtual” one, able to economize the costs
of his “too physical” existence.
This research presents a perspective that was not explicitly taken so far in the
literature: the nature of the relation – trade-off or synergy? – between the
development of the Metaverse and that of the space quest, as these economic areas
represent “new frontiers” to be explored (e.g., to understand their peculiarities and
assorted rules of conduct) and exploited (e.g., to produce wealth more sustainably
and to distribute it more socially fair). The clarification of the connection between
the allegedly “virtual” Metaverse (yet one needing serious material/energetic inputs,
some acquirable from cosmic supplies) and the much more “physical” outer space
(yet one needing complex simulations of extreme off-planet phenomena prior to
effective deployment of space missions) is consequential for the future of the human
species on many accounts, among which resource mastering and social networking.
This article briefly screens this germane concern and signals some relevant cases.
The purpose of this essay study is to analyse the crossroads of developing the
inward new frontier of the Metaverse and the outward one of the space odyssey,
given the reality of scarce resources (i.e., human, natural, financial or technological),
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so sensitive to institutional designs (i.e., social habits/customs, norms/legislations).

The stake is to observe the competing/conflicting features of this intercourse (viz.,
in terms of availability/sustainability of scarce resources, needed for the two routes)
or, on the contrary, the eventually prevailing compatibilities/complementarities (viz.,
in terms of each side acting as a critical factor-of-production provider for the other).
Despite these realms first appearing in Sci-Fi works, with the Metaverse much
younger than the cosmic imaginary (Boia, 1997), they both became “real estates”.
The Metaverse introduces the idea of another Universe, a virtual world which allows
one to see and live things according to his/her imagination. Even if the concept
existed in the area of video games for more than two decades – viz., Second Life,
which hosted real banks and commercial deals –, it is starting to raise more and more
awareness, nowadays, especially for the people who understand that it can be useful
in every domain, from conducting medical procedures to organizing social events
(Park, Kim, 2022; Stylianos, 2022). The space quest cannot remain alien to this.
There are many interpretations in defining the Metaverse, the most common one
being related to the translation of the real world into a virtual counterpart. And
although experts did not manage to establish a standard definition, most of them
agreed with some key attributes that “a” Metaverse should possess (Kiong, 2022):
• Persistence – continuous operation, without pause or end date;
• Synchronousness and liveness – a real-world simulation that exists for everyone
in real time;
• Multipresence – able to exist in different virtual worlds simultaneously;
• An economic system – the possibility to produce, sell, and buy digital assets, and
to be rewarded and recognized as such;
• Coverage – in both virtual and physical worlds, in public and private networks,
as well as in open and closed platforms;
• Interoperability – implementable between all the components of the digital world
such as digital assets, data, and content;
• Diversity – created and populated by a wide range of social groups, like
commercial or informal ones.
From the technical perspective, the Metaverse is a new generation of Internet
applications which aims to integrate the interactive/immersive experiences offered
by augmented reality technologies and blockchain-enabled economic solutions, in
order to build a recreation of the real world. The key concepts that define and build
the Metaverse are “avatars” and “extended reality”. These two approach the most
important traits of the real world: the human and the environment (Ning et al., 2021).
Economically, the Metaverse value chains are responsible for around USD 1
trillion: developers/creators of virtual platforms; traders, entertainers, advertisers;
hardware providers of headsets, graphic chips, and omnidirectional treadmills
(Figure 1). At the same time, the Metaverse is being subject to different potential
evolutions, depending on how humans will adjust their subjective expectations to the
objective rapports (of economic laws’ nature) between the physical and the virtual
(Figure 2).
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Figure 1. The “state” Figure 2. A “process”

of the Metaverse economy of the Metaverse economy
Source: own representation, data from Source: own representation of original

Palandrani, 2021. problematization.
Far from the flamboyant “voyages of the starship Enterprise”, the present space
economy is “the full range of activities and the use of resources that create value and
benefits for human beings in the course of exploring, researching, understanding,
managing, and utilising space” (OECD, 2019). If being connected in worldwide
networks, from a computer or a mobile phone, may seem a triviality today, this
would not have been possible without the artificial satellites, giving us instantaneous
communications, GPS guidance, 24h television broadcasts, weather forecasts
(Becerra, Rodríguez, 2016), as many earthly benefits are space-related (Figure 3).
Beyond governments’ primacy in popular imagery as well as in strategic designs,
the vast benefits of the cosmic economy were brought to final consumers by the
efforts of private enterprises. As in the case of the Internet, the state was only the
trigger (Jora, Iacob, 2019). The modern space quest is usually split into three major
phases (Sommariva, 2018):
• The first one, called the “inventions stage”, occurred at the beginning of the
twentieth century and included groundwork research with potential space use
(including here Hermann Oberth, born in Sibiu and raised in Mediaș and
Sighișoara, who was a rocketry pioneer);
• The second stage, between 1950 and 1970, comes with expanding innovations
devoted to exploration projects, military concerns, and the first economic views
seeing the Cosmos as a commercial sector having infrastructure development
needs to be served through public goods;
• In the third stage, after the 1970s, the space economy grew rapidly (such as the
satellite sector), culminating with the creation of “New Space” private companies
like SpaceX, Virgin Galactic and Blue Origin that tackled the last bastions of state
monopoly: launching goods and people.
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The inherent complexity and the high operating costs kept the economy of the
cosmic space mainly within the reach of the state agents (Launius, 2018; Pietroni,
Biglardi, 2019). The excuse of the powerful spacefaring states in their reluctance to
share their cosmic findings with the developing ones was their (in a sense legitimate)
need to first capitalize on their previous resources deployed in extra-terrestrial
exploration efforts, despite all the non-negligible networking benefits (Smith, 1988).
One may also wonder why some space-exploitation activities still look far-off:
from manufacturing to mineral extraction, energy provision, and even agriculture –
as a digression, we may see a “reversed sectoralization”, meaning that the most basic
economic activities on Earth seem the most remote in the outer space (Figure 4).
Beyond cost reasons, such activities will be further delayed by the “socialist” (“res
communis”) view from the 1967/1979 international space treaties (Simberg, 2012).
Figure 3. The “state” Figure 4. A “process”

of the space economy of the space economy
Source: own representation, data from Source: own representation of original

Bryce, 2019. problematization.

The main research questions to which the present study aims to offer
answers, bearing in mind that the complexity of evolutions pertaining to the subject
matter and their disruptive character defy the use of mere extrapolations, are the
following ones:
• Understanding that the Metaverse cannot be a self-sufficient world, for its users
do rely heavily on physical supplies not only to develop it, but to live their own
flesh-and-blood lives, is the outer space a reliable provider of critical resources?
• Also, conversely, is the Metaverse rather a secluded realm, an escape room from
the hardships of traditional life (or a hidden trap?), or a lucrative, training ground
that could prepare us for pushing forward existential (including space) frontiers?
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• Which are some of the most notable aspects where both the Metaverse and the
outer space will require us, humans, to carefully revisit our rules of social conduct
(including “social contracts”) in order to extract maximum benefits from the two?
4. Research Methods
The research team opted for a deliberately qualitative approach, noteworthy the
exploratory character of the study deriving from its novel subject matter. This started
with a review of the literature devoted to the technical-scientific and socio-
economical aspects of the Metaverse and space exploration current developments.
Then, historical analysis and prospective analysis were applied to (qualitative) data
associated to the “megatrends”- and “game changers”-types of observed phenomena.
The authors consider that such a methodological approach, which may be
considered austere as compared with more sophisticated toolkits for data mining and
modelling (usable at later stages of the research), is both proper for the moment and
substantially enhanced by the interdisciplinary character of the team that is made up
of economists and engineers. The study of broad phenomena with the combined
lenses of social sciences and technical sciences is fertile before, eventually,
streamlining it.
5. Findings
The following arguments share a vision for a Metaverse and space paradigm
advancing more or less in lockstep, although they are currently, more often than not,
separate realms affected by their own challenges, risks, opportunities, and dynamics.
The areas of overlaps and intersections are potentially very vast, and will only
come to fruition in the following decades as capabilities are expanded, a critical
mass of users is reached, and new applications are being developed, especially
for enterprises.
5.1 “Pride” (in Spacefaring) and “Prejudice” (of Neglect)

One of the most obvious arguments in favour of synergy is that it is unlikely
that the Metaverse can totally displace space exploration as an aspirational or
positional good that feeds, at the very least, into the willingness of politicians to
fund it and of billionaires to make their mark through it. Regardless of the ebb
and flow of public and private interest in space, there is still a minimum politically
viable investment to be made into it for the sake of scientific discovery. This
argument is needlessly modest – the reality of the current profusion of space
applications, as well as the heating up of a new Space Race as a dimension
of competition between legacy and aspiring powers, guarantee that there will be
a significant amount of attention paid to space even if the Metaverse becomes “the”
interface between ordinary man and life.
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5.2 Gamification as a Teaser and Tester in the Space Quest

It is quite possible/plausible that the Metaverse itself will inspire new generations
with wanderlust and a fascination for space that will make the dynamics described
above possible. An obvious tray of the Metaverse remains gaming, featuring a near
limitless array of aesthetic varieties, some of which veer into Sci-Fi and into
plausible simulations. Just like traditional gaming maintains a sizable niche of
enthusiasts for realistic simulations of all types, from flying to farming, so too will
the Metaverse enable new videogames and other experiences drawn from Cosmos
and the enduring fascination of its fans. For instance, there is the X-Metaverse, a
blockchain-based Star Wars game, where, as in the vast majority of alike products,
the pleas for the “peaceful exploration of space” are secondary to warlike sensations.
5.3 From Edutainment to New Business Models for Space

Beyond simulation of space for entertainment and edutainment purposes, there
are other potential contributions in the usage of the Metaverse, for instance in raising
funds and designing new business models for space. Already, there are Metaverse
games with NFT-based business models such as mars4.me that plan on investing a
part of the proceeds into space and giving their players a stake through virtual land
ownership (Guha, 2021). This might be a stretch of the imagination, but other
outlandish models have been proposed in the past – at the dawn of social media,
there was a (failed) plan to fund a Mars mission by turning it into a reality TV show.
The interactivity, variation, and user choice of the Metaverse experience can make
exotic business models viable in the fiefdoms of space exploration and exploitation.
5.4 Space, Earth’s Future Minerals and Energy Purveyor

Space exploration and, then, exploitation may become a necessity for survival in
the age of the Metaverse. We have the Sci-Fi standby of the insatiable appetite for
new resources on the part of future societies, from the prosaic (various minerals) to
the fantastic (deuterium for nuclear fusion). Adding the Metaverse to the global
technological civilization in the making, with its necessary huge computing
substrate, will likely raise the requirements for “rare earths” (eventually cheaper to
mine and ship from the asteroids) and the consumption of energy. Depending on
which evangelist of space quest one listens to, the future is either in solar power
plants in space, harvesting the Sun’s rays continuously and beaming the energy down
to Earth, or in mining cosmic bodies for fuel for clean and safe fusion power plants.
5.5 Space-Related Tech to Assist Metaverse Functionalities

A straightforward contribution can also be made to the running of the Metaverse,
with satellite communication systems acting as one of the main vectors for global
exchanges of information in real time. Other applications include Earth Observation
and remote sensing which may inform Metaverse-based simulations of various real
world phenomena. Metaverse functioning relies on synced computer systems and
databases in disparate corners of the world, and kept organized by the
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synchronization services of the atomic clocks that are on-board global navigation
satellite systems. SpaceX, Meta (ex-Facebook), and a few other players have drawn
up plans for satellite mega-constellations that provide wireless Internet access to
remote areas and other services that increase the potential ubiquity of the Metaverse.
5.6 Early Warning Mechanisms for Space-Related Threats

A Metaverse-oriented civilization needs to be reliable, including in the face of
high impact low frequency events that may disrupt it with catastrophic results once
it is sufficiently embedded in our lives and in our critical infrastructures. The space
environment features a wide variety of general and specific risks and threats that
require policies and actions to address. One example is the space debris threat to
space systems requiring clean-up technology tests in orbit. Another is the impact of
space weather, the variety of phenomena emanating from deep space or from our
Sun, involving various forms of radiation and other charged particles with
deleterious effects on technological systems, including the energy and information
ones, be they orbital or terrestrial, that are engineered to make the ubiquitous
Metaverse a reality.
The most well-known phenomenon is that of “solar storms” (Cannon, 2013),
where the variability of solar activity leads to highs that include coronal flares, which
can destroy satellites, short-circuit electricity grids, and even affect undersea cables.
They geomagnetic phenomena are a significant threat to technological civilization,
with costs estimated at trillions of dollars in direct damage per event. The mitigation
of such risks and the growth of the resilience of our interconnected and digitalized
world, which is moving toward the Metaverse, will require research into these space
phenomena and system hardening, as well as investment into Space Situational
Awareness, both in the proximity of our planet and near the Sun, in order to provide
early warning so that management and mitigation measures to be promptly activated.
5.7 The Metaverse – A Tailored Tool for Space Exploration

There are already steps in this direction, with NASA reportedly initiating a
thematic competition for amateur content developers to send in scenario simulations
related to space exploration (Paleja, 2022). In the future, complex simulations will
be possible, involving digital twins of man-made systems and accurate and very
detailed simulations of the natural environment. The use of the Metaverse for
training, for interfacing with space systems and for operating systems in orbit or
beyond, directly or asynchronously, through planning interfaces, is foreseeable. This
reduces the required presence of human beings in space, thereby reducing costs; yet,
if one values human presence in space for its own sake, the efficiencies of remoteness
are to the detriment of the very goal of reaching a critical mass of people in space.
It should also be borne in mind that the Metaverse is not just a tool for
entertainment, despite the fact that it emerged in association with high-tech ludic
habits, but also one for serious work, such as that related to industrial design and
engineering. Already, aerospace companies are adopting Metaverse related
technologies such as its endemic XR (extended reality) – the blending of MR (mixed
606
reality), VR (virtual reality) and AR (augmented reality) – to power better tools for
the visualization and design of complex aerospace systems such as planes (Boeing
being a first mover). Similar approaches may be used in the future to design
spaceships and space stations, and to support the modelling and simulation required
for safety and security purposes in an extremely hostile environment for human life.
6. Conclusions
This study of the envisageable trade-offs (less plausible) and synergies (more
probable) has already inspired the authors to approach new research avenues,
intensive in critical and creative thinking, as the present topic reverberates with
current convoluted concerns, ranging from environmental (Iacob et al., 2019) to
warfare disruptions (Sauer, 2017). These concluding remarks disclose some of them:
• If the Metaverse can displace space exploration as (primary) aspirational or
positional good, then it might also contribute to the attainment of the UNESCO’s
SDG’s, since it is implied that it should lower the costs of (many) physical
activities. If so, future research will need to look at how the Metaverse can reduce
public expenditure on space programs. We know that the governments acted as
first-resort economic agent in space due to the latter’s inherent complexity, high
operating costs, huge risks, and lack of critical economic mass, and it may keep
up being like this if the Metaverse will “hijack” the elite of private entrepreneurs.
• There is a true need to find out what are the real costs of increasing the
potential/desirable ubiquity of the Metaverse. Are they worth it? Is a Metaverse
worth it if it aggravates the living standards in real life? Can a Metaverse-oriented
civilization be reliable? For instance, in May 2022, the digital currency Terra
Luna fell by more than 90% in a matter of days. This is not the kind of sustainable
economy sought after. Such disruptions might lead to catastrophic results not only
for the Metaverse, but for the entire (real) economy. The alleged knowledge-
based, technology-intensive economy had already experienced bubble bursts
(dot.com).
• With the soaring costs of energy (coupled with all current environmental
ambitions), one more factor to intensify price pressures would be undesirable.
Moreover, a decarbonized energy future, based on renewables and battery
storage, will require vast amounts of rare earths, prone to polluting and disrupting
mining operations. A balance needs to be reached: the Metaverse (as consumer)
and the outer space (as consumer, before being a provider) of critical material and
energetic resources should be developed without endangering the proper
existence/functioning of planet Earth, which will be, for centuries to come, the
only habitat we can afford.
However, to end on a more hopeful note, if the Metaverse can offer scenario
simulations that can better space exploration (inter alia), the complexity of it all
might be worth it up to some point. The real question is how that point is determined,
and whether it will be in the charge of (private) markets and price signals, or in that
of governmental planners that orchestrate political/policy (often opaque!) trade-offs.
607
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608

June 16-17, 2022
Tourism in the COVID-19 Pandemic Era:

Good Practices within the European Union
Iuliana POP1*, Delia POPESCU2,
Olimpia STATE3, Georgică GHEORGHE4
DOI: 10.24789788367405072-056
Abstract
Tourism is an important activity worldwide, which makes an important contribution to
the global GDP. The COVID-19 pandemic has severely affected the tourism sector at the
global and regional level, perhaps even more than other sectors of activity. The European
Union (EU) countries are among the most visited destinations in the world, but the
COVID-19 pandemic has affected many of them. Despite the difficulties encountered during
the pandemic, tourism in the EU countries has continued to survive in various ways. Making
use of a quantitative approach, the article aims to identify what were the solutions found and
put into practice for carrying out the touristic activity in the difficult conditions imposed by
the pandemic. From the analysis of two hypotheses, which were validated, we conclude that:
measures taken by the EU member states to reduce the spread of the SARS-CoV-2 virus have
directly affected tourism contribution to exports, and travel restrictions imposed by the EU
countries have negatively affected international tourist flows. In addition to this, examples of
good practices that have supported tourism under the conditions of the pandemic are
analysed.
Keywords: COVID-19 pandemic, tourism, travel restrictions, European Union,

good practices.
JEL Classification: L80, L83, L88, Z33.
1. Introduction
Tourism is one of the most dynamic activities, reaching in 2019 almost 1.5 billion
international tourist arrivals and USD 1,468 billion in revenues (WTTC, 2021). At
the same time, tourism is very sensitive to external factors that can seriously

© 2022 I. Pop, D. Popescu, O. State, G. Gheorghe, published by Sciendo. This work is licensed under the Creative
affect the evolution of international tourist arrivals. After the announcement of the
outbreak of the COVID-19 pandemic on 11 March 2020, the rapid spread of the virus
was immediately felt in tourism everywhere. Restrictions to prevent or slow the
spread of the virus have led to the isolation of major tourist destinations. These
measures have been rapidly adopted by more and more regions over a period of time,
in line with the specific situation of each region (UNWTO, 2021a).
Europe has been among the regions most affected by the pandemic, with almost
all the EU countries being forced to impose harsh isolation measures and travel
restrictions since the pandemic was declared (Eurostat, 2021). At the beginning of
the pandemic, among the EU countries most affected were Italy (Dorrucci et al.,
2021) and Austria (Kreidl et al., 2020). The EU member states are among the most
developed countries in the world, and mobility in these countries is very high. One
of the factors that contributed to the spread of the virus was precisely this high
mobility, in the context of globalization, but also the facilities related to free
movement in the European space (Eurostat, 2021).
If in 2019, out of a total of 1,464 million tourists, almost half, 746.3 million (51%)
arrived in Europe, of which 540.7 million arrived in EU countries, it can be said that
the EU is the most important tourist region in the world, with 37% of international
tourist arrivals (ECA, 2021). These statistics show how important tourism is for these
countries, but also the fact that it is a preferred destination globally, not only
regionally. Among the most favourite destinations in the world, in 2019 we find in
the first places also EU countries, such as France, on the first place in international
tourist arrivals, followed by Spain, on the second place, then Italy, on the fifth place,
and Germany, on the ninth place (UNWTO, 2021b). A similar situation is found in
tourism revenues.
The outbreak of the COVID-19 pandemic has changed this situation in a way that
is hard to imagine. In 2020, world tourism faced the largest loss in the number of
international tourists, -73%, registering only 400 million international tourists
(UNWTO, 2022), out of which Europe received 59%, the EU countries being among
the preferred ones, even in these conditions (177.9 million international tourists).
Due to the numerous restrictions that were introduced at the beginning of 2020 and
reintroduced in the autumn and winter of 2020 for different states, due to numerous
pandemic waves, the consequences for tourism have been major (Eurostat, 2021).
The year 2021 brought only a small increase in the number of international tourists,
especially in the second half of the year. Thus, if in the entire 2021 there were 415
million international tourists, Europe received 279.8 million (representing 67% of
the world total), out of which the majority of them, 203.9 million, were received
by the EU countries (representing 73% of total arrivals in Europe) (UNWTO, 2022).
The highest number of tourists was registered in Southern Europe (Mediterranean
Europe), 33%, followed by Western Europe with 17%, then East-Central Europe
and Northern Europe. Among the European countries with a high number of tourists
and which are not in the EU-27 are the United Kingdom and the Russian Federation,
the other European countries receiving a lower number of tourists.
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The COVID-19 pandemic did not end at the beginning of 2022, even though
throughout 2021 medical solutions appeared that were considered absolutely
necessary for a return to a state of normalcy (pre-pandemic). The various variants of
the virus, which appeared along the way, more or less dangerous, maintained the
pandemic. If the Delta version of 2021 was very aggressive, the Omicron version
proved to be less dangerous. This situation has made the restrictions less severe and
has gradually begun to decrease in more and more countries. However, the end of
2021 continued to be under threat from the Omicron variant, which experienced a
high spread rate (UNWTO, 2022).
With the rapid spread of the Omicron variant, another challenge has hit the EU –
the aggression of the Russian Federation on Ukraine – which could prolong the end
of the pandemic. Under these conditions, tourism in EU countries is facing new
situations, such as the massive wave of refugees heading in the first phase to EU
border countries (Baltic countries, Poland, Hungary, Romania, but also the Czech
Republic and Slovakia). This wave of refugees can sustain the pandemic for a period
of time, given the difficulty in managing the health situation in these conditions. In
other words, the tourism of the EU countries will lose a significant number of tourists
who came from the Russian Federation and Ukraine, in countries like Spain, Italy,
Cyprus, Finland, Germany, etc. At the same time, these EU border countries are
considered unsafe due to the war in Ukraine, and many trips to these countries will
be cancelled, which is another blow to EU tourism.
The purpose of this paper is to present some of the measures taken by EU
countries to support tourism during the health crisis and to relaunch tourism after the
end of the pandemic, in order to return to a pre-pandemic situation. The approach
used quantitative methods, through the empirical analysis of statistical data,
combined with the analysis of documents concerning the measures taken by EU
countries, in order to reduce the negative effects of the pandemic. The article
introduces the context to which the subject is related, followed by a brief review of
the literature, the presentation of research methods, results, and conclusions.
The devastating effects that epidemics or pandemics have had on tourism have
been addressed over time in numerous articles (Debashish, 2021; Papanikos, 2020).
The impact of these health challenges has been felt intensely at the regional level.
This time, humanity is facing the hardest test, and the economic losses are greater
than during the great economic crises (Guridno, Guridno, 2020). Therefore, Duro et
al. (2022) addresses tourism resilience in Spain, one of the most important tourist
recipient countries. At the same time, governments, travel agencies, and the media
have warned of the contagious risks of Sars-Cov-2 in an interconnected world, but
these warnings have not been heeded, leading to undesirable effects in Spain
(Moreno-Luna et al., 2021).
Another direction of research was to find solutions to support tourism under the
conditions in which freedom of movement was restricted by a series of measures
taken by each country, but also at the regional level. Close collaboration between the
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public and private sectors during the pandemic can be a sustainable model that can
also be applied in the tourism sector. Governments should play a key role in
revitalizing the tourism sector through packages of financial incentives and subsidies
(Debashish, 2021). In addition, in the process of relaunching tourism, the use of
promotion tools through social media platforms would be very helpful.
Of particular importance during the lockdown were the alternative forms of the
armchair tourism, in which people supplemented physical travel with virtual travel.
Armchair tourism, even if it does not bring immediate benefits to tourism, has the
role of preparing people for future journeys by providing them with the needed
information for the journeys to follow through books, television, or the internet
(Papathanassis, 2011; Mazanec et al., 2002). People can thus participate in visiting
museums, shows, events, in a virtual environment, thus arousing curiosity and the
desire to visit them physically. Although virtual reality (VR) technology has been
implemented since the early 1990s also in tourism, especially in heritage sites,
museums, and other attractions (Hudson et al., 2019), virtual tourism has been
relatively low before the pandemic, but it became increasingly important during the
pandemic (Bunghez, 2021), when people rejoiced that they could discover unique
experiences with technology, as an alternative to real experiences. The tourism
industry may soon bring new tourism experiences for those who cannot travel, such
Žilina tourism metaverse, which may be a solution. This type of travel can help
promote tourist destinations. Various industries, such as tourism, marketing, and
education, recognize the metaverse as a new business model. The cultural tourism
could be oriented towards the metaverse, thus opening new spaces of interest for this
type of tourism (Um et al., 2022).

The purpose of this paper is to present some of the measures taken by EU
countries to support tourism during the health crisis and the recovery after the end of
the pandemic, in other words to return to a pre-pandemic situation.
In order to carry out this research, two hypotheses were formulated:
H1: The measures taken by the EU member states to overcome the economic and
health crisis caused by the SARS-CoV-2 virus have directly influenced tourism
exports;
H2: Travel restrictions imposed by EU countries to reduce the spread of the
SARS-CoV-2 virus have negatively affected international tourist flows.
4. Research Methods
The method used is quantitative, through the empirical analysis of statistical data
obtained from various specialized sources, such as UNWTO, WTTC, and Eurostat,
from 2019 (pre-pandemic year), 2020 and 2021. The Statistical Program for the
Social Sciences (SPSS) was used to demonstrate the correlation between the
following variables: tourism exports and the number of anti-COVID-19 measures in
each country. At the same, an analysis of documents prepared during the pandemic
612
by the European Commission (EC) or policies presented on the UNWTO website

(2021c) by each country, which took into account measures to support the tourism
sector, by developing a mix of policies, was performed.
5. Findings
5.1 Measures Taken by the EU Countries to Support Tourism

during Pandemic
Initially, at the level of the EU countries, there were no unitary strategies to
combat the effects of the pandemic, so each country has implemented its own
strategies (Papanikos, 2020). On 13 May 2020, the EC adopted a comprehensive
package of initiatives to enable a framework for resumption of activities following
the first pandemic wave. Analysing the measures adopted by EU countries on the
UNWTO (2021c), nine categories of measures were identified: fiscal policy,
monetary policy, jobs and skills, marketing intelligence, public-private partnerships,
restarting tourism, health and safety protocols, domestic tourism, and others. In our
approach, we registered for each country the identified strategies. The results are
presented in Figure 1.
Figure 1. Policies used to combat COVID- 19 effects in the EU countries (2020-2021)
Source: Made by authors based on research, data provided by UNWTO, 2021c.
The analysis showed that four countries, namely Austria, Bulgaria, Greece, and
Portugal, took measures that targeted all nine categories, whereas fewer types of
measures were implemented in Slovakia and Sweden. At the end of 2021, the EC
initiated actions to reduce the effects of the COVID-19 pandemic on the tourism
sector (ECA, 2021).
In order to validate the first hypothesis (H1), which refers to the measures taken
by EU member states to overcome the economic and health crisis generated by the
SARS-CoV-2 virus, we tested the existence of a correlation between these measures
and tourism exports to each EU country, using the SPSS.
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Table 1. Correlations between tourism contribution to exports

and the measures to boost tourism for the EU countries
Measures
Tourism
to support
contribution
travel
to exports
and tourism
Pearson Correlation 1
Tourism contribution to
Sig. (2-tailed)
exports
N 27
Pearson Correlation ,554** 1
Measures to support travel
Sig. (2-tailed) ,003
and tourism
N 27 27
Source: Made by authors based on research.
A bivariate analysis was performed to test the assumption that measures

against the effects of the COVID-19 pandemic have affected tourism revenues, in
this case the tourism contribution to exports for the EU countries. According to the
results (Table 1), the connection between the variables under analysis is of a direct
nature and of moderate intensity (Pearson Correlation being equal to 0.554). Thus,
we can say that the application of a wide range of measures against the effects of the
COVID-19 pandemic has significantly influenced the tourist traffic. Based on these
analyses, the first hypothesis (H1) was validated.
5.2 Travel Restrictions in the EU Countries during the Pandemic

and the Consequences for Tourism
Another factor able to influence the practice of tourism was the one regarding
the travel restrictions. The EC has issued guidelines on non-essential travel
restrictions (COM, 2020), with the gradual restoration depending on epidemiological
conditions. On 15 April 2020, the EC, in collaboration with the European Council,
presented a joint European roadmap on lifting restrictions in the context of the
COVID-19 pandemic.
Based on the data provided by UNWTO (2021a), we grouped the actions of the
states into three broad categories, creating a matrix in which the following codes
were assigned: 1 for complete closure (CC), 2 for partial closure (PC), and 3 for other
measures (O) (quarantine/testing) in order to validate the second hypothesis (H2).
From the analysis, it is found that only two countries focused on only one type of
restrictions (PC), the Netherlands and Sweden, while the rest applied at least two of
the strategies (the most common CC and PC).
The graphical representation of the results is highlighted in Figure 2. Also, here
we note that countries applied for the analysed period a combination of these
restrictions with some exceptions.
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Figure 2. Travel restrictions throughout April 2020 - November 2021

in the EU Countries
Source: Made by authors based on research, data provided by UNWTO, 2021a.

If at the beginning of the pandemic almost all EU countries relied on the CC,
as the information about the pandemic evolved, so did the options for combating it.
Figure 3 shows the impact of decisions on restrictions on the number of arrivals
in the EU-27 member states.
Figure 3. Tourist arrivals in the EU countries in 2020 and 2021
Source: Made by authors based on data provided by UNWTO, 2021a.
Based on data available on Our World in Data (2022a), we extracted the values
for the COVID-19 Stringency Index for the EU-27member states. This index is
calculated on the basis of nine crisis response indicators generated by COVID-19,
including the closure of schools, the closure of businesses, and the introduction of
travel restrictions. In the case of each country, the index can take values from 0 to
100 (100 meaning the strictest measures). Two key periods in the evolution of the
COVID-19 pandemic were considered, namely 21 January 2020 (correlated with the
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beginning of the epidemic) and 22 February 2022 (date of research and relaxation of
many restrictions). The results are highlighted in Figure 4.
Figure 4. COVID-19 Stringency Index for the EU countries
Source: Made by authors based on data provided by Our World in Data, 2022a.
Thus, analysing the two periods considered relevant for the evolution of the
COVID-19 pandemic in the EU, significant differences are found in each country.
There was a reduction in the intensity of the restrictions on the background of the
sustained vaccination campaign promoted at the level of the EU, such in the cases of
Denmark, Ireland and Portugal, where the population over 18 years of age vaccinated
with the full scheme was 81%, 80%, and 90% (Our World in Data, 2022b). Overall,
it can be stated that the restrictions have negatively influenced the flows of
international tourists in the EU member states, fact highlighted by the COVID-19
Stringency Index, the number and type of restrictions imposed in each EU member
state, and the evolution of the tourist arrivals indicator in 2020 and 2021, thus
Hypothesis 2 (H2) being validated.
5.3 Examples of Good Practices for the EU Countries

during the Pandemic
Many EU countries have made it a priority to restart tourism and promote

domestic tourism. Domestic tourism has a large share in countries such as Germany,
Romania, Finland, Belgium, France, and the Netherlands. This is also encouraged
by the use of holiday vouchers, holiday cards, special discounts, or other measures
designed to encourage domestic tourism. The most preferred places are the most
isolated ones, which receive a smaller number of tourists, with camping-type
accommodation, caravans or less crowded villas, as close as possible to nature. On
this occasion, many EU countries made available for tourists sites where they could
post impressions and images or movies, thus contributing to the presentation and
popularization of lesser known but particularly attractive places, being incentivized
through campaigns with awards, as in Denmark. Therefore, several countries offered
virtual experiences during the pandemic, which would involve future tourists until
616
restrictions were lifted. The subsequent transformations in the tourism sector will
be oriented towards the promotion of innovations and digital technologies, through
the development of tourist services and products. This is an important goal of the
EU, and Lithuania is one of the countries most interested in the digitization process.
The COVID-19 pandemic has caused EU countries to pay close attention to health
safety measures in accommodation, restaurants, or entertainment, with strong
protocols on compliance with rules in tourist units, from hygiene measures to social
restraint measures.
6. Conclusions
Restrictions to prevent or slow the spread of the virus have led to the isolation
of major tourist destinations. In addition to travel restrictions, governments have
also imposed restrictions on tourism businesses on how they operate, for reasons of
health security, in some cases leading to their complete closure, most of them being
lifted before the summer season. Thus, the two hypotheses taken into consideration
were validated. Close collaboration between the public and private sectors during
the pandemic can be a sustainable model that can also be applied in the tourism
sector, with governments playing a key role in revitalizing the tourism sector through
packages of financial incentives and subsidies.
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June 16-17, 2022
The “Perfect Storm” in the Global Automobile Industry:

Scrapping the Old is the Road Ahead for the New?
Hezi SHAYB1, Radu MUȘETESCU2*
DOI: 10.24789788367405072-057
Abstract
The automobile manufacturing industry is confronted in 2022 with what could be called
a “perfect storm”. A mix of dramatic factors, each with potentially massive impact, is
working toward a deep restructuring of this industry that may be qualified as unprecedented
in the industry. The consequences of the COVID-19 pandemic, the greening of the economy,
the global recession, as well as the political crises on the global stage are impacting both the
auto supply chains but also the relationship between the auto manufacturers and their
customers. Moreover, sector regulations are in a dynamic flow. Such a global context may
lead to dramatic changes in the management and strategies of the companies from this
industry and may reposition the competitors for the next long-term technology cycle in the
industry. Maybe paradoxically, one of the public policies that could support in the industry
in this process of transition is one of the most traditional in the industry, such as scrapping
schemes.
Keywords: scrapping, automobile, supply chains, political risk, motor vehicle.
JEL Classification: H23, L62, P12.
1. Introduction
In 2022, the global automobile industry is facing one of the most challenging
economic and political contexts it may have experienced during its entire existence.
While such a statement may seem over-rated or exaggerated, there are at least five
factors that massively impact the current situation. Each one of these factors may
potentially be highly disruptive by itself and in isolation, but the resultant mix of
them is leading to a unique situation.

© 2022 H. Shayb, R. Mușetescu, published by Sciendo. This work is licensed under the Creative Commons
It could be argued that the most important factors affecting the global automobile
industry in 2022 are:
- the global recession and macroeconomic instability. As early as 2019, analysts were
taking into consideration the probable occurrence of a significant macroeconomic
restructuring as a result of monetary policies following the Global Financial
Repression one decade before (2007-2008);
- the perceived climate crisis and the attempts by governments all over the world
(both domestically but also coordinated at an international level) to „green” the
economy. Such environmental challenges have led to a process of politically-
induced transition towards more eco-friendly technologies;
- the technological revolution in the automobile technology. Independently of the
environmental challenge, the automobile industry was facing a major technological
shift most probably manifested in a gradual abandonment of the technology of
internal combustion engine based on fossil fuels toward more efficient (and,
incidentally, more environmentally friendly) technologies such as the use of
biofuels in the internal combustion engine but most of the electric vehicle, the
hydrogen engine, and others;
- the COVID-19 pandemics and its impact on supply chains. The global pandemic
that started in 2020 and has developed for at least two years has determined the
adoption of public policies not previously adopted at a national level by
governments all over the world and especially in the Northern hemisphere (also the
area of major developed economies in the world). Policy measures such as
lockdowns, but also trade measures, have translated in the economic sphere in the
temporary blocking of major international supply chains in a wide range of
industries, among which the automobile industry was among the most impacted
ones. This was particularly the case of the People’s Republic of China (a country
that adopted among the most radical measures in this respect), but also of the
European Union;
- global political risk on the rise. Starting with the Donald Trump administration in
the United States of America and its willingness to politically confront other major
countries such as the People’s Republic of China, but also even members of the
European Union, and culminating with the war in Ukraine in 2022, the international
political landscape has deteriorated significantly. The rise of economic sanctions
as a preferred policy measure to deal with the relations between the Western
countries and the Russian Federation, for example, has further impacted the
international supply chains, as well as the business confidence.
Table 1. Factors affecting the global automobile industry
Preferred Form
Factor Main impact
of Government Intervention
decrease in the demand,
monetary policy, subsidies
Global increase in the cost of financing,
1 to producers, subsidies to the
recession erosion of working capital,
consumers, scrapping schemes
so on
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Preferred Form
Factor Main impact
of Government Intervention
adoption of new legislation,
carbon taxation, ecological
“Greening” standards and ecological targets,
2 standards, scrapping schemes,
of the economy potential prohibition of certain
so on
activities in the future so on
learning new technologies,
implementing in new R&D,
retooling the factories,
subsidizing R&D, facilitating
Technological restructuring and repositioning
3 startups, scrapping schemes
change in the global supply chains (new
(especially electric cars) so on
partners, creating back-up
supply chains, reformulating
inventory management), so on
restructuring and repositioning
in the global supply chains (new
partners, creating back-up lockdowns, vaccination
COVID-19 supply chains, reformulating campaigns, subsidies
4
pandemics inventory management), to consumers, subsidies
experiencing tele-working, to companies, so on
experiencing new forms of
political risk, so on
restructuring and repositioning
in the global supply chains (new
partners, creating back-up
economic sanctions, trade
Global political supply chains, reformulating
5 boycotts, human rights
risk inventory management),
prosecution, so on
experiencing new forms of
political risk, managing
economic sanctions, so on
Source: the authors, 2022.
3. From Crisis to Failure: Rapid Change as a New Type of “Market

Failure”
The literature on “market failure” has emphasized that there are economic
conditions under which the process of allocation of resources in an optimal way is
disturbed (Bator, 1958). In consequence, private agents do not maximize general
welfare through their profit-oriented activities. Governments are called to intervene
by rearranging assets and reincentivizing activities toward other scenarios of
allocations. But there is an implicit, market equilibrium assumption. That there is
such an “optimum” scenario as long as the fundamental data are given: consumer
needs, factors of production, knowledge and technology.
Any change in such market data changes the optimum point and induces
disequilibrium that exists until the moment when the economic system reaches the
new optimum. But such a process is not instant. It takes time, as fundamentally the
structure of production has to be rearranged in terms of physical reconversion of
621
capital goods and consumer preferences have to internalize the new market supply.
Fundamentally, such a rearrangement of the structure of production means
downsizing certain production activities, setting up new business ventures that
exploit the new knowledge and technology by implementing it into new products
and services, and reconverting assets from the old structure of production towards
the new structure of production.
Under the condition of perfect competition with knowledge parity between
agents, such a process seems to be instant. However, in the real world this is not the
case. Any such process of restructuring and reconversion of the structure of
production means that entrepreneurs have to implement the new knowledge and
technology into new business ventures (not necessarily new companies), invest, and
start the process of production of the new products or services (or upgrade them).
Such a process takes time as capital goods need a period of depreciation in order
to allow entrepreneurs to record profits and be rewarded in this way for their
right forecast.
This is the reason why the Austrian economist Joseph Schumpeter (2008) called
“capitalism” a process of “creative destruction” as new ways of production mean the
emergence of new structures of production (combination of factors of production)
and the disappearance of the old ones.
Entrepreneurs need not only time in order to return their investments in capital
goods but also a certain degree of risk that they are assuming. Any entrepreneur has
to manifest a certain confidence that he / she will be able to take back the investment
in the time horizon he / she calculated. No entrepreneur will ever take a decision to
invest if he / she does not have such the confidence of the return of the investment.
Lacking the confidence, such an entrepreneur will wait until the conditions of the
market will allow him / her to make an informed forecast and bet on the possibility
of getting the return of his / her investment.
Or, in a fast-changing technology environment associated with a fast-changing
regulatory landscape that is a result of domestic and international political dynamics,
such a confidence may be lost. Under such conditions, the current global economic
context may be translated into the abstention from making long-term capital
investments which, paradoxically, exactly inhibits the process of reconversion.
In consequence, a new type of “market failure” may emerge. This is the turbulent
business environment where the fact changes in the environmental conditions of the
market leads, in abstracto, to an impossibility of entrepreneurs to take decisions and
to act. They are prevented from doing so by their lack of confidence that they have
enough time at their disposal in order to get the return of their investments. As Smith
and Cowing (1977) stated, “that the rate of return constraint affects investment
choices by reducing the implicit value of net investment to the regulated firm”.
4. A New Logic of Interventionism Has to Emerge in Time of Crisis:

Reducing Uncertainty
In such a turbulent business environment with a fast pace of technology and
exogenous political changes, the logic of public interventionism has to be adapted.
622
It should not be redistributive or re-allocative of existing welfare. It should be

inducing stability in order to create welfare in the future. It should not provide
subsidies but confidence, that is, a certain degree of predictability to allow private
agents to make investments.
Public policies have already created the infrastructure on which markets are built
and operate. They are the system of property rights, freedom of exchange, monetary
system, tax system, and so on. The stability of such institutions provides the ability
of entrepreneurs and market participants to calculate, plan and implement their
business decisions. No entrepreneur can write a business plan, unless he / she has a
certain confidence that the data that is used is reliable and the market conditions will
remain broadly speaking stable.
Permanent turmoil until determine business decision markers to postpone
investment till the moment that the conditions of the market seem to be more stable
and allow for a certain forecast. So, this is not only a knowledge problem but also a
political problem. The political problem is related to the outcome of the political
process, which is regulation. Paradoxically, both challenges can be solved by
political decision makers through multiple mechanisms.
It is obvious that there is a difference between nominal certainty and real
certainty. For example, socialism as a political and economic system apparently
determines certainty. Government planners made four- or five-year plans in which
they stated how they would allocate resources at the level of the entire economy. All
property was governmental and the prices were fixed by authority. Apparently, there
were no losers or winners in the process of production. Everybody was a winner. In
consequence, no “dynamics” were allowed as uncertainty and competition as a
discovery proof was denied.
While this formal certainty was obvious and reassuring for some members of the
society, the dynamics of the resource availability, consumer preferences, and
technological ideas could not be prevented in any type of socialistic system. Such
dynamics are natural, and while participants in the economic system can adjust to
the resource and knowledge availability, the mismatch just grows in time. Moreover,
the disincentives to rationalize resources and save are distorted and altered.
A market is an economic and political system where the uncertainty is accepted
as natural and is considered to be the core disciplining mechanism for adjustment to
the fundamentals of the market (Rothbard, 2009). Prices signal the demand and the
supply for an economic good. Market participants adjust to such trends in order to
be better positioned as compared to their competitors. But we should make a
manifest difference between market uncertainty (related to knowledge, consumer
preferences, entrepreneurship, etc.) and political uncertainty that lie at the premises
of the market mechanism: changing regulation (including taxation), prohibiting
certain economic behaviours or reallocating resources.
While the private economic agents should be endowed with the ability to
understand the sector in which they operate and, in consequence, to forecast the
dynamics of the market, they are less capable to understand the political process that
has the outcome of changing regulations and the “rules of the game”.
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5. The Dilemma of How to Intervene in “Perfect Storms”? Scrapping

Schemes
The current landscape of the automobile industry is really under unprecedented
conditions. It is a critical challenge for any government that has to address this
industry how to intervene. There are at least five factors that concur regarding the
current context, which means that each measure or form of government intervention
that should have dealt with that particular “failure” may be inefficient for the others.
So in a complex situation like the one faced by the automobile industry, the dilemma
is which policy measure should be chosen that may have a complex impact,
preferably on each of the dimensions of the crisis. Using too many instruments and
forms of intervention may translate into a cacophony of interventionism, which has
complex but also contradictory effects.
As the third column of the table shows, scrapping schemes have been employed
by different governments in order to reach different policy objectives. While simple
as structure and implementation, they may become the policy choice for their
complex impact at the level of the economy and environment. As Malechek and
Melcer argued (2016), “adopted in many core world economies, most notably in
Germany, the U.S. and Japan. Two main goals of these schemes can be identified.
First, to provide a support to the car industry by shifting future consumption to the
present, which is particularly valuable in a recession, when there is an abundance
of unemployed resources that can be put to work at low net economic cost ...
Secondly, replacing old cars with high emissions by new ones should have brought
about a positive ecological outcome ...”
A scrapping scheme is a policy measure through which an owner of an old car is
rewarded with a premium in the moment that he / she decides to scrap such a car.
The scheme can stop at this point or continue by the use of the premium in the
process of acquisition of a new car. In the second case (which is the most usual
type of scrapping scheme), the scrapping of the old car means the acquisition of
a new car.
While apparently very simple, the scheme explores at the same time two key
challenges in the present economic landscape: the economic growth and the
“greening of the economy”.
There are not so many policy measures that support at the same time economic
growth (exiting the recession) and protection of the environment. As a general norm,
these two objectives are in contradiction in the traditional logic of industrialism.
Paradoxically, scrapping schemes are among the policy measures that seem to
support both objectives. Starting with what has been called the “UNOCAL scheme”
in 1990 (implemented by the American energy company UNOCAL in the state of
California) (Lucsko, 2016), the scrapping schemes have been adopted by several
countries in the world (especially in the European Union as well as in other major
economies in the world). Its popularity has been reached during the global financial
crisis of 2007 – 2008, when especially European countries have adopted such
schemes with a double dimension: exiting the recession and advancing towards the
environmental objectives.
624
As mentioned by the European Conference of Transport Ministers (1999), “The

main objectives of the schemes have usually been listed as follows:
- stimulating the national car industry and the national economy by boosting new
car purchases;
- improving transport safety by introducing newer, safer vehicles;
- reducing car exhaust emissions”.
Maybe paradoxically, there are no such policy measures that can address multiple
objectives at the same time. So the scrapping schemes are among the unexpectedly
simple in design but complex in impact contemporary public policies.
6. Conclusions
In a complex context of a crisis with multiple dimensions that could be qualified
as a “perfect storm”, the dilemma of the types of public policy to be adopted is high
on the agenda. The global automobile industry experiences a unique set of
circumstances that require a certain type of intervention from the part of
governments that addresses in the same time multiple dimensions, unless a deep
shock would damage the industry. Scrappage schemes are among the apparently
simple forms of intervention but with a complex impact at least on economy and the
environment.
References
[1] European Conference of Transport Ministers (1996). Cleaner Cars. Fleet Renewal and
Scrappage Schemes, OECD Publications Service.
[2] Bator, F.M. (1958). The anatomy of Market Failure, The Quarterly Journal of Economics,
72(3), pp. 351-379.
[3] Lucsko, D.N. (2016). Junkyards, Gearheads, and Rust. Salvaging the Automotive Past,
Johns Hopkins University Press, Baltimore.
[4] Malechek, P., Melcher, O. (2016). Cross-Border Effects of Car Scrapping Schemes: The
Case of the German Car Scrapping Programme and Its Effects on the Czech Economy.
Prague Economic Papers, 25(5), pp. 560-576.
[5] Rothbard, M.N. (2009). Man, Economy, and State with Power and Market. Second
Edition, Scholar’s Edition, Ludwig von Mises Institute, Auburn.
[6] Schumpeter, J.A. (2008) Capitalism, Socialism, and Democracy. Third Edition (Harper
Perennial Modern Thought).
[7] Smith, V.K., Cowing, T.G. (1977). Further Analysis of Optimal Repair, Scrappage and
Investment Policy. The Scandinavian Journal of Economics, 79(3), pp. 354-360.
625

June 16-17, 2022
The Territorial Impact of Indebtedness:

Sectoral Analysis in Slovak Environment
Katarina VALASKOVA1*, Dominika GAJDOSIKOVA2, Pavol DURANA3
DOI: 10.24789788367405072-058
Abstract
The structure of corporate financial sources is monitored using different indebtedness
ratios. The proportion of own resources and debts affects the level of corporate financial
stability. That is why the level of indebtedness should be analysed in enterprises and
monitored to avoid any financial problems or distress. The primary goal of this paper is to
analyze indebtedness in the Slovak environment using a sample of 15,716 enterprises from
various sectors using the statistical classification of economic activities in the European
Community (NACE classification) and to identify relationships between them. The study
estimates the indebtedness by several indebtedness ratios (total indebtedness ratio, self-
financing ratio, current indebtedness ratio, non-current indebtedness ratio, equity leverage
ratio, and insolvency ratio) over a 5-year horizon (2015-2019). To meet the objective of the
paper, the cluster analyses were applied using the squared Euclidean distance and the
Ward´s method of the agglomeration. The results indicate that there are clusters of sectors
with homogeneous patterns of indebtedness and thus with similar capital intensity levels.
Keywords: indebtedness, financial stability, cluster analysis.
JEL Classification: D22, G33, L25.
1. Introduction
Business performance is a key to the successful operation of a business and its
long-term survival. A very important part is the financial analysis, which expresses
the corporate performance, evaluates its goals, and sets the basis for further planning
of target organizations. Every company is better off prevailing in financing its own
resources over debts. Durana et al. (2021) state that the financial performance of
companies is also affected by macroeconomic influences such as the global crisis or
state intervention. As the financial stability of enterprises is also determined by
1 University of Žilina, Žilina, Slovakia, [email protected].

© 2022 K. Valaskova, D. Gajdosikova, P. Durana, published by Sciendo. This work is licensed under the Creative
internal factors, they should be carefully analysed, especially those factors which
determine the level of indebtedness. Thus, the primary goal of the study is to
analyze the level of indebtedness in the Slovak environment using a sample of
15,716 enterprises from various sectors and identify relationships between them,
which may help identify sectors with homogeneous patterns of indebtedness and thus
recognize which sectors are mostly stable and independent.
The paper is divided as follows: The Problem Statement section summarizes
recent papers published in the field. The Aims of the research section sets the purpose
of the paper, the methodological steps applied in the analysis are portrayed in the
Research Methods. The results of the cluster analysis performed in the Slovak
environment are presented and discussed in the Findings section.
Monitoring the level of indebtedness in enterprises is an essential part of
managerial activities when mapping the probability of potential financial risks
(Campos and Cysne, 2021). The optimal capital structure does play an important role
(Rowland et al., 2021) and also the typical debt limits for different countries (Butkus
et al., 2021; Novak et al., 2021). Campos and Cysne (2021) studied debt limits for
18 emerging countries and found that there is no common debt limit for all of the
countries. Markova and Svihlikova (2019) observed the situation in the Visegrad
countries and found that indebtedness is also one of the crucial indicators of the
monetary development of a country. The importance of the country-level factors in
the process of over-indebtedness in Europe was also investigated in the study by
Angel and Heitzmann (2015). Goncalves et al. (2020) investigated the impact of
political cycles on corporate debt policy. They analysed some specific indebtedness
indicators using the Wilcoxon test and cluster analysis and proved that there were no
statistically significant differences in debt levels between political cycles.
The role of the micro and mezzo factors is also evident, as declared by Padmaja
and Ali (2019) or Toederescu and Mocanu (2010). Devesa and Esteban (2011)
proved the importance of solvency, liquidity, and asset structure when determining
the level of indebtedness. Following the research of Ngo and Le (2021), the debt
structure is significantly related to firm size, firm quality, liquidity, leverage, asset
maturity, taxation, and macro-variables. The optimal level of the short- and long-
term indebtedness of small and medium-sized enterprises in different sectors has
been of interest to researchers for several years. Gomez and Cabarcas (2019)
analysed the indebtedness level of the metalworking sector, highlighting the
importance of business objectives and financial performance. Farcnik et al. (2015)
noted the relevance of sector-specific performance and thus explored bonds between
indebtedness and the tourism sector. The financing patterns and determinants of
indebtedness in the manufacturing sector were measured by Majumdar (2014), who
confirmed the importance of current liabilities in the process of debt financing.
Culkova et al. (2018) evaluated the indebtedness in the selected economic sectors
using corporate financial reports. The outputs of their research, measuring the level
of total indebtedness, financial leverage, and insolvency ratios, proved that there are
627
some sectors with a high level of indebtedness in which future business activities can
be significantly threatened. In their research, Manova et al. (2018) confirmed that
the ability of an enterprise to develop in the market is strongly determined by its
financial performance. Using the cluster analysis, they were able to cluster sectors
according to selected financial parameters.

The quantification of the indebtedness is very important for all enterprises
operating on the market to declare their stability, competitiveness, and sovereignty.
Yang et al. (2015) revealed that there are specific factors influencing short- and long-
term debts and that these factors are different between different sectors. They
underlined the importance of investigating debt decisions of enterprises in all sectors.
Thus, the fact that business entities and their debt levels should be consistently
measured and evaluated was the main force to identify clusters of sectors with
homogenous patterns of indebtedness and with similar capital intensity levels under
specific economic conditions. Thus, the following hypothesis was set:
H1: There is a significant occurrence of homogenous patterns of indebtedness
across the sectors in specific Slovak conditions.
4. Research Methods
To analyse the indebtedness level across the sectors, the Orbis database was used
to build a dataset of 17,992 enterprises. The selected companies met the condition
that the value of their total assets was at least € 300,000 in the period under review
(2017-2019) to ensure that all enterprises in the dataset are in stable financial
positions and have a similar economic background. After removing the not available
and outlying values, a final sample of 15,716 Slovak enterprises was set.
Using the financial data of the analysed enterprises, the selected indebtedness
ratios were calculated (total indebtedness ratio, self-financing ratio, current
indebtedness ratio, non-current indebtedness ratio, equity leverage ratio, and
insolvency ratio) over a 5-year horizon. Their descriptive statistics are summarized
in Table 1.
With all the descriptive statistics for all ratios, the cluster analysis was run. The
main task of this analysis is to find and identify homogeneous subgroups (clusters)
of the monitored set of enterprises in different economic sectors (classified by
NACE). In general, sectors within a cluster are similar based on a specific level of
indebtedness, and at the same time, sectors in different clusters have different
development of indebtedness ratios.
Table 1. Descriptive statistics of analysed indebtedness ratios

Ratio mean med. st. dev. min max coef. var.
total indebtedness ratio 0.6353 0.6547 0.3737 -0.0169 3.7872 0.5882
self-financing ratio 0.3647 0.3453 0.3737 -2.7872 1.0169 1.0245
628
Ratio mean med. st. dev. min max coef. var.

current indebtedness ratio 0.4553 0.4147 0.3379 -0.0478 3.4797 0.7422
non-current indebtedness
0.1800 0.0595 0.2726 -0.0180 1.9905 1.5146
ratio
equity leverage ratio 6.2622 2.6811 29.946 -54.832 429.596 4.7820
insolvency ratio 2.7943 1.8417 2.6864 -0.2018 17.4097 0.9614
Note: TI total indebtedness ratio, SF self-financing ratio, CI current indebtedness ratio,
NCI non-current indebtedness ratio, EL equity leverage ratio, INS insolvency ratio.
Source: By authors, based on research.
The principle of clustering is the computation of distances between objects. In

the paper, the Ward´s method and the squared Euclidean distance were used. This
type of distance is used if a progressively higher weight should be given to
further objects:
𝑑𝑖𝑗 = ∑𝐾 𝑘=1(𝑥𝑖𝑘 − 𝑥𝑗𝑘 )
2 (1)
where 𝑑𝑖𝑗 is the distance between objects, 𝐾 is the number of quantitative variables,
𝑥𝑖𝑘 is the value of the k-th variable for the i-th object, 𝑥𝑗𝑘 is the value of the k-th
variable for the j-th object. Ward’s hierarchical agglomerative clustering method is
based on an analysis of variance, i.e., the minimum growth of the sum of the squares
deviates from the average by adding a new object to the cluster, which leads to the
formation of clusters of similar shape and size. The clustered sectors are then
portrayed in the dendrogram to reveal homogenous patterns of indebtedness across
the sectors.
5. Findings
The results of the cluster analysis were used to find the sectors with similar levels
of indebtedness, which were measured by selected indebtedness ratios. The
dendrograms for each indebtedness ratio are presented in Figures 1a-f. It may be said
that the outputs of the cluster analysis confirmed that there is a significant occurrence
of sectors with similar indebtedness.
The total indebtedness ratio measures the ratio of total debt to total assets. The
higher the level of equity, the higher the reserves for creditors in case of financial
problems. Therefore, the interest of creditors is to minimize the debt levels, since the
debt is cheaper compared to equity (Mrzyglod et al., 2021; Kovacova, Lazaroiu,
2021). The value of this indicator should not exceed 70 % (which is the optimal debt-
to-total-assets ratio). The cluster analysis proved that the economic sectors can be
divided into three groups based on their total indebtedness (Figure 1a). Exactly the
same results can be observed for the self-financing ratio (Table 2), which measures
the level of financial independence and stability of an enterprise (its value should not
be less than 20-30%). Both these indicators determine the structure of corporate
financial sources (their sum is 100%), and the clusters or economic sectors are the
same (Figure 1b).
629
Figure 1. Dendrograms (indebtedness ratios)
a) total indebtednes sratio b) self-financing ratio
c) current indebtedness ratio d) non-current indebtedness ratio
e) equity leverage ratio f) insolvency ratio
Note: Numbers on the horizontal axis indicate the sectors, i.e. 1 is for NACE A, 2 for B,
3 for C, 4 for D, 5 for E, 6 for F, 7 for G, 8 for H, 9 for I, 10 for J, 11 for K, 12 for L,
13 for M, 14 for N, 15 for O, 16 for P, 17 for Q, 18 for R, 19 for S.
630
Table 2. Clusters (total indebtedness and self-financing ratios)

Cluster C1 C2 C3
Number of sectors 10 8 1
Economic activities A, C, D, F, G, B, E, I, J, O, P, M
(NACE codes) H, K, L, N, Q R, S
Source: by authors, based on research.
If the company uses debt capital to a large extent, it is appropriate to monitor the
structure of debt in the form of partial indicators of the financial structure. Therefore,
the current and noncurrent indebtedness ratios were computed. These indicators
measure the ratio of current (noncurrent) liabilities to total assets. The optimal limits
are generally not given, however, considering the non-current indebtedness, these
debts represent a relatively convenient system of financing, as at the time of debt
analysis, it is not necessary to meet full cash requirements. The clustering of NACE
sectors according to the level of non-current indebtedness ratio is presented in Figure
1c, and it is evident that five homogeneous clusters were formed (Table 3).
Table 3. Clusters (non-current indebtedness ratio)

Cluster C1 C2 C3 C4 C5
Number of sectors 5 5 3 5 1
Economic B, E, O, D, I, J, P, A, H, N C, F, K, G
activities R, S Q L, M
(NACE codes)
Figure 1d records the clusters of economic activities in the Slovak environment

by current indebtedness ratio. Four homogeneous groups were determined (Table 4).
Table 4. Clusters (current indebtedness ratio)

Cluster C1 C2 C3 C4
Number of sectors 7 2 9 1
Economic activities A, C, F, H, D, G B, E, I, J, K, M
(NACE codes) L, N, Q O, P, R, S
The equity leverage ratio indicates the share of a shareholder´s equity in total
liabilities and evaluates how much leverage an enterprise is using. The higher the
level of the ratio, the greater the risk to shareholders. The dendrogram (Figure 1e)
specifies three clusters of NACE sectors by leverage ratio, Table 5.
The last indicator considered is the insolvency ratio, which monitors the ratio of
total liabilities to total receivables. If the value of the ratio is higher than one, then
primary insolvency is observed in an enterprise; otherwise, there is secondary
insolvency (for values of the ratio that are lower than one). The agglomerative
clustering method reveals only two clusters of economic sectors (Figure 1f). The first
631
cluster consists of three sectors (C, M, and N), the other analysed sectors form the
second homogeneous subset.
Table 5. Clusters (equity leverage ratio)
Cluster C1 C2 C3
Number of sectors 7 2 2
Economic activities A, B, C, D, E, F, I, J, K, G, L H, M
(NACE codes) N, O, P, Q, R, S
Thus, to summarize the findings and answer the research question, the outputs
of the cluster analysis confirm the existence of homogenous patterns of
indebtedness across the sectors in Slovak conditions. It was shown that the sectors
A (Agriculture, forestry and fishing), C (Manufacturing), D (Electricity, gas, steam,
and air conditioning supply), F (Construction), G (Wholesale and retail trade),
H (Transport and storage), K (Financial and insurance activities), L (Real estate
activities), N (Administrative and support service activities), and Q (Human health
and social work activities) are usually grouped together (except for the non-current
indebtedness ratio), so the level of indebtedness measured by the selected ratios is
identical in these economic sectors. Almost all sectors belong to the tertiary sector,
providing services for people, governments, and other industries. The tertiary sector
is strongly influenced by consumer moods, per capita income, and the size of the
welfare state (Wang et al., 2021), which may be the reason for a similar debt policy.
Some specificities may be observed with sector M (Professional, scientific, and
technical activities), which is usually alone in the cluster. These activities require a
high level of education and provide users with highly specialized knowledge and
practical experience, which may explain the heterogeneity of this economic section.
The cluster analysis has been used by a number of researchers to analyse debt
policy by different factors (e.g., Goncalves et al., 2020; Bethlendi et al., 2019; Pocol
et al., 2022). Campos and Cysne (2021) used cluster analysis to group emerging
countries based on their debt limits. Their findings show that those countries whose
debt-to-GDP ratio exceeded the given limits had problems with new loans to finance
their debts or needed help from international institutions. Curea et al. (2020)
investigated the performance of enterprises in Central and Eastern European
countries. They studied the financial performance of enterprises using both
hierarchical and nonhierarchical cluster analysis. Their findings show identical
groups of enterprises with homogeneous attributes in financial performance. The
study by Wortmann and Stahl (2016) also formed distinct clusters of enterprises in
the European Union countries in terms of competitiveness, indebtedness, and
economic performance. Suchanek et al. (2013) applied cluster analysis to divide
enterprises into high and low performing groups based on their profitability, activity,
indebtedness, and liquidity. As declared by Stryckova (2016), there are several
differences in debt policy in industrial sectors, which were confirmed by the analyses
of 15,716 Slovak enterprises.
632
6. Conclusions
Indebtedness indicators are used to monitor the structure of corporate financial
resources. The share of equity and debt affects the financial stability of a company.
A company with a high share of its own resources is stable and independent.
However, the company is unstable with a low proportion of equity. Moreover,
indebtedness may not only be a negative characteristic of the company, as its growth
can contribute to its overall profitability and higher market value, but it also increases
the risk of financial instability. The set of indebtedness indicators is very rich. Most
of them express the financial structure of the company, i.e. about the composition of
liabilities; others are used to assess the corporate ability to repay debt in terms of
profit generation, but also cash flows. Therefore, the level of indebtedness in Slovak
companies was analysed on a sample of representative indebtedness indicators (total
indebtedness ration, self-financing ratio, current and non-current liability ratios,
equity leverage ratio, and insolvency ratio) and clusters of sectors with homogenous
patterns of indebtedness were determined using the Ward´s hierarchical
agglomerative clustering method.
Despite the fact that the results help determine sectors with similar indebtedness
levels and thus with similar capital intensity levels, there are some limitations of the
study considering the environment in which the analysis was performed, the
statistical methods used, as well as the computed ratios, which will be eliminated in
future studies.
Acknowledgment
This research was supported by the institutional research 1/KE/2021: The use of
quantitative methods to assess corporate indebtedness of the Faculty of Operation
and Economics of Transport and Communications, University of Zilina.
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635

June 16-17, 2022
New Access to Social Entrepreneurship

following Academic Curricula and Research
Juliana ZAHARIA1
DOI: 10.24789788367405072-059
Abstract
The complexity of the integration process of Albania in the European Union, like other
Western Balkan countries, includes problems with specific regard to the third sector. The
fragility of the financial market and the failure to adapt the financing structure to the models
of developed countries, condition the access of new graduates in social sciences to social
entrepreneurship. Considering the concepts and scientific literature that refer to social
enterprises in countries in development as responses to the absence of social interventions
by non-governmental organizations, the private sector and the government, this paper aims
to analyze the typological gaps of secondary level degree curricula in social sciences, with
a particular focus on studies in social entrepreneurship and administration of social services.
The selected quantitative research methods were combined with qualitative methods, in
accordance with the exploratory and empirical type of the inquiring process. The question
the research raises is: “What are the scientific domains of concepts in which university
knowledge and practice base criteria that define social enterprises as distinct from
associations, foundations, organizations, and other components of the third sector?” The
conclusions help to understand the need for new influence after scientific research and
academic discourse that will assist in reducing knowledge gaps by applying throughout the
study practice in the field the significance of social enterprises as operational structures that
create interventions against social issues.
Keywords: social entrepreneurship, third sector structures, university secondary

level curricula.
JEL Classification: L31.
1. Introduction
This study follows third-sector concerns related to structural disorganization,
improvisation and the scarcity of interventions against social issues, where in
particular civil society organizations are perceived to have less impact in decision
1 University of Tirana "Nënë Tereza", Tirana, Albania, [email protected].
© 2022 J. Zaharia, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
making. Following the view of Amerhauser and Kemp (2021) who state that “The
Western Balkans is a difficult environment for CSOs to work”, recently, public
debates, as the efforts to influence the restoration of the third sector in Albania have
been silent. Although the European integration perspective of the country is
sensitive, statements from the European Commission reports with reference to
government's lack of awareness to the role that third sector organizations and social
enterprises need to play, lack of answers.
The main objective of the paper is to analyze this particular limitation of
the size of the third sector components and its consequences for new graduates
in social sciences, as well as the space and resources to access social
entrepreneurship. The research on absences related to the secondary level
curricula of university studies with profiles in social entrepreneurship and in the
administration of social services continues with the request for a new academic
influence towards a new dimension for the development of the third sector
in Albania.
Social value is a guiding concept of social entrepreneurship, rooted in the distinct
domains between civil society organizations (CSOs) and social enterprises (SEs).
Austin, Gutierrez, Ogliastri and Reficco (2006) compare CSOs and business-based
social enterprises contribution in generating social value, by stating that “Whereas
most CSOs focus entirely on producing goods or services aimed at some form of
social betterment, a business-based social enterprise functions within a company’s
overall operations that are dedicated to social value creation” (Austin et al., 2006).
Following on from concepts of Shane and Venkataraman (2000), who see social
entrepreneurship as “a process that includes: the identification of a specific social
problem and a specific solution (or set of solutions) to address it” (Shane,
Venkataraman, 2000), Jeffrey Robinson (2006) emphasises that “In developed
nations, SE is on the rise because of the decline of the welfare state” (Robinson,
2006). The author continues and refers to “distrust of the NGO community, apathy
within the private sector, and the impotence of the government to provide services
to the people” (Robinson, 2006) as causes for the rise of social enterprises in nations
in development.
The rise of new forms of social entrepreneurship in Albania as responses to the
demand for innovation are blocked and cannot find ground within a still fragile
economic market, where the third sector remains limited to a few civil society
organizations and fewer social enterprises. According to Phillips, De Amicis and
Lipparini (2016) there is “no legal definition for SEs in Albania” (Phillips et al.,
2016). The authors state that there are “No official policy measures recognising
social enterprise”, and that “Negotiations toward official adoption of a draft law by
the Parliament remain in their early stages” (Phillips et al., 2016). The authors refer
to Technical Assistance for Civil Society Organisations (TACSO) survey of 2013
“which identified 80 organisations that fit the criteria for ‘potential social
enterprises’” (Phillips et al., 2016). The latest progress report published by the
637
European Commission (EC) in October 2021 once again expressed concern for the
situation of the third sector in Albania, where in particular “Substantial efforts are
needed to ensure meaningful and systematic consultations with civil society as part
of an inclusive policy dialogue for reforms” (EC, 2021). Considering that the
shortcomings in Albania's economic system and the absence of a clear governmental
projection of assistance to social enterprises limit the access and involvement of new
graduates in social entrepreneurship and the administration of social services in the
sector, this paper calls for change, new access, and influence to third sector
development in Albania on the basis of scientific empirical analyzes.

This paper presents the results of the research conducted in Albania in the period:
April 2021-December 2021. The purpose of this research is to analyze the absences
of the university secondary level degree curricula with profiles in social
entrepreneurship and social services administration.
The questions the research raise are:
What are the scientific domains of concepts in which university knowledge and
practice base criteria that define social enterprises as distinct from associations,
foundations, organizations and other components of the third sector?
Which third sector structures are the most frequented by students studying for a
master’s degree with profile in social entrepreneurship and social services
administration during university practice in the sector?
What is the knowledge provided through the secondary level curricula in
financial resources, external environment social entrepreneurship at the sector level?
4. Research Methods
The research sample consisted of 418 master's degree students from three main
Albanian public universities (n = 418). The age range of the respondents, randomly
selected to participate in this research, is between 21 and 33 years old (Table 1). The
aim of the research methodology used to design the study following social sciences
researches (Creswell, 2012) was to collect data on the level of attendance of third
sector structures by master's degree students with a profile of studies in social
entrepreneurship and social services administration, during university practice in the
sector.
Primary data were collected through questionnaires used for organizations,
foundations, and social enterprises based in Albania and designed following the
Kessler model (Kessler et al., 2002). Within four sections of the questionnaires open
questions and two Likert scales (Croasmun, Ostrom, 2011) were designed to be
instrumental in bringing to the analysis a sort of personal feeling and reflection on
the commitment of master's degree students in upcoming interventions against social
problems.
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Table 1. Sample characteristics by gender and age group

Gender * Age
Age Total
21-23 24-26 27-30 31-33
years old years old years old years old
Count 61 38 33 15 147
Male% within
14.6% 9% 7.9% 3.5% 35%
Age
Gender
Count 142 67 43 19 271
Female % within
34% 16% 10.3% 4.5% 65%
Age
Count 203 105 76 34 418
Total % within
49% 25% 18% 8% 100.0%
Age
Source: A-Institute, 2021.
Secondary data were collected through contextual analysis (McTavish, Pirro,

1990) and semi-structured interviews (Matthews, Ross, 2010).
Contextual analysis focused on:
• Desk research/document review of existing second degree university courses
with profiles in social entrepreneurship and administration of social services;
• Evaluation of the statements and reports of the European Commission;
• Observation/participation in the events organized by the Faculties of social
sciences and the Department of social work and social policies next three main
public universities based in Albania.
The interviewing process focused on:
• Semi-structured interviews with 168 local experts selected from researchers,
academics, and representatives of social enterprises and civil society
organizations based in Albania. The interviews were structured around two
key themes: Sizing the level of collaboration of public universities with the
third sector, and Assessing the access of master's degree students to third
sector structures.
5. Findings
Data analysis showed that the level of participation through practice sessions
in social enterprises and civil society organizations is limited. In the context of the
curricula topics, assessment data showed that for 38% of the respondents
“Community services” is the main topic on which curricula of master’s degree
studies with profile in the social services administration are based. Other topics are:
“Supervision of social services provision” (24%) and “Advocacy” (20%). The least
cited curricular topics are “Social Policy” (11%) and “Social Research” (7%)
(Figure 1).
639
Figure 1. Master’s degree curricula topics

Access to knowledge and preparation for work is characterized by profound
absences in specific curricula dedicated to social entrepreneurship and the
administration of social services. For 32% of the respondents, the main social
service in which they were mostly involved during practice sessions in the
field is the “Institutional procedures”. Other social services were provided
following “Psychosocial counselling”, “Education” and “Infrastructure restoration”
(Figure 2).
Figure 2. Social services provided following practice in the field

Continuing with the assessment of the knowledge of the components of the third
sector, it emerges that 30% of the respondents consider “Social change” to be the
main criterion that defines the statute of a social enterprise. 21% of the respondents
consider “Positive impact on society” as the main criterion, while 10% of the
respondents believe that “Support for individuals/families” is the criterion that
defines the statute of a social enterprise (6% of the respondents indicated
640
“Community development” as their main criterion) (Figure 3). Due to lack of

knowledge, 33% of the respondents did not answer this question.
Figure 3. Criterion for the status of a social enterprise
The analysis of the data shows that a major part of the respondents (58%)
consider “Non-profit distribution” the main criterion that defines the statute of
non-profit organizations (for 23% of the respondents the main criterion is “Private
state” and for 19% of the interviewees the main criterion is “Private / non-
governmental state”).
The “Grassroots organizations” (26.7%) and “International organizations”
(16.8%) were the most frequented third sector structures during practice sessions
in the field (Figure 4).
Data showed that the majority of the respondents (55.4%) indicated the absence
of practice sessions as a cause of the COVID-19 pandemic.
Figure 4. Type of organization mostly frequented during practice in the field
Risk analysis, trade demands, legal disposals were indicated as issues that most
of the the interviewees (87.2%) are unaware of (Figure 5).
641
Figure 5. Knowledge in risk analyse, trade demands, legal disposals
The data showed that respondents’ lack knowledge in particularly in: “Financial
resources” (39.2%), “Analysis of the external environment” (27.4%), “Sector issues
and innovation” (21.5%) and “Legal disposals” (11.7%) (Figure 6).
Figure 6. Major gap of knowledge in risk analyze, trade demands, sector innovation
Comparative analysis with qualitative data collected from interviews with

representatives of civil society organizations and social enterprises based in Albania
suggests that from the group of respondents, who applied their university knowledge
during practice sessions in the field, 27.7% had this experience following “Religious
organizations”.
Others have implemented the practice in “Community-based organizations”
(23.7%), “Philanthropic organizations” (13.8%) and “Social enterprises” (6.9%)
(Figure 7).
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Figure 7. Statute of organization frequented
Comparing with the typology of organizations, the data showed that the
“Grassroots organizations” were the primary resource of knowledge on risk analysis
issues, trade demands and legal disposals (Table 2).
Table 2. Assessment of knowledge in risk analyse from practice in the field
Type of organization * Risk analyse, trade demands, legal disposals
Risk analyse, trade
demands, legal
disposals Total
Yes No
Count 36 1 37
Grassroots % within Risk analyse,
organizations trade demands, legal 57.1% .3% 8.9%
disposals
Count 12 2 14
Type International % within Risk analyse,
of organization organizations trade demands, legal 19.0% .6% 3.3%
disposals
Count 15 352 367
None % within Risk analyse,
trade demands, legal 23.8% 99.2% 87.8%
disposals
Count 63 355 418
Total % within Risk analyse,
trade demands, legal 100.0% 100.0% 100.0%
disposals
643
6. Conclusions
The data analyses show that there is a contemporary scientific basis where the
curricula of master’s studies with profile in social entrepreneurship and social
services administration are placed, but the scientific concepts are conveyed in a
fragmentary way to students and there are not transferred as knowledge. One of the
strongest impacts of the COVID-19 pandemic was on practice sessions in the field
that did not follow an implementation methodology. Operational interventions in
non-profit civil society organizations and social enterprises, where students of
master’s degree students have been engaged, either the comparative analysis or the
contextual analysis show, lack of strategic planning on the analysis of risks, market
demands, legal disposals and sector innovation. The collaboration that universities
have with third sector structures is conditioned by the instability of the sector in
terms of logistical changes, but also by the lack of a regulatory framework in terms
of partnership.
The generalization of the data may be taken with concern due to the moderate
reaching of those respondents, already graduates in social entrepreneurship and
administration of social services in the secondary level of university education. In
conclusion, the condition of a deeply damaged third sector in Albania is a constraint
for the necessary social interventions against the impact of social problems through
social enterprises. Following the results of the research, this paper calls for a new
awareness at the academic level, where researchers and academics must contribute
to the enrichment of university curricula with scientific concepts on social
entrepreneurship, as well as in restoration of third sector perspectives.
Acknowledgment
Many thanks to all members of the Albanian Institute of Social Integration
(A-Institute), who facilitated the inquiring process, and to students and researchers
of the Faculty of Social Sciences next University of Tirana “Nënë Tereza” for their
efforts and contribution.
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June 16-17, 2022
Soft Power or Hard Power,

Can the EU Have a Geopolitical Awakening?
Ștefan-Marian DUMITRU1
DOI: 10.24789788367405072-060
Abstract
The present study works to understand how the European Union has begun to develop a
hard power dimension, as a shift in geopolitical doctrine, in reaction to the invasion of
Ukraine by Russia. While initial measures were of an economic nature, via the enactment of
the strictest economic sanctions ever observed, the EU has increasingly offered military aid
by supplying armament to Ukraine, through the European Peace Facility, as well as through
Member States donations. These early signs of a geopolitical awakening have long been
expected. What remains to be seen is whether it is sustainable. The return of war to Europe
has sparked an upsurge in security concerns and a sudden realisation that more must be
done for defence. The conflict is reshaping the European security order, and the EU must
take action to shore up its defence as well as its strategic, economic, political, and energetic
position in the world. Thus, it is no surprise that at the March EU Summit in Versailles, the
main topics of the reunion were defence and energy independence. Thus, in this article, I will
work to better understand the geopolitical awakening of the EU, via the tools and
partnerships it possesses as well as how Member States interests affect its development.
Keywords: EU, geopolitics, defence, sanctions, policy, NATO.
JEL Classification: F02, F51, F52, F53, F55.
1. Introduction
Historically, the European Union has focused on soft power as a means of
exerting influence and bringing neighbours closer to its norms and values. With the
help of action plans, trade agreements, funding agreements and other soft power
tools, the EU has been projecting its values and norms to a debatable degree of
success. Hard power has never been a doctrine utilised by the EU, it has always been
the domain of its Member States. It is well known that geopolitical leverage has
always been lacking in the EU’s toolkit, drawing criticism for giving priority to
© 2022 Ș.-M. Dumitru, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
financial instruments instead of geopolitical strategy. But the war in Ukraine, on the
doorstep of Europe, seems to be a wake-up call for the soft-power loving Union. In
a matter of days, the EU moved more swiftly than it had in 2 years of pandemic, with
5 sanctions packages passed within a week (European Commission, 2022). The trend
is expected to continue as many European companies have moved to withdraw and
stop investments in the Russian economy, with almost 500 companies taking such a
move by the time of the writing of this article (Yale School of Management, 2022).
The EU’s unexpected openness and unity in utilising its economic weight as a tool
against Russia is evidence of the growing sentiment within the EU that geopolitical
action must be taken, even if the price is to be paid by the union itself, due to
exploding energy prices.
Inside the European block, the Member States, together with the European Union,
are enacting policies that will be able to mitigate the hardships brought on by
sanctions on the lives of EU citizens. In Brussels, the Temporary Protection
Directive, a policy enacted in 2001 but never used, was triggered (Citizens
Information, 2022). This mechanism grants protection to Ukrainian refugees, such
as medical assistance, access to education and the labour market, as well as residency
rights. In support of the Ukrainian state, the EU announced a financial and
humanitarian aid package, while moving to increase disinformation efforts through
the Commission’s East StratCom Task Force and suspending Russian media outlets
(Jack, 2022).
On an even more important scale, the EU is developing into a security actor,
capable of playing on the geopolitical board of chess, by using the European Peace
Facility, which became operational in July 2021, as a measure to financially aid the
Common Security and Defence Policy of the EU (European Council, 2022). The
instrument is set to offer 500 million euro in equipment, armament, and defensive
weapons to Ukraine. The EU’s geopolitical awakening could not have happened
without a shift in the policy of Germany, which, after decades of reluctance, has
allocated a special fund, worth 100 billion euro, over the next four years for defence
acquisitions and a permanent increase in its annual defence budget of 2% annually
(Deutche Welle, 2022). Sweden, Romania, Latvia, Denmark, Poland, and the United
Kingdom have also pledged an increase in defence expenditure between 2.5% and
3% annually (Mackenzi, 2022), and other EU and NATO states are expected to
follow suit.
The issue at hand is that the European Union is facing a geopolitical game, while
lacking the experience in the field. So, will its effort be sustainable? The increases
in defence spending by Member States are a crucial starting point, one which must
be broadened at a European level. Member States thus began making use of the
Permanent Structured Cooperation and the European Defence Fund, to guarantee
that defence budgets are not spent in an uncoordinated manner, as well as encourage
all Member States to achieve at least 2% GDP allocation to their defence budget, as
per NATO requirements.
647
Becoming a geopolitical actor requires more than increasing defence spending.

The defence structure framework of the EU already exists; it is only a question of
utilising them. The Strategic Compass is a step in that direction, as it evokes the
possibility of utilising article 44 of the TEU European (Defence Agency, 2022),
which permits the EU to delegate the implementation of security tasks to a group of
Member States that desire to act in the security and defence of the union. In this
respect, the EU, NATO, and partner countries can use the multinational, rapid
response military units, brought to life in 2003, but never utilised, the EU
Battlegroups (External Action Service, 2022). Agreeing on leadership is always a
challenge, but a necessary one, and the EU cannot hope to give a place at the
geopolitical table if it does not do so. At the same time, a change in the manner in
which the EU currently implements its neighbourhood policy must be made.
A new approach is necessary with respect to the Balkan countries, of which
several have had candidate status for years, and negotiations have stalled, pushing
them to seek partnerships with Russia and China. The EU’s objective of building a
“ring of friends” with Balkan countries and the Eastern Partnership as an alternative
to membership to the EU, has been an unsuccessful endeavour. While it focused on
fighting corruption and boosting economic and cultural links, it completely left out
the security dimension. Countries such as Moldova and Georgia are fearful of falling
victim to Russian aggression once again, and in this sense, the EU must provide
support. Membership within the EU is unlikely for several years to come, but the
Russian threat will mobilise the EU to add a security dimension to the neighbourhood
policy (European Commission, 2022).
Preparing the EU for the geopolitical dimension will require a rethinking of the
geoeconomics one. For Germany, the Nord Stream 2 pipeline was regarded as a
purely economic project, without a political dimension (Eurocorps, 2022). It would
seem that view or presentation of the project was flawed. Without sufficient fossil
energy resources withing Europe, member States were obliged to accept dependence
on Russian gas, of which 41% comes from (Șpaiuc, 2021). The war in Ukraine has
put the spotlight on this weakness of the EU and accelerated the need to transition to
the green energy sources sooner than envisioned (Simon, 2021). An unintended
positive side-effect to an otherwise tragic period. Still, the fact remains that until new
energy sources are built, the EU will have to diversify as well as continue to buy gas
from the Russians. To this effect, on the 31st of March, Russia had a botched attempt
to blackmail the EU into accepting payments for gas in rubbles, or otherwise see the
pipelines close (Meredith, 2022). The bluff was initially called by the Europeans,
showing that dependency on gas runs two ways (Corbeau, 2022). But dissent lingers
within the EU, as the push to ban the import of Russian oil has been met with
resistance, especially from Hungary, as well as Slovakia and Czechia, all of whom
have managed to obtain an exemption to the ban, until 2024 (Emmott, Guarascio,
Strupczewski, 2022).
648

The present research aims to analyse the state of the European Union’s
development of a hard power approach in international relations after decades of soft
power doctrine. By analyzing Member States, as well as rival and partner countries
interests, the paper aims to gage the geopolitical spectrum in Europe to assess
whether the EU is working towards a new approach. The article aims to contribute
to the perspective of the European Union as a developing hard power player at
European level, while studying the interests of the main actors, in a manner which
allows one to understand their objectives.
4. Research Methods
Political sciences express a tendency to utilise qualitative methods (Naji, Jawan,
Redzuan, 2011). Under this line of thinking, the research methods utilised in this
paper are of a qualitative nature, due to the nature of the subject, which relies on the
analysis of agreements, strategies, policies, and actions of the European Union, its
partners, and rivals. The literature has been reviewed from the perspective of
qualitative research methods, with policies, statements, official documents, books on
this topic as well as scientific articles having been reviewed.
The research approach utilized in the articles, combines various fields, such as
economics, politics, European Union policies and laws, Member States policies, in
order to accentuate the wide range of factors having an effect on the soft and hard
power dimension of the EU. The cross-disciplinary view, while seemingly chaotic,
ensures that several perspectives are taken into account, assuring an in-depth analysis
of the topic as well as bringing valuable contributions to the research.
5. Findings
5.1 The Heart of the European Union Sets the Tone

The results of the literature review brought to light that political will is
never guaranteed, due to ever shifting interests of Member States, and for the
European Union’s there are always efforts to be made to sustain political will at
European level. The positions of France and Germany are considered the core of the
European Union. The literature review has shed light on the dual approach these two
countries have had with relation to Russia, while often criticising it for not respecting
human rights, annexing Crimea in 2014 and the use of resources as a blackmail tool,
they have also benefitted greatly by developing a partnership that assured cheap
natural resources and markets for their products (Dodman, 2022). With the new
conflict, the two countries have drawn many criticisms from the public, but also other
European countries, for their incoherent approach regarding Russia. As a reaction to
the shifting stance within Europe, in a hard power approach, Paris has acted by
enhancing consultations with Eastern European partners, and by offering military
assistance (SHAPE Public Affairs Office, 2022). Berlin has also been forced to re-
evaluate its military stance, which historically it has underfunded for decades. It
649
began by increasing the defence budget to 2%, from 1.1%, and investing an extra
100 billion euro, in a 4-year period (Sheahan, Marsh, 2022) on top of that, in an
effort to boost Germany’s role in defending Europe. While these moves from the two
most important European capitals are promising for unity and the geopolitical
dimension of the EU, divisions still exist. One such division regards the leadership
question. Should the EU develop its own military command infrastructure or remain
under the umbrella of NATO. France, while supporting NATO commitments in
Europe, by deploying troops to Romania and Estonia, is still a supporter of pushing
for more European sovereignty and strengthening capabilities (SHAPE Public
Affairs Office, 2022). On the flip side, the Member States which have the most
geographical exposure to Russia: Romania, Poland, Scandinavian, and Baltic states
have been staunch supporters of the security provided by NATO and the United
States. Whilst France and Germany signal the beginning of and increase in military
capability for Europe, others have also begun to follow suit, Poland announced a
military modernisation plan, with the acquisition of 350 American made tanks, 450
south Korean tanks, as well as 35 F-35 fighter jets, and others; whilst Romania
increased its military budget from 2% to 2.5% of GDP.
5.2 Russia, the Great Unifier

We observed that the immediate threat of Russian escalation put old debates on
hold. Member States seem to be aware that the coordination of efforts is crucial at
this time, and even countries that are usually weary in this aspect are shifting their
stance. For example, Denmark announced a referendum in which it will be decided
if they are to join the EU’s Common Security and Defence Policy (The Guardian,
2022), from which it has currently opted-out. In the conferences on the position of
Member States within from this summer, it has been declared that increased
coordination efforts will be done while guaranteeing continued compatibility with
NATO. And these capabilities are not limited to EU Member States, as the US,
Norway, and Canada were invited to adhere to the EU PESCO project (European
Defence Agency, 2022), aimed at increasing military mobility. Synergies are being
built, a fact demonstrated by the joining of NATO Secretary General Jens
Stoltenberg and foreign ministers from the UK, the US, and Canada, at the European
Council meeting in Brussels (European Council, 2022). As well as the joining of the
US President Joe Biden in the NATO meeting in Brussels, a first time for an US
President (Klein, Liptak, Collins, Sullivan, 2022). The invasion of Ukraine has
brought to light the preference of the US to empower European partners and share
in the burden of defending security by deploying not only US force, but also more
European ones.
5.3 Old Allies Remain Essential

The analysis has also observed that European countries remain committed to their
existing alliances, and even seek to further develop them. The United States is a key
element in the European Union’s capability of becoming a real geopolitical actor,
650
as it has been pushing the EU to become a geo-economic arm of the NATO. The
EU’s geopolitical position, for the moment, seems to be dependent on the US and
their approval in certain aspects. Germany and Eastern Europe are in this aspect, the
most likely to wait for Washington’s approval when making decisions, as they are
more dependent on the US than most of the Member States. The planned shift in
focus of the US toward the Pacific, due to the rise of China, has resulted in the
creation of AUKUS, a NATO equivalent, meaning that the EU is likely to increase
its role as an independent geopolitical actor not only due to the conflict in the region
but as a necessity to supplement the US.
The United Kingdom remains a steadfast partner for the EU, in terms of defence
(UK Ministry of Defence, 2022), even if post-Brexit animosities are still present.
Since the beginning of the war, the UK has maintained itself as a reliable ally,
through the deployment of troops in EU member states, assisting in air policing and
the presence of UK ships in key areas of defence. While a formal security
cooperation agreement between the EU and the UK is not to be expected or needed,
cooperation will be developed via NATO. The UK remains present in other defence
formats at European level, such as the Northern Defence Cooperation (Nordefco)
and the European Intervention Initiative (Mills, 2019).
5.4 Who Shall Lead?

The key observation from the research is that the European Union has all the
prerequisites for becoming a geopolitical actor, as well as the network of alliances
to support its blooming position in the world, but continues to lack one important
element, leadership.
An increase in defence spending is not enough to become a geopolitical, hard
power actor, but it is a step in the right direction. The European Union has a long
history in the defence industry and a well-developed infrastructure of collaboration
between Member States (as the case of the Eurofighter Typhoon has shown). By
factoring in the Strategic Compass, coupled with the infrastructural capabilities of
the EU, there already exists an almost complete security framework for the EU, but
no transnational leadership system. In this aspect, NATO can fill in the gaps, as a
cooperative transnational system already exists, in which the EU Battlegroups can
play a role. Deciding on the leadership of EU forces has always been a point of
contention, and without it, the EU cannot hope to request a place at the geopolitical
table. Using the framework of NATO would be a stepping stone in that direction, if
not the easiest.
6. Conclusions
In this article, we worked to determine the intricate system through which the EU
is developing into a security actor, thus observing that it is not by premeditated
design, but due to need. What has also resulted is that the advance towards a hard
power dimension has been underway, through the military infrastructure which has
been under development for quite some time. Recent increases in investments and
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defence budgets as well as common defence projects will only strengthen the
existing framework. Added to these factors is the closer cooperation between
Member States and their membership within NATO, thus creating most of the
prerequisites for the EU to become a contender on the geopolitical map. It is
particularly ironic that the war begun by Russia, as a bet on the divisions in Europe,
has brought about the awakening of the EU’s hard power dimension and the
beginning of the development of a geopolitical identity. Investing and developing
the military systems of the EU is a step in the right direction, but not enough. What
we have observed is that the EU is still lacking in terms of true cooperation and a
clear leadership system for the implementation of hard power policies. An
intergovernmental system is required to allow a European military system to become
efficient. And that is where the main issue stands, the partial renunciation of military
sovereignty, which is seen as a founding pillar of national sovereignty and unity.
While the Member States agree that more is needed, the manner in which it is to be
accomplished eludes them. There are many hurdles left to surpass, and the leadership
mechanism seems the toughest one, as national sentiment and old rivalries still play
a role in the relations of members. The easiest solution, due to the pre-existing
framework, remains NATO. But Europeans will likely desire, as France has stated
in the past, to develop a parallel system for the common military capabilities, which
would work with NATO, and reduce the influence of their American and British
partners. It remains to be seen if the EU will develop into a geopolitical actor within
its own framework, or within NATO. Regardless of the road it chooses to take, the
development of a geopolitical identity and of a hard power dimension for the EU, is
not only a necessity for its survival and relevance in the world, but a certainty.
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654

June 16-17, 2022
COVID-19 Pandemic and the Fourth Industrial Revolution:

Opportunities to Shape a New Labour Market?
Ancuța LUCACI1*, Carmen NĂSTASE2, Mirela Ionela ACELEANU3
DOI: 10.24789788367405072-061
Abstract
Today, COVID-19 and the Fourth Industrial Revolution have caused a double disruption
to global jobs. The global unemployment rate increased by 20.48% in 2020 compared to
2019. The World Bank draws the conclusion that the increase in unemployment was mainly
due to the emergence of the health crisis that affected the economy of countries around the
world. The paper provides an overview of the most relevant changes in the actual labour
market in the framework of COVID-19 and the Fourth Industrial Revolution challenges.
According to the World Economic Forum, 50% of currently employed workers will need
reskilling by 2025 to adapt to changes in the labour market. Furthermore, by 2025, 85 million
jobs will disappear from the labour market because of the confrontation between human
capital and machines, while 97 million new jobs will emerge. These jobs will emerge through
a hybrid between human capital, machines, and algorithms. Examples of such jobs are
DevOps engineers, Artificial Intelligence Specialist, and Digital Marketing Managers. The
COVID-19 restrictions have led to numerous changes in the labour market, since a large
part of the employed workforce had to work from home and learn to use digitalization. The
global labour market has not recovered from this health crisis. A challenge for governments
is to find solutions that can help economies anticipate skills gaps, manage pressures on
workers, and map a path for a more innovative and resilient economy in the future.
Governments, companies, and societies should cooperate in reskilling and upskilling the
employed workers to provide modern education skills and proper jobs.
Keywords: COVID-19 pandemic, the fourth industrial revolution, new labour

market.
JEL Classification: I15, I18, O14, O15, O33.
1“Ștefan cel Mare” University, Suceava, Romania, [email protected].

2“Ștefan cel Mare” University, Suceava, Romania, [email protected].
© 2022 A. Lucaci, C. Năstase, M.I. Aceleanu, published by Sciendo. This work is licensed under the Creative
1. Introduction
It is generally accepted that the flexibility of the labour market can be greatly
influenced by many rigidities. Consequently, the future of the labour market is
attracting considerable interest due to the current implications of the COVID-19
pandemic and the Fourth Industrial Revolution.
Moreover, it is widely considered today that the Coronavirus pandemic and the
Fourth Industrial Revolution will cause multiple key changes to the labour market.
The health crisis caused an increase in the unemployment rate, high disparities
between people who worked from home and people whose jobs did not permit that,
and income losses to companies and workers. In addition, companies have started to
redesign their infrastructure and introduce a hybrid system at work.
When it comes to the Fourth Industrial Revolution or Industry 4.0, as it is
otherwise called, the labour market is continuously adopting new innovative
technologies. The Coronavirus pandemic accentuated the process of digitalization
and automation due to the need to work from home during lockdowns. However,
disruptions caused by both the health crisis and Industry 4.0 may cause in the future
the disappearance of a large number of jobs. For this reason, the State’s involvement
is essential in reskilling and upskilling the existing workforce. A new perspective for
a balanced future of work would be cooperation between policymakers, companies,
and people.
This paper examines the impact of COVID-19 and the Fourth Industrial
Revolution on the future of the labour market. Actual challenges could develop and
redesign the world of work and shape a more competitive global labour market.
Given these points, this study is expected to highlight the major implications of the
current health crisis and Industry 4.0 on the field of work.
The global labour market was severely affected by the outbreak of the
COVID-19 pandemic that resulted in a global health crisis. The health crisis affected
both the lives of people and the global economy. For this reason, more and more
researchers began to investigate the future of the labour market, considering that
COVID-19 and the Fourth Industrial Revolution could create new opportunities for
the world of work.
The global unemployment rate increased by 20.48% in 2020 compared to
the previous year (The World Bank, 2021). Furthermore, the highest global
unemployment rate from 1991 to 2020 was recorded in 2020. Evidence shows that
decreasing unemployment rates were caused by lockdowns and restrictions imposed
in every country in the world during the health crisis (The World Bank, 2021).
Moreover, a large number of workers have become unemployed or have temporarily
entered into a non-paid period of inactivity. As a consequence, governments around
the world attempted to overcome the socioeconomic impact of the Coronavirus
pandemic and supported both businesses and employees through stimulus packages
and policy measures (Ilsoe, Larsen, 2020; OECD, 2022).
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The evolution of unemployment in the European Union between 1991 and 2020
highlights low unemployment rates during the periods 1993-1997 and 2009-2015.
Following the course of economic history, the European labour market was heavily
hit at the beginning of the 1990s by the industrial restructuring caused by the collapse
of the Soviet Union, generating an increase in unemployment. In response to these
challenges, employment became the first priority of the European Union, as
mentioned in the Commission’s white paper on ‘Growth, competitiveness, and
employment’ (European Parliament, 2020). Unemployment also increased when the
EU’s economy was hardly hit by the global financial crisis of 2008. European
statistics show that the outbreak of COVID-19 caused a reduction in overall
employment (The World Bank, 2021). The highest unemployment rate from 1991 to
2020 was recorded in 2020. In September 2020, Spain, France, and Italy recorded
the highest number of unemployed, compared to other EU countries. Spain is a
European country that experiences long-term structural unemployment caused by a
low share of industry in the national economy. The Spanish economy is mainly based
on tourism and construction. In the case of France, the high number of unemployed
persons is explained by an increased number of low-skilled persons and high
unemployment among young and elderly people. Similarly, the large number of
unemployed persons in Italy was primarily caused by high unemployment rates
amongst young people and women.
Initially, the recovery of the labour market depended on vaccination coverage.
Furthermore, the International Labour Organization (2021) pointed out in a recent
report on COVID-19 and the world of work that fourteen vaccinated people were the
equivalent of a newly created job. The alarming situation regarding the spread of
COVID-19 is stable now since the countries increased the vaccination rate. However,
many people consider the vaccination rate as a passport to freely circulate and travel
throughout the world in the current period, since the situation caused by the
Coronavirus pandemic has become more and more established.
The COVID-19 restrictions imposed by governments have transformed the
labour market: work from home has become a better opportunity for people from
different industries, traditional jobs were replaced with technology and artificial
intelligence, and remote work paved the way for new job opportunities. Therefore,
the COVID-19 pandemic and technological advancements can lead in the near future
to the so-called ‘jobs of tomorrow’. The World Economic Forum (2020) describes
“jobs of tomorrow” as jobs created in new fields, with new occupations, or just the
revolution of the existing occupations.
The flexibility of the labour market is particularly significant during global crises.
If the labour market is flexible and not rigid, it increases the capacity of the country's
economy to absorb shocks triggered by an economic or social crisis (Șerban, 2015).
The rigidity of the labour market was a threat to most countries during the
COVID-19 pandemic. Trends in the labour market during the health crisis highlight
that worldwide companies and workforces experienced major challenges, such as
digitalization or the transition process from classical work to a new type of work,
work from home (Piroșcă et al., 2021; Scutariu et al., 2021; Zamfir, Aldea, 2020).
657
In the opinion of Vyas (2022), the COVID-19 pandemic accelerated significant

changes in the labour market, such as increasing trends in digital transformation,
diversification of hybrid work, return to office work, business changes related to
infrastructure and labour mobility, the disappearance of traditional jobs with a
low-skilled workforce and the rise of ‘jobs of tomorrow’, and the reinterpretation
of work-life balance. However, a part of these variables existed before the outbreak
of the Coronavirus pandemic. For example, the era of digital transformation has
already been present in global markets. Countries that experienced high levels of
digital skills attracted more companies interested in investing in the national business
environment (Piroșcă et al., 2021).
Sanitary, economic, and technological disturbances shape the current labour
market. According to Harari (2018), the current technological revolution will create
new jobs in the future, based on artificial intelligence, machine learning, and big
data. The situation is similar to the first industrial revolution, when the emergence
of machine tools left many workers without a job and created new ones. The Israeli
author also states that in more than twenty years the labour market could be
characterised by the cooperation between artificial intelligence and the human brain.
The future labour market will inevitably include new models of businesses and
new types of jobs. In the opinion of Briciu & Briciu (2020), in addition to new jobs,
specialists should also focus their studies on the skills necessary for the new jobs.
New skills are correlated with emotional, computational, and social intelligence,
virtual working, design mentality, and media education. Consequently, existing
skills will not be sufficient in the future, and people will have to have modern skills.
This case will be difficult for the elderly since many of them do not have digital skills
and do not understand the meaning of the Internet of Things.
The Coronavirus pandemic developed the e-commerce and automation sectors
and accelerated the decisions of entrepreneurs to upgrade their businesses over the
Internet. Additionally, remote work has become an opportunity for many workers to
work from home and for companies to reshape their organizational management.
People and companies around the world will suffer or benefit from the
transformation of the labour market due to changes caused by the COVID-19
pandemic and the Fourth Industrial Revolution. In this perspective, policymakers
must support the transition process to a new labour market. People should
accumulate new skills and prepare for new occupations, and companies should
protect their current workforce.
The purpose of this work is to investigate the impact of the COVID-19 pandemic
and the Fourth Industrial Revolution on the future labour market in order to have an
overview of the current challenges occurring in the international markets. The
research questions underline the changes that occur in the current labour market:
Q1. Will the COVID-19 pandemic create new jobs in the global labour market?
Q2. Has the COVID-19 pandemic accelerated the expansion of digital skills?
Q3. Has the Coronavirus pandemic reshaped remote work (RW)?
Q4. Will the Industry 4.0 will change future jobs?
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4. Research Methods
This paper aims to examine the relevant theoretical background related to current
challenges in the labour market and to perform an analysis of developments
occurring in the labour market in the framework of COVID-19 and the challenges of
the Fourth Industrial Revolution. In the second part of the work, future jobs,
digitalization, and remote work were included in the analysis of the current labour
market. For this purpose, the study used official statistics and databases from several
institutions specialized in issues related to the labour market and Industry 4.0, such
as the International Labour Organization, World Economic Forum, McKinsey
Global Institute, European Commission, OECD, UNCTAD, and Statista.
5. Findings
Q1. Will the COVID-19 pandemic create new jobs in the global labour market?
The future of work after COVID-19 has started to be an exploration topic for
recent conferences. Many researchers attempt to identify what the future labour
market looks like and what types of jobs should people prepare for now.
Today, the global labour market is affected by the challenges created during the
Coronavirus pandemic. The increasing use of digital technologies and digital
learning may generate in the future the reskilling of the current workforce. According
to McKinsey Global Institute (2021), people should now focus their skills on
developing industries that will ensure them secure jobs in the future.
Figure 1. Developing industries in the post-Coronavirus pandemic scenario
Healthcare
Logistics Tech
Developing
industries
Engineering Science
Source: Author projection based on McKinsey Global Institute, 2021.
OECD (2022) outlined that the health crisis will transform the labour market into
a social crisis, as many inequalities between workers were created. Low-wage
659
workers were the most affected by the health crisis compared to high-wage workers
that have had the opportunity to work from home. Policymakers and companies are
the main actors that can support workers to reskill and adapt to a new labour market.
According to the Global Entrepreneurship Monitor (2022), the COVID-19
pandemic created both challenges and opportunities for entrepreneurs and
employees. Entrepreneurs create employment, and changes in entrepreneurial
activity will also create changes in employment. During the COVID-19 pandemic,
many of the employees have identified new business opportunities that have
transformed them into current entrepreneurs. On the other hand, an increased number
of jobs started to be threatened by the innovative technologies that companies have
implemented as a result of the measures and restrictions imposed in every state in
the world. Moreover, companies started to change their organizational infrastructure,
since remote work opened new work opportunities.
Q2. Has the COVID-19 pandemic accelerated the expansion of digital skills?
The digital economy is of particular interest to the European Union, since digital
technologies open in the current period numerous opportunities for people and
companies. The COVID-19 crisis has considerably increased the use of digital
technologies because during the health crisis, worldwide workers had to work from
home and young people attended online courses. Similarly, global Internet traffic
exceeded Internet traffic in recent years (UNCTAD, 2021).
In terms of the worldwide digital population, approximately 65% of the global
population are Internet users, according to Statista (2022b). In the post-Coronavirus
scenario, the internet has become a key pillar in the transition process toward a
digitalized economy. The highest number of internet users was recorded in China,
India, and the USA.
In the United States, the digital economy recorded an increase in the last years,
mainly during the Coronavirus pandemic (Bureau of Economic Analysis, 2022).
Infrastructure, e-Commerce, and priced digital services are the main components
included in the digital economy within the United States. Among these components,
priced digital services register the highest gross output, and are followed by
infrastructure and e-Commerce.
The digital economy in China has a long history, with the actual percentage
of retail e-Commerce being more than 50% of total retail transactions (Wong,
Wihardja, 2022). Moreover, China is the global leader in the Digital economy,
particularly in the e-commerce field (McKinsey & Company, 2017). The COVID-19
pandemic increased digitalization in China and the level of economic growth
(Frontiers in Public Health, 2022).
In the transition process toward a digital economy and society, the European
Union integrated four variables to be fully fulfilled: (I) Digital skills
(2) Digitalization of companies, (3) Sustainable digital infrastructure, and (4)
Digitalization of public services (European Commission, 2021). According to the
Digital Economy and Society Index of the European Commission (2021), the most
digital four economies in the European Union are Denmark, Finland, Sweden,
660
and the Netherlands. The index included four dimensions related to human capital,
connectivity, integration of digital technologies, and digital public services.
On the opposite side of the ranking were Romania, Bulgaria, Greece, and Poland.
Statistics indicate significant discrepancies between European countries in terms
of digital technologies and digital skills. Consequently, governments should
make further investments in digitalization. Zamfir and Aldea (2020) pointed out
in their study that a high level of digitalization depends on the educational level
of individuals, and the more educated people are, the higher the level of the
digital economy.
E-commerce has risen steeply during the health crisis due to distance restrictions
and lockdowns all over the world. According to Statista (2022b), retail e-commerce
increased by 47.35% in 2021 compared to 2019. Additionally, Statista’s predictions
reveal that retail e-Commerce will increase considerably by 2025.
Q3. Has the Coronavirus pandemic reshaped remote work (RW)?

The use of the Internet in the world allowed workers to carry out their jobs from
home during the COVID-19 pandemic. In a post-COVID-19 pandemic scenario, will
increase Internet usage significantly. The Internet transformed the labour market into
a modern labour market and the situation was fostered by the health crisis. According
to the Statista (2022) database, the highest number of Internet users is recorded in
China, India, and the United States.
A large number of workers ended up working from home due to the social
distancing measures introduced in all countries of the world (Eurostat, 2021).
Moreover, the end of the health crisis raises questions concerning the number of jobs
that can be performed from home. Dingel and Neiman (2020) stated that in the
United States of America, approximately 37% of the jobs could be performed from
home in 2020. In a post-COVID-19 pandemic scenario, Holgersen et al. (2021)
highlight that 38% of the current jobs can be performed from home in Norway.
According to recent data concerning the US remote work trends (Statista, 2022a),
before the COVID-19 pandemic, 17% of the workforce worked 5 days per week
from home and 47% never worked from home. After the Coronavirus pandemic,
44% of the workforce started to work from home. In the European Union, 5.4% of
workers used to work from home before the COVID-19 pandemic (European
Commission, 2020). The most common industries where people worked from home
were IT and communication services, business services, education, creative
activities, and real estate.
The impact of the Coronavirus pandemic on the normal work-life balance of
people can be noticed. Today, researchers attempt to design new models of hybrid
work or remote work that will not decrease the productivity of the workers. However,
governments and companies should implement measures that will optimize the
transition process to productive work models.
661
Q4. Will the Industry 4.0 will change future jobs?

According to the World Economic Forum (2020), by 2025, 85 million jobs will
disappear from the global labour market due to the conflict between human capital
and machines, while 97 million new jobs will emerge. These jobs stand out through
a hybrid between human capital, machines, and algorithms. For example, DevOps
engineers, Artificial Intelligence specialists, and Digital Marketing managers are
future jobs that people should prepare for. Engineering, cloud computing, data and
artificial intelligence, and product development are innovative technologies that will
be included in the future labour market.
Figure 2. Innovative technologies that companies will adopt by 2025
Encryption
Cloud
and
computing
cybersecurity
Robots (non-
humanoid)
E-commerce
and Artificial
Intelligence
Source: Author projection based on the World Economic Forum, 2020.
During the COVID-19 crisis, e-Commerce began to be a major alternative that

ensured the continuation of business activities in the online environment. Likewise,
e-commerce created multiple opportunities for people to increase their online
shopping activities. It follows from these circumstances the significance of the
digital economy and digital skills. However, the evolution of e-Commerce is
dependent on e-commerce policies (OECD, 2020).
McKinsey Global Institute (2021) noted that the COVID-19 pandemic
accelerated the introduction of Artificial Intelligence and automation in worldwide
companies as a result of COVID-19 restrictions related to workplace density.
Companies will benefit from automated industrial processes, while workers will
experience job losses caused by the fourth industrial revolution. The research also
includes issues concerning future occupations in a post-Coronavirus scenario.
According to their outcomes, occupations in the field of Internet, Artificial
Intelligence, and health care will increase over the next ten years. Middle-wage
occupations may slowly disappear in the future and be replaced by robots and
revolutionary machines.
662
6. Conclusions
Overall, the results indicate that COVID-19 will create new jobs in the global
labour market. Furthermore, the world’s population will experience new jobs in
innovative industries. Current employees could encounter the necessity of reskilling
to survive in the future labour market. The COVID-19 pandemic accelerated the
expansion of the digital economy within all countries of the world. Similarly, digital
skills have become of great importance in the current period. The coronavirus
pandemic increased the use of remote work in companies all over the world and
could transform the future organization of businesses. Moreover, a large number of
workers chose to work in the future from home or in a hybrid organization. The
Fourth Industrial Revolution will change future jobs through new innovative
industries that have increased in the last few years and during the COVID-19
pandemic. In conclusion, political players, international companies, and employees
should cooperate to support the transition from traditional work to a new labour
market.
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664

June 16-17, 2022
The Impact of a Liquidity Shock on the Economy

and the Banking Sector through a Fire-Sale Mechanism1
Irina MIHAI2
DOI: 10.24789788367405072-062
Abstract
The paper analyses the impact of a systemic liquidity shock on the banking sector and the
economy using a New Keynesian model with banks. The literature on dynamic stochastic
general equilibrium models with the explicit banking sector is still in an early stage. The
paper contributes to this literature by studying the liquidity shock transmission through a
fire-sale mechanism that lowers banks’ assets and triggers deposit withdrawals. The shock
is transmitted to the economy as banks contract their lending supply, significantly reducing
investment. The model includes financial frictions on how banks allocate financial resources
to the economy (principal-agent frictions). The results show that the fire-sale mechanism is
one of the most significant channels for shock transmission and amplification for the banking
sector. The implications of the fire-sale shock are more severe for the banking sector than a
negative shock on capital quality or productivity.
Keywords: fire-sale mechanism, banks’ liquidity, DSGE.
JEL Classification: E51, F34, G21.
1. Introduction
Fire-sale is an important amplification mechanism for a systemic liquidity shock
that could make a crisis worse (Diamond, Rajan, 2011). During a financial crisis,
financial institutions might be unable to rollover their liabilities (mainly deposits in
the case of commercial banks). Banks might be forced to sell part of their portfolios
due to lack of liquidity, but at a substantial discount (fire-sale price). Due to the
specific conditions during a liquidity crisis, the assets sold at the fire-sale price are
usually of good quality. The Global Financial Crisis (GFC) provides a good example
of such a crisis (Bernanke, 2010; Shleifer, Vishny, 2011).
1 The opinions expressed in this paper are those of the author and do not necessarily represent the views
of the National Bank of Romania.
2
Bucharest University of Economic Studies, National Bank of Romania, Bucharest, Romania,
[email protected].
© 2022 I. Mihai, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0 License.
This paper studies the liquidity shock transmission through a fire-sale mechanism
that lowers banks’ assets and triggers deposit withdrawals in a DSGE framework.
The shock impacts the economy as banks contract their lending supply, significantly
reducing investments. This paper uses a New Keynesian DSGE model with the
banking sector based on Gertler et al. (2020). The model includes financial friction
in how banks allocate resources to the economy (principal-agent frictions). The
literature on DSGE models on financial crises is still being developed, with
significant improvements seen after the GFC (Christiano et al., 2018). The DSGE
models provide a good framework for policy analysis despite its limitations.
This paper contributes to the literature on banks’ liquidity risk and banking crises
models (Gertler, Karadi, 2011; Gertler, Kiyotaki, 2015; Gertler et al., 2020) by
disentangling the shock of banks’ returns on loans into two distinct shocks: on capital
quality and asset prices. The hypothesis that I test is that the main driver of banks’
rapid deterioration of the financial stance following a shock is the fire-sale
mechanism. In this paper, the capital quality shock is applied directly to the return
on capital, while a different shock (named fire-sale shock) on asset prices, as opposed
to Gertler et al. (2020), where the capital quality shock is on the banks’ loan return.
I calibrate the parameters using the data for the Romanian economy for the period
2006-2020 and the existing literature. The simulations show that the main
transmission channel of a shock on banks’ earnings from loans is through the fire-
sale mechanism. This shock is more severe for the banking sector than a negative
shock on capital quality or productivity. The impact is even higher if we include
another financial friction on the inefficiency of direct household lending. In this
model, when banks exit the credit market, the households step in to finance the
economy but at a higher cost for selecting and monitoring projects funded. The
results of this model extension are not presented in the paper due to lack of space.
The paper is organized as follows. Section 2 describes the DSGE model
emphasizing the banking sector and the fire-sale mechanism. Section 3 presents the
calibration of the model. Section 4 discusses the results of the simulations based on
the baseline model. Section 5 concludes.
2. Model Main Features

The model is based on a New Keynesian DSGE model for a closed economy with
price stickiness and a banking sector developed by Gertler et al. (2020). The model
includes a self-fulfilling run framework similar to Cole and Kehoe (2000) and
principal-agent friction similar to Gertler and Karadi (2011) and Gertler and Kiyotaki
(2015). I study the impact of a fire sale mechanism after a liquidity shock on the
banking sector and the economy.
The economy is financed mainly by the banking sector (𝑆𝐵,𝑡 ) and partially by
households’ through direct lending (𝑆𝐻,𝑡 ):
𝑆𝑡 = 𝑆𝐵,𝑡 + 𝑆𝐻,𝑡 (1)
666
Similar to Gertler et al. (2020), a shock can occur on the quality of capital between
the beginning and the end of a period:
𝐾𝑡+1 = 𝜉𝐾𝑄,𝑡+1 𝑆𝑡 (2)

where 𝐾𝑡+1 is the capital stock in the economy at the end of period t + 1 and 𝑆𝑡 is the
capital stock at the beginning of period t + 1 and 𝜉𝐾𝑄,𝑡+1 is the capital quality shock.
2.1 Banking Sector Features

In the model, banks raise deposits from households at interest rate 𝑅𝑡 and grant
credit to companies at interest rate 𝑅𝐵,𝑡 . The assets against which banks lend to
companies are 𝑆𝐵,𝑡 at price 𝑄𝑡 . The bank’s balance sheet constraint is:
𝑄𝑡 𝑆𝐵,𝑡 = 𝐷𝑡 + 𝑁𝑡 (3)
Under normal conditions, a bank can survive each period with a probability (𝜎𝐵 ),
while (1 − 𝜎𝐵 )𝑓 new bankers enter the market with an initial net worth of 𝑒. Banks
accumulate net worth after the initial endowment, (1 − 𝜎𝐵 )𝑓𝑒, by earning profit
through lending at a higher interest rate than the interest rate paid on deposits. The
net worth of the banking sector is described by:
𝑁𝑡 = 𝜎𝐵 [𝑅𝐵,𝑡 𝑄𝑡−1 𝑆𝐵,𝑡−1 − 𝑅𝑡 𝐷𝑡−1 ] + (1 − 𝜎𝐵 )𝑓𝑒 (4)

The bankers maximize the expected value of banks’ net worth until the bank exit
the market. The bankers choose the projects the bank will finance. Still, they can also
decide to redirect a part of their assets (𝜃) to other purposes (like risky investments
that turn into nonperforming assets or paying extra bonuses or dividends to the
bankers) - principal-agent financial friction, similar to Gertler et al. (2020).
2.2 Fire-Sale Mechanism

A bank commits to pay depositors the return 𝑅𝑡∗ . Under specific conditions (for
example, after a liquidity shock), a bank might not have enough funds to pay the
deposits. Therefore, the return on deposits can be described as:
∗
𝑅𝑡+1 with probability 1 − 𝑝𝑡
𝑅𝑡+1 = { ∗ (5)
𝑥𝑡+1 𝑅𝑡+1 with probability 𝑝𝑡
where 𝑥𝑡+1 is the recovery rate of deposits at market prices:
[𝜉𝐾𝑄,𝑡+1 𝑍𝑡+1 + (1 − 𝛿)𝜉𝐹𝑆,𝑡+1 𝑄𝑡+1 ]𝑆𝐵,𝑡

𝑥𝑡+1 = <1 (6)
𝑅𝑡∗𝐷𝑡
and 𝜉𝐾𝑄,𝑡+1 is the capital quality shock that affects the real return on capital and
𝜉𝐹𝑆,𝑡+1 is the fire-sale shock. After a fire-sale event, the asset prices drop quickly and
reduce the return on loans. A solvent bank that suffers such a shock might become
667
insolvent if the drop in the bank’s profit is severe enough. Gertler et al. (2020) tests
the fire sale mechanism by applying a single shock on the banks’ return from lending.
The banks’ franchise value also drops; the impact is amplified by the banks’
leverage (Φ𝑡 ). Written as the Tobin rate (Ψ𝑡 ), the banks’ franchise value is (see the
Appendix for more details):
[𝜉𝐾𝑄,𝑡+1 𝑍𝑡+1 + (1 − 𝛿)𝜉𝐹𝑆,𝑡+1 𝑄𝑡+1 ]

Ψ𝑡 = 𝐸𝑡 {Ω𝑡+1 ( − 𝑅𝑡+1 )} Φ𝑡
𝑄𝑡 (7)
+ 𝐸𝑡 {Ω𝑡+1 𝑅𝑡+1 }
Under normal circumstances, the banks with higher leverage will earn more profit
and have higher franchise value. However, the impact will be higher for levered
banks when a shock occurs.
3. Model Parameters
I calibrate the parameters according to the existing literature and the Romanian
economy for 2006-2020. The data sources are the National Bank of Romania and the
National Institute of Statistics. The values used are presented in Table 1.
Table 1. Parameters of the baseline model
Parameter Value Description
Macroeconomic model
𝛽 0.987 Discount factor
𝜍𝑐 2.000 Risk aversion
𝜍ℎ 7.500 Inverse Frisch elasticity
𝛼 0.550 Capital share
𝛿 0.049 Capital depreciation rate
𝜀 11 Elasticity of substitution
𝜅 4 Investment adjustment cost
𝜚 1000 Rotemberg (1982) price adjustment cost
𝜌𝜋 1.500 Monetary policy response to inflation
𝜌𝑦 0.125 Monetary policy response to output
G 0.466 Government expenditure
Banking sector
𝜃 0.220 Share assets allocated to other purposes
𝜎𝐵 0.847 Probability of survival for a bank
Φ𝑆𝑆 8 Banks’ leverage in steady state
𝑠𝑝𝑟𝑒𝑎𝑑𝑆𝑆 0.005 Banks’ spread in steady state
𝑒 0.011 Net worth of new banker
Shocks
𝜌𝐴 0.750 Persistence of technology shock
𝜌𝐺 0.750 Persistence of government expenditure shock
𝜌𝑅𝑃 0.750 Persistence of risk premium shock
𝜌𝐾𝑄 0.750 Persistence of capital quality shock
𝜌𝐹𝑆 0.750 Persistence of fire sale shock
𝜎𝑠ℎ𝑜𝑐𝑘 0.050 Standard deviation of shocks
Source: Christiano et al. (2011), Copaciu et al. (2016), Gertler et al. (2020).
668
The households’ discount factor (𝛽) is set to 0.9866798 which corresponds to the
average annual interest rate of 5.4% during the period analysed (or 1.35% quarterly).
The capital share (𝛼), the depreciation (𝛿) and the investment adjustment cost (𝜅)
are set to 55%, 4.9% and 4 based on Copaciu et al. (2016). Inverse Frisch elasticity
(𝜍ℎ ) is set to 7.5 similar to Christiano et al. (2011) and Copaciu et al. (2016). For risk
aversion (𝜍𝑐 ), Taylor rule parameters (𝜌𝜋 and 𝜌𝑦 ), elasticity of substitution across
different input factors (𝜀), the Rotemberg (1982) price adjustment cost (𝜚) and
Government expenditure (G), I follow Gertler et al. (2020). I also follow Gertler et
al. (2020) for the banking sector parameters.
I simulate the model using the first-order perturbation method from Dynare v5.0
software. The model was initially based on the codes provided by Gertler et al.
(2020). All the figures are created in Matlab using the policy functions estimated
by Dynare.
4. Fire-Sale Shock Impact on the Banking Sector and the Economy

The fire-sale shock (𝜉𝐹𝑆,𝑡+1 ) lowers the bank’s inflows below the minimum level
that would allow them to pay their depositors the promised returns. Therefore, the
deposits recovery rate (𝑥𝑡+1 ) drops quickly below 1, and depositors, aware of the
bank’s financial situation, withdraw their deposits even more. The bank is forced to
sell part of its loan portfolio at a discounted price (fire-sale price), thus enforcing the
downward spiral of asset prices. The results are presented in Figure 1.
Figure 1. The responses on different fire-sale shocks
(a) Deposits recovery rate (b) Loan/Deposits adjusted for θ
Source: Author’s calculations.

I compare the impact on the fire-sale shock with the results on two other negative
shocks calibrated with the same magnitude and persistence: capital quality and
productivity. I consider a 5 percent decrease within a quarter with a relatively high
persistence (the autoregressive coefficient is set to 0.75) for all the shocks analysed.
Given that the model is solved using first-order approximation, the magnitude of the
shocks does not affect the results (certainty equivalence). The impulse responses are
presented in Figure 2.
669
The fire sale shock generates a more severe deterioration of banks’ financial
stance and triggers a deposit run than the other shocks studied, confirming the
research hypothesis. The fire-sale shock also determines the most significant decline
in investment compared to other shocks, while the impact on output, even if it is less
severe, and is corrected more slowly. The impact of the fire-sale shock is larger for
the banking sector, as it triggers important balance sheet adjustments as opposed to
the capital quality shock that impacts only the return generated by the lending
activity.
Figure 2. Banking sector and economy response to a fire-sale shock
The other two negative shocks (the capital quality and productivity shocks),
although they generate a reduction in asset prices (but of a smaller magnitude), do
not trigger significant changes in the banking sector. The only notable impact is on
the leverage ratio due to asset price and banks’ net worth declines.
Lastly, I combine the fire-sale shock (𝜉𝐹𝑆,𝑡+1) with the capital quality shock
(𝜉𝐾𝑄,𝑡+1 ). This loan return shock (𝜉𝐿𝑅,𝑡+1) is similar to the capital quality shock used
by Gertler and Kiyotaki (2015) and Gertler et al. (2020).
The response of the banking sector to the loan return shock is very similar to the
one on asset prices (fire-sale shock), while the investment and economic growth
impact are higher. This result shows that the fire-sale mechanism is an important
shock transmission and amplification mechanism for the banking sector. The results
are presented in Figure 3.
670
Figure 3. Banking sector and economy response to a loan return shock
These results are robust to changes in the calibrated parameters or to changes in

the model features such as household consumption behaviour (for example, adding
external habit formation) or investment dynamics. However, the model has some
important limitations, the most important one being the uniform treatment of agents
(homogenous agents).
5. Conclusions and Further Research

In this paper, I analyse the impact of a systemic liquidity shock on the banking
sector and on the economy through a fire-sale mechanism. I use a New Keynesian
DSGE model with a banking sector based on Gertler et al. (2020). The liquidity
shock triggers a drop in asset prices that significantly impair the banks’ profit and
lowers investment and economic growth. The results show that the fire-sale
mechanism is one of the most important channels for shock transmission and
amplification in the banking sector.
Similar to Gertler et al. (2020), the model includes principal-agent financial
friction, as bankers can divert a part of their banks’ assets to other purposes (such as
risky investments that turn into nonperforming assets or paying extra bonuses or
dividends to the bankers). As opposed to Gertler et al. (2020), I look at the fire-sale
shock directly applied to asset prices. I compare this shock to a macroeconomic one
(productivity shock) and to a capital quality shock. The fire-sale shock generates a
stronger reduction in banks’ profit compared to negative shocks on capital quality
and productivity. I also show that the banking sector’s response to the loan return
shock is mainly due to the fire-sale mechanism. This points to the importance of
ex-ante prudential measures for banks’ liquidity risk, as well as to the necessity
671
of developing instruments that would allow the central bank to intervene during
liquidity crises to limit the occurrence of fire-sale events.
The model can be extended further by adding the macroprudential policy. For
example, the model can be used to assess how banks respond to a fire-sale shock
when under a macroprudential measure. Such a measure can, for example, require
banks to hold a certain level of liquid assets, either by setting a simple limit or by
using more complicated instruments like Liquidity Cover Ratio and Net Stable
Funding Ratio.
In conclusion, studying the financial sector responding to shocks within a
dynamic stochastic general equilibrium framework has its merits in helping
policymakers have a better comprehension of the main shock transmission and
amplification mechanisms, like fire-sale.
References
[1] Bernanke, B.S. (2010). Causes of the recent financial and economic crisis. Statement
before the Financial Crisis Inquiry Commission, Washington, September, 2.
[2] Christiano, L.J., Eichenbaum, M.S., Trabandt, M. (2018). On DSGE models, Journal of
Economic Perspectives, 32(3), pp. 113-40.
[3] Christiano, L.J., Trabandt, M., Walentin, K. (2011). Introducing financial frictions and
unemployment into a small open economy model, Journal of Economic Dynamics and
Control, 35(12), pp. 1999-2041.
[4] Cole, H.L., Kehoe, T.J. (2000). Self-fulfilling debt crises, The Review of Economic
Studies, 67(1), pp. 91-116.
[5] Copaciu, M., Nalban, V., Bulete, C. (2016). REM 2.0 A DSGE model with partial
euroization estimated for Romania, National Bank of Romania.
[6] Diamond, D.W., Rajan, R.G. (2011). Fear of fire sales, illiquidity seeking, and credit
freezes, The Quarterly Journal of Economics, 126(2), pp. 557-591.
[7] Gambacorta, L., Signoretti, F.M. (2014). Should monetary policy lean against the wind?:
An analysis based on a dsge model with banking, Journal of Economic Dynamics and
Control, 43, pp. 146-174.
[8] Gerali, A., Neri, S., Sessa, L., Signoretti, F.M. (2010). Credit and banking in a dsge model
of the euro area, Journal of Money, Credit and Banking, 42, pp. 107-141.
[9] Gertler, M., Karadi, P. (2011). A model of unconventional monetary policy, Journal of
monetary Economics, 58(1), pp. 17-34.
[10] Gertler, M., Kiyotaki, N. (2015). Banking, liquidity, and bank runs in an infinite horizon
economy, American Economic Review, 105(7), pp. 2011-43.
[11] Gertler, M., Kiyotaki, N., Prestipino, A. (2020). A macroeconomic model with financial
panics, The Review of Economic Studies, 87(1), pp. 240-288.
[12] Rotemberg, J.J. (1982). Sticky prices in the united states, Journal of Political Economy,
90(6), pp. 1187-1211.
[13] Shleifer, A., Vishny, R. (2011). Fire sales in finance and macroeconomics. Journal of
Economic Perspectives, 25(1), pp. 29-48.
672
Appendix – The baseline DSGE model

Households maximize their utility:
∞
1−𝜍 1+𝜍
𝐶𝜏 𝑐 𝐻𝜏 ℎ
Ut = Et {∑ 𝛽 𝜏−𝑡 [ − ]} (8)
1 − 𝜍𝑐 1 + 𝜍ℎ
τ=t
subject to the budgetary constraint:
𝐶𝑡 + 𝐷𝑡 + 𝑄𝑡 𝑆𝐻,𝑡 + 𝐵𝑡
𝑛
𝑅𝑡−1
= 𝑤𝑡 𝐻𝑡 − 𝑇𝑡 + 𝛱𝑡 + 𝑅𝑡 𝐷𝑡−1 + 𝐵 (9)
𝜋𝑡 𝑡−1
+ [𝜉𝐾𝑄,𝑡 𝑍𝑡 + (1 − 𝛿)𝜉𝐹𝑆,𝑡 𝑄𝑡 ]𝑆𝐻,𝑡−1
There are three types of firms: companies that produce final goods, companies
that produce intermediate goods, and companies that produce capital goods.
The firms producing intermediate goods operate in a monopolistic market. For
this type of competitive market, the real wage is equal to the marginal increase in
production given a unit increase of labour, and the real rent on capital is equal to the
marginal increase in production given a unit increase of capital.
Each period, the firms adjust their prices according to Rotemberg (1982) with
𝜚 > 0 being the Rotemberg’s parameter for cost adjusting prices (𝜚 = 0 indicates
fully flexible prices):
𝜀 𝜀−1 𝑌𝑡+1
(𝜋𝑡 − 1)𝜋𝑡 = (𝑀𝐶 − ) + 𝐸𝑡 [Λ 𝑡,𝑡+1 (𝜋𝑡+1 − 1)𝜋𝑡+1 ] (10)
𝜚 𝜀 𝑌𝑡
The capital goods producers maximizing their profits similar to the ones
described by Gerali et al. (2010) and Gambacorta and Signoretti (2014):
𝐸𝑡 ∑ Λ 𝑡,𝜏 {𝑄𝜏 [𝑆𝜏 − (1 − 𝛿)𝑆𝜏−1 ] − 𝐼𝜏 } (11)

𝜏=𝑡
where 𝑆𝑡 is subject to the following dynamics with quadratic adjustment cost of

investments:
2
𝜅 𝐼𝑡
𝑆𝑡 = (1 − 𝛿)𝑆𝑡−1 + [1 − ( − 1) ] 𝐼𝑡 (12)
2 𝐼𝑡−1
where 𝑄𝑡 is the real price for capital goods, and κ is the parameter for the cost of
adjusting investments.
673
I follow Gertler et al. (2020) and consider that the monetary policy sets the
nominal interest rate (𝑅𝑛,𝑡 ) according to the Taylor rule:
1 𝜌
𝑅𝑛,𝑡 = 𝜋 𝜋 Θ𝑡 𝜌𝑦 , 𝜌𝜋 > 1 (13)
𝛽 𝑡
where Θ𝑡 is a measure of cyclical utilization of resources in the economy defined as
the ratio between the steady-state markup and the current markup. In this model, the
public sector is financing its consumption entirely through lump-sum taxes.
The model for the banking sector is similar to Gertler et al. (2020). Banks, as
other types of agents in this model, are homogeneous. Each banker seeks to
maximize the bank’s value:
𝑉𝑡 = 𝐸𝑡 {𝛬𝑡,𝑡+1 [(1 − 𝜎𝐵 )𝑁𝑡+1 + 𝜎𝐵 𝑉𝑡+1 ]} (14)

A bank can exit the market at time t with probability 1 − 𝜎𝐵 . In addition,
bankers can decide to divert a part of the bank’s assets (𝜃) to less profitable purposes.
The necessary condition for a bank to continue to operate (considering that 𝜎𝐵 is
high) is:
𝜃𝑄𝑡 𝑆𝐵,𝑡 ≤ 𝑉𝑡 (15)

To simplify the optimization problem, I use two notations. One for the bank’s
𝑉 𝑄𝑆
Tobin rate (Ψ𝑡 = 𝑡⁄𝑁 ) and another for the bank’s leverage (Φ𝑡 = 𝑡 𝐵,𝑡⁄𝑁 ).
𝑡 𝑡
The maximization problem for banks can be written as follows. The banker chooses
the level of bank’s leverage that maximizes the bank’s value:
Ψ𝑡 = 𝜇𝑡+1 Φ𝑡 + 𝜐𝑡+1 (16)

where:
𝜇𝑡+1 = 𝐸𝑡 {Ω𝑡+1 (𝑅𝐵,𝑡+1 − 𝑅𝑡+1 )} and 𝜐𝑡+1 = 𝐸𝑡 {Ω𝑡+1 𝑅𝑡+1 } (17)

with:
Ω𝑡+1 = 𝛬𝑡,𝑡+1 [1 − 𝜎𝐵 + 𝜎𝐵 Ψ𝑡+1 ] (18)

subject to:
𝜃Φ𝑡 ≤ 𝜇𝑡+1 Φ𝑡 + 𝜐𝑡+1 (19)

The model includes five exogenous shocks as follows: negative technology,
capital quality, and asset prices (fire sale) shocks, and positive government
expenditure and risk premium shocks.
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June 16-17, 2022
Globalization beyond the Pandemic:

Opportunities from a Great Reset
Mariia NEZHYVA1*, Viktoriia MYSIUK2, Olga ZAREMBA3
DOI: 10.24789788367405072-063
Abstract
The article discusses the state of global interconnectedness in trade and investment and
to a lesser extent in information, travel, and migration. It provides insights on evolving
trends that are shaping future globalization and how these shifts would impact global
business and consumer markets. The article also highlights possible winners and losers
from the current reset of globalization, as well as pinpoints arising opportunities, helping
businesses build long-term strategies and win in the new global economic era.
International trade and foreign direct investment growth have slowed down since the
2010s, on the back of shifting global demand, rising labor costs, technological advances,
and other factors such as protectionism policy and changing consumer value. Global travel
and migration have also been severely disrupted since the COVID-19 pandemic. Digital
connectivity, meanwhile, becomes an important driver of global economic integration. The
global economy is entering a new phase of globalization, as business efforts to reshuffle
supply chains, digitalize, and enhance sustainability are reshaping the global
manufacturing, trade, and investment landscape. The future globalization will become
more people-centered and less geographically concentrated, as more countries would join
the global value chains. Nevertheless, geopolitical risks and protectionism continue to pose
a threat to global trade and investment. Economies with large internal markets, e-
commerce, education services, high-tech companies, and local brands are likely the
winners of the new globalization. Meanwhile, small and open economies may be under
stress. Consumers may face higher product prices due to manufacturers’ production
relocation. The income gap between consumers in advanced and developing countries may
also rise, creating a more fragmented global consumer market. In order to mitigate risks
and better secure access to supplies and markets in the new global era, companies will
need to accelerate digital transformation, focus on people and the planet, and diversify
both their end-markets and the supply of raw materials, labor, and manufacturing across
the value chains.
1 Kyiv National University of Trade and Economics, Kyiv, Ukraine, [email protected].

2 Kyiv National University of Trade and Economics, Kyiv, Ukraine, [email protected].
3 Kyiv National University of Trade and Economics, Kyiv, Ukraine, olga.zaremba@midland-
development.com.ua.
© 2022 M. Nezhyva, V. Mysiuk, O. Zaremba, published by Sciendo. This work is licensed under the Creative
Keywords: trade and investment, global business and consumer markets,

globalization, long-term strategies, new global economic era, pandemic.
JEL Classification: F15; M21.
1. Introduction
International trade and foreign direct investment growth have slowed down
since the 2010s, on the back of shifting global demand, rising labour costs,
technological advances and other factors such as protectionism policy and
changing consumer value. Global travel and migration have also been severely
disrupted since the COVID-19 pandemic. Digital connectivity, meanwhile,
becomes an important driver of global economic integration.
The global economy is entering a new phase of globalisation, as business efforts
to reshuffle supply chains, digitalise and enhance sustainability are reshaping the
global manufacturing, trade and investment landscape. The future globalisation
will become more people-centred and less geographically-concentrated, as more
countries would join the global value chains. Nevertheless, geopolitical risks and
protectionism continue to pose a threat to global trade and investment.
Economies with large internal markets, e-commerce, education services, high-
tech companies and local brands are likely the winners of the new globalisation.
Meanwhile, small and open economies may be under stress. Consumers may face
higher product prices due to manufacturers’ production relocation. The income gap
between consumers in advanced and developing countries may also rise, creating a
more fragmented global consumer market.
In order to mitigate risks and better secure access to supplies and markets in the
new global era, companies will need to accelerate digital transformation, focus on
people and the planet and diversify both their end-markets and the supply of raw
materials, labour and manufacturing across the value chains.
Issues related of globalization are of considerable interest in scientific and
professional circles. Karpenko (2020) determines that the national security of
each country is an important component in the system of international security as a
whole, respectively, the presence of common interests will determine the directions
of international cooperation of countries, and the development of integration
cooperation between them. Popov and Popova (2019) explore three interrelated
social processes: informatization, globalization, and multiculturalization. Kopytova
and Fedorenko (2020) explore the information impact in the field of strategic
management in the context of the philosophy of globalism. Pereguda (2020)
investigates the impact of the coronavirus pandemic on the development of
globalization processes. Kramchaninova and Vakhlakova (2021) explore that
public expectations for political and economic cooperation in the field of
national and global security require the government to make significant changes
676
and transform the view on important aspects of the organization of social,

economic and political life of society, in accordance with global challenges. Bokov
(2020) describes the theoretical foundations of globalization, the impact of
globalization on the development of the national market, and problems in the
system of functioning.
Bohun (2021) considers the phenomenon of globalization as an exogenous
factor in the development of socio-economic systems. Turchak (2021) considers
the globalization of society as one of the main factors in the formation of the latest
business communicative discourse. Dyba and Dyba (2019) substantiate the place of
globalization in the innovative process of development. Sharov (2020) explores
economic globalization in the general theoretical and historical-philosophical
context. Kravchuk and Yaroshik (2019) consider financial globalization, the factors
of financial globalization, the main ways of measuring financial globalization, and
the consequences of financial globalization, the threats of financial globalization,
which have a very diverse nature of origin and can be transmitted through different
transmission channels.
Morozova (2020) found that in the context of globalization of international
information business, inequality of economic development has increased, which
has intensified international competition and redistribution of spheres of political
and economic influence in world markets. Tubolec and Tkalich (2019) explore
international financial institutions, which together form the international financial
infrastructure and the main actors of financial globalization; segments of the global
financial market (global debt capital market, global stock market, other global
financial markets (precious metals, real estate insurance), the global foreign
exchange market). Bilorus et al. (2020) emphasize that the only criterion for a new
course among the rapid waves of globalization can only be the unconditional
priority of national interests over the group and personal interests of individual
"centers" of political, economic, and financial power in the country and abroad.

The aim of the article is to study the assessment of the impact of the pandemic
on the globalization.
4. Research Methods
The information base consisted of official data and periodicals. The
methodological basis of the study: analysis and synthesis; systematic approach –
theoretical and methodological foundations of the globalization; economic and
statistical methods – analysis of data in the period of pandemic; monographic – the
study of processes occurring on the globalization and pandemic; abstract-logical –
formulation of conclusions and proposals.
677
5. Findings
Globalisation – the integration of the global economy through international
trade, investment and migration – has much described the world development in
the last few decades. Economies, companies, and consumers globally have
benefited for years from globalisation, while also witnessed the risks and negative
impacts it can bring.
Well before the COVID-19 pandemic, globalisation was already in the midst of
a profound change, driven by technology, the rise of emerging economies, and
increasing geopolitical uncertainties that boosted nationalism and protectionism.
Global trade and multinational businesses have also been put under stricter
scrutiny, as consumers increasingly request more transparent and socially
responsible supply chains of goods and services.
COVID-19 has turbocharged the transformation of globalisation as it revealed
the fragility of global connectivity, prompting countries and business to rethink
their trade, investment, and operation policies. Globalization reset can be impacted
by different factors (Figure 1).
Figure 1. Global FDI and M&A as % of GDP 2015-2020

4,0
FDI Inflows M&A Purchases
% of global GDP
3,0
2,0
1,0
0,0
2015 2016 2017 2018 2019 2020
Source: Euromonitor International from trade sources, 2021.
As globalization is shifting, there will be new directions in the flow of goods,

capital, data, and people globally. This will happen along with the shifts in global
economic power, leading to changes not only in global supply chains and capital
movement, but also in global migration and education. And like in the last periods
of globalization, there will be potential winners and losers from this new wave of
global connectivity.
With uncertainties on the rise, building resilience across the supply chains,
markets, and operations is now high on the business agenda. In order to stay ahead
of future changes, companies need to understand the factors shaping the global new
business landscape. Identifying evolving trends and learning how these would
transform the global manufacturing, trade, finance, and movement of people will
help businesses to mitigate risks and secure better access to supplies and markets
globally. International trade continues to expand robustly in absolute terms,
678
reflecting the ongoing high level of global trade connectivity. However, the
proportion of international trade in relation to the global economy has declined
significantly during the last decade. The trend is particularly noteworthy for
emerging economies, as they become less dependent on external markets and their
domestic consumption plays a more important role in economic growth. Overall,
the decline in trade intensity reflects growing industrial maturity and rising
consumption power in emerging and developing economies.
Meanwhile, emerging economies continue to enjoy increasing importance in
global trade. Since the Global Financial Crisis in 2008/2009, China has already
taken over the US to become the world’s largest exporter and Germany to become
the second largest importer in the US dollar terms. India, Mexico, and Russia are
now also among the world’s top exporters and importers.
Along with the rising power of China and other emerging markets in global
trade and a slowdown in trade intensity, geopolitical risks in the form of populism,
local sourcing and protectionism – as it manifests in Brexit in the UK, the US –
China trade war and the Russia – Saudi Arabia spat over oil production – have
resulted in tensions and threatened a reversal in global trade. In some countries,
tariff and non-tariff barriers have risen again. COVID-19 accelerates this trend, as
many countries now seek security in areas beyond food.
Even before the pandemic, global foreign direct investment (FDI) flows have
already been gradually falling, due to rising labour costs in developing countries
(which led to lower FDI returns), as well as to intensifying protectionism and
nationalism which favour local investments. The COVID-19 pandemic had a heavy
impact on global FDI flows as global economic activities were disrupted. Total
FDI inflows dropped by 35% on a year-on-year basis in 2020. The decline was
more severe in developed countries, which accounted for slightly more than half of
the global fall. While this decrease resulted mainly from corporate restructuring
and intrafirm financial flows, developing countries faced a decrease in FDI of only
around 8%, thanks to steady flows in Asia. China recorded an increase of 6% in
FDI inflows due to a smooth recovery from the pandemic.
While FDI outflows from the US remained stable, investment by Japanese
companies – the largest outward investors in the past couple of years – decreased
by as much as half, as large mergers and acquisitions (M&A) purchases were not
repeated in 2020. The outward FDI from China, despite a 3% decline, remained
high at USD133 billion in 2020, making China the largest investor globally.
Digital technology has become a key driver of the new globalization, enabling
global innovation and productivity, connecting consumers and suppliers, and
transferring information quickly. Digital advances have led to a spike in global
internet traffic in the last two decades. B2B digital trade is growing fast, while B2C
cross-border retailing is booming. The share of foreign e-commerce accounted for
10.7% of global total e-commerce in 2020, up from 6.9% in 2011 (Figure 2).
Global migration and travel are a symbol of the interconnected world that we
live in. Greater people mobility has changed the face of economies, societies,
labour, and consumer markets. Immigration was the main source of population
679
growth in developed countries, as it made up 67% of population growth in these

countries between 2010 and 2020. Overall, global migration has fostered the global
flows of ideas and innovation and helped boost income in low- and middle-income
economies via remittances.
Figure 2. Global E-Commerce Growth: Foreign vs Domestic

2011-2020
1.000
Total E-Commerce Foreign E-Commerce
Real sales growth index
Domestic E-Commerce
700
2011=100
400
100
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Euromonitor International from trade sources, 2021.
Belove are listed evolving trends resetting globalization. With the objective to
build supply chains that are more flexible to global disruptions, localisation is
gaining a stronger momentum. This is especially unique for the apparel industry as
it has traditionally focused on cost advantage. The commitment to diversify
production and localise would boost the sustainability goals as supply chains would
shorten, thus reducing carbon footprints (Figure 3).
Some of China’s neighbours provide attractive alternatives as manufacturing
locations, given their proximity and lower labour costs. Nevertheless, a lack of
appropriate infrastructure or skilled labour are factors that may add costs to
business relocation. The rise in e-commerce sales during the pandemic has
triggered investments in development of automated distribution and fulfilment
facilities. The development of these facilities is allowing businesses to reduce
delivery time and add to efficiency in supply chains when consumer mobility is
restricted while making the supply chains more efficient and reliable.
With consumers spending more time under home isolation, there has been an
increase in the contribution of sales coming through the online channel. This has
resulted in retailers focusing on expanding their warehousing capabilities to fulfill
orders in time, thus smoothing the supply chain. Retailers will continue to invest in
automated fulfilment/micro-fulfilment centres to stay ahead of the curve.
It has become apparent for business during the last decade that resilience in
supply chains goes hand in hand with sustainability. Environmental, social, and
governance (ESG) issues such as pollution or poor health and safety conditions,
680
represent systemic risks in the supply chain, which can directly impact global
business and investors’ reputation and profit.
Along with consumers’ push for higher corporate environmental and social
responsibility, global companies will need to enhance sustainable-business
practices throughout their global supply chains. Companies will carry out greater
due diligence on their suppliers, while countries have also reinforced their ESG
criteria for investment projects in an effort to accomplish sustainable goals.
Figure 3. Evolving trends resetting globalization
• Diversifying suppliers, production locations and

markets to avoid excessive geographical
concentration
Diversification • Nearshoring and reshoring to limit complexity/
interdependence in the supply chains and move
closer to end-consumers
• The ongoing US-China decoupling risk
accelerates diversification efforts
• Leveraging technology to optimise manufacturing

systems and shorten the supply chains
Digitalisation • Fostering cross-border e-commerce
• Enabling remote learning and working to benefit
from the global talent and labour pool
• Embracing environmental, social and governance

criteria across global value chains
Sustainability • Growing investments in sustainable and carbon-
neutral projects
Source: Developed by the authors on the basis of Euromonitor International

from trade sources, 2021.
Meanwhile, a global effort to fight climate change and to achieve the United
Nation’s Sustainable Development Goals (SDGs) will drive future investment
demand into SDG and low-carbon projects. Rising global commodity prices is
another strong push for more investments in resource-efficient technologies
and solutions.
The future flows of capital are expected to be much driven by green, sustainable
initiatives. The United Nations Conference on Trade and Development (UNCTAD)
estimates that sustainability-dedicated investments – investment products targeting
sustainable development-related themes or sectors – amounted to USD3.2 trillion
in 2020, up more than 80% from 2019.
681
As global trade growth is likely to continue to slow down, income and

productivity growth could decelerate, compared to the previous rise witnessed
during the peak of globalisation in the 1990s and 2000s.
Increased trade could enhance productivity and thus per capita income via
various channels including economies of scale, competition, and innovation. All of
these positive effects of trade could be reversed with slower global trade growth,
reducing productivity and average income gains. Some econometric models
estimate that a 10% reduction in the volume of global trade would reduce global
real GDP per capita by 2-7.5%.
Globalisation and trade growth can impact income inequality via the same
channels through which trade boosts productivity: Greater specialisation of
production across different locations, reallocation of production across firms or
industries and greater competition create economic winners and losers inside
industries and countries, with spill-over effects on workers and households’ income
(Figure 4).
Figure 4. Impact of globalization to business
Future globalisation Impacts
• Global manufacturing and capital • Diversification can lead to higher

flows will become less geographically production costs and lower profit
concentrated. More smaller countries margins for firms. This can in turn
will have the opportunities to join the result in inflation and higher prices
global value chains. for consumer goods and services.
• Regional trade and regional supply • Demand for automation will rise to
chains will rise. offset labour shortages due to
• Global digital integration will continue production relocation, and enhance
to surge, with manufacturers, suppliers productivity.
and consumers increasingly connected • Trade slowdown will have mixed
by technology. impacts on income distribution.
• ESG criteria will gain importance, Business will face a more
making global investment more people- fragmented global consumer
centric and sustainable. market, while domestic consumer
markets can become less unequal.
Source: Developed by the authors on the basis of Euromonitor International
from trade sources, 2021.
Based on this tendency, there can be possible globalisation winners and losers.
I. Possible winners:
• Economies: Countries with large internal markets (e.g., China, India, and
Turkey), low production costs, and adaptable economic systems are in a
favourable position. Smaller frontier markets (e.g., Indonesia, Vietnam, the
Philippines, Bangladesh, Sri Lanka, and Morocco) have immediate
opportunities to enhance manufacturing capacity as alternative production hubs
for China.
682
• Sectors: Higher-value-added industries including e-commerce, high-tech sectors

(e.g., biotech, semiconductors, robotics, 3D manufacturing, and artificial
intelligence) and green innovations (e.g., electric vehicles) will continue to
thrive. The education sector will also expand due to demand for new skills and
re-skilling.
• Companies: Businesses that can leverage global digital marketplaces continue
to see advantages.
• Brands: Smaller, local brands will see growing opportunities among consumers
in emerging and developing markets as their preference for local products
grows.
II. Possible losers:
• Economies: Small, open economies could come under stress if protectionism
heightens, since they are more dependent on external markets and external
financing (eg several economies in Latin America and Africa).
• Sectors: On a country level, any sectors or industries in an economy that are
heavily dependent on imports or exports can be at risk in case of any sudden
change in trade relations/ policies or other disruptions.
• Companies: Large, multinational companies that move their supply chains to
more expensive locations, or back to their home market, would likely suffer
from lower profit margins in the medium term.
• Brands: Global brands are prone to geopolitical tensions and boycott risk. Also,
they can lose shine if they fail to respond to local consumers’ evolving values.
So, China and the developing world will be an increasingly important source of
demand for advanced economies and the world. Digital platforms, logistics
technologies, and data-processing techniques will be widely used to reduce cross-
border transaction costs. Rising raw materials and food prices will continue to
drive sustainable consumption and more investments in green solutions.
6. Conclusions
These investigations deal with the key takeaways for business to get
opportunities from a Great Reset. There are three vectors we see possible
opportunities. Building resilience and agility: as uncertainty is on the rise,
companies should diversify their end-markets, distribution channels, and across the
supply of raw materials, labour, and manufacturing; resilience often comes with a
cost, so diversification measures need to be cost effective in the long term.
Accelerating digital transformation: leveraging digital technology in manufacturing
and distribution channels in order to reduce costs, shorten the supply chains and
reach more consumers including those across borders; manufacturers in advanced
economies can enhance automation to raise productivity and address labour
shortages. Focusing on people and the planet: going green across the supply chains
is essential for businesses to secure future growth and success, sustainability has a
direct impact on company profitability and image; companies will need to put
683
people at their core and invest in human capital, helping employees build the skills
for the jobs of the future.
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684

June 16-17, 2022
The High-Tech Exports of Romania

during the Period 2013-2020.
An Analysis of Their Evolution and Structure
Ion PĂNESCU1
DOI: 10.24789788367405072-064
Abstract
The aim of this paper is a multiparameter analysis of the evolution and structure of
Romanian high-tech exports compared to other member countries of the European Union
and some emerging countries having a higher share of high-tech commodities in their
exports. In the current paper, the authors propose a phenomenological research trying to
capture the more significant aspects of the export sectors of Romania which involve a high
intensity of R&D, according to the Standard International Trade Classification (SITC). The
novelty resides in a recent and detailed picture of Romanian high-tech exports which could
be used in order to determine the trend and potential of the essential flow components.
Although the research is limited at a theoretical approach, it might be continued with
identifying the exporters of high-tech manufactures and doing a stakeholder analysis. The
research used the World Bank and Eurostat databases, the authors’ findings confirming that
Romania lags behind the most of developed and some emerging states. The gap can be caused
by conjunctural factors, small public expenditures with research, development, and
innovation, and the lack of stimulation and interest of private sector in making such
investments. Moreover, the Romanian high-tech exports are highly dependent on the IT&C
sector, which reveals both an important vulnerability in the context of the trade barriers
which might raise for a sector and a big opportunity for restructuring the economy.
Keywords: high-tech exports, high-tech evolution, high-tech structure, Romanian

trade, technological intensity.
JEL Classification: F14, F43.
1. Introduction
The external trade allows countries to acquire materials, finished goods or
services which are either not available domestically or if producing them costs more
than importing and also to capitalize on the comparative or competitive advantages
© 2022 I. Pănescu, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
they have, to promote entrepreneurship, to capitalize on the effects of economies of

scale or the experience curve of indigenous producers. The dynamics of embedding
high technology in goods and services, corroborated with the increasing of global
demand of this kind of products, has led recently to an acceleration of the
high-tech exports. The ability of developing countries to reach their full potential
also depends on the volumes of their high-tech exports. The large share of high-tech
exports in total exports of a country is among the most relevant signs of a high
competitiveness of the respective economy (Gheorghe, 2018; Zaman et al., 2018).
The aim of this paper is the analysis of the structure and the evolution of the
high-exports of Romania compared to other countries with high shares of
high-tech exports in total exports. The paper is structured as follows: section 2,
literature review, section 3, research methodology, section 4, findings and section 5,
conclusions.
The growing competition on the international markets of less knowledge
intensive products determines the exporting countries to align to the natural shift
from a low level of technological intensity of productive processes towards a higher
intensity, performing preferably high-tech exports in order to increase their market
and profit shares. Globally, there are important differences in how well regions
perform in terms of doing such type of exports. If the European Union (EU) states
register a decrease of the share of high-tech exports in total exports from 17.4% in
2009 to 16.3% in 2018, in the case of the USA, the indicator decreased from 25.01%
to 18.9% during the same period, the Asian countries record an important growth:
South Korea from 32% to 36.4, Vietnam from 10.5% in 2009 to 41.4% in 2017
(Braja, Gemzik-Salwach, 2020). Regarding the structure of high-tech exports of EU
countries, Braja, Gemzik-Salwach (2020) found out that, during the period 2008-
2011 with only a few exceptions, namely Belgium, Croatia, Cyprus, Slovenia, where
the pharmaceutical industry was the main high-tech exporting sector, all other
countries relied on the export of electronics.
While the entire international economic community agrees that all countries seize
an “export led growth” phenomenon, more and more studies lead to the conclusion
that the composition and diversification of exports have a bigger impact on the
economic growth than just the flows volumes. Burciu et al. (2020) compared the
evolution of export structure and gross domestic product (GDP) per capita of
Romania and Czech Republic, Hungary, Poland, and Slovakia and their findings
demonstrate that the impact on the economic growth differs by component and also
by country. Thus, a 1% increase in the absolute change of medium-tech
manufactures (MTMs) exports led to a growth in GDP per capita of 0.45% in
Hungary, 0.39% in Poland and Slovakia, 0.38% in Czechia, 0.35% in Romania and
1% in the change of high-tech manufactures (HTMs) export led to a growth in GDP
per capita of 0.37% in Poland and Slovakia, 0.34% in Romania, 0.31% in Hungary
and 0.3% in Czechia. These findings show that even if the high-tech exports still
have the smallest share in the total exports of the selected countries, their impact on
686
the economic growth is almost similar to that of MTMs. The sustainability of the
high-tech industry has also been proven in times of crisis, when it showed the highest
growth rate among the EU countries compared to medium-tech or low-tech ones. In
the EU-27, the average growth rate of high-tech exports during the period 2005-2015
was 3.3%, the highest rates recorded in Germany (6.6%), Czech Republic (5.4%),
and Hungary (4.6%), Romania, recording one of the lowest growth rates for high-
tech industry (1.7%). Therefore, the gap between the high-income countries and
Romania, which has an upper-middle economy according to the World Bank data
for 2020, increased during the period 2005-2011. However, Romania registered
the highest growth rate of MTMs exports of all EU-27 states (12.7%), at the
middle of 2000s their share in total exports exceeding the one of low-tech
manufactures (LTMs) exports for the first time (Ekananda, Parlinggoman, 2017;
Sandu, Ciocanel, 2014).
The study of Kheyfets, Chernova (2021) confirms that the endowment with
technological factor encourages the economic growth through better allocation of
resources, the share of innovations, and the high-tech exports increase. According to
the authors’ regression models, China ranks first in technological effectiveness
followed by the USA and Japan, Brazil, Kazakhstan, Turkey, Ukraine and Mexico
lag significantly behind Poland, Romania, and Bulgaria. However, the gaps are very
large as China and the USA account for 90% of the market capitalization value of
70 largest digital platforms, 75% of the blockchain technologies patents, more than
75% of the global market share of public cloud computing, about 50% of world’s
spending in Internet of Things, 69% of supercomputers, or 36% of the total value of
e-commerce.
As our research paper analyses the evolution of HTMs exports of Romania in a
worldwide context and the weight of every sector incorporating high intensity of
technology by means of most recent available data, it will offer an actual image of
sustainability of the Romanian economy in terms of commercial outflows at global
level, and it will illustrate whether there is a balanced structure or an unbalanced one.
3. Research Methods
In order to perform the analysis of the most recent evolution and structure of the
high-tech exports of Romania, which is the stated goal of our study, we have tested
the following hypotheses:
H1: An increasing share in exports of high-tech intensive commodities is closely
correlated with the level of modernity of an economy and leads to the
improvement of the exchange relationship with foreign countries and to the
better positioning of Romania at the level of the economic picture of the
European Union.
H2: The commodity structure of Romanian exports of highly technology-intensive
products is asymmetric, but during the analyzed period some sustainable
progress was registered.
The authors propose in the current paper a phenomenological research trying
to capture the more significant aspects of the export sectors of Romania which
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involve a high intensity of R&D, according to Standard International Trade

Classification (SITC). The Eurostat database uses SITC Rev. 4 since 2007 while the
World Bank, through the World Development Indicators (WDI), uses SITC Rev. 3,
as per 1997 Thomas Hatzichronouglou’s working paper, OECD. Both revisions
classify the HTMs into the following sections:
• aerospace (aeroplane motors, other aircrafts, spacecraft and spacecraft launch
vehicles, propellers, rotors and other parts, undercarriages and other parts,
direction finding compasses, other navigational instruments and appliances;
• computers-office machines (computers, office machines, parts and accessories);
• electronics-telecommunications (sound and video apparatus, telecommunications
equipment, circuit integrated boards, optical fibre cables, semiconductor devices
and media, etc.);
• pharmacy (antibiotics, hormones and derivates, glycosides, glands, antisera,
vaccines and other medicaments);
• scientific instruments (electrodiagnostic and radiological apparatus for medicine
and surgery, cameras, contact lenses, measuring instruments and apparatus,
orthopaedic appliances, optical fibres other than the above-mentioned ones);
• electrical machinery (electrical capacitors, machines, sound and visual signalling
apparatus);
• chemistry (chemical products);
• non-electrical machinery (other gas turbines and parts, drilling, boring, grinding,
sharpening, punching machines, other machines and apparatus);
• armaments (arms and ammunition).
The WDI and Eurostat data were processed in order to highlight a panel of
most relevant 50 countries and calculate the yearly share of every section of
Romanian high-tech exports in total exports. Aiming at continuing the work of
Braja & Gemzik-Salwach (2020), the authors have grouped the exported volumes
of computers-office machines and electronics-telecommunications between years
2013 and 2018, the most recent data provided by the Eurostat in April 2022.
4. Findings
From Table 1 we may observe a positive evolution of the share of high-tech
exports in total manufactures exports of Romania, with a steady and continuous
improvement. The indicator increased from 7.4% in 2013 to 11.9% in 2020 (which
represents an increase of 60.8% on the 2013 value). The table also illustrates that
except for the EU and North America, all regions and income categories registered
increases of high-tech exports shares in manufactured exports, although not as
notable as Romania. However, the Romanian high-tech exports share in total
manufactures exports remains at a low level, its average being less than half of the
total average share of all countries in the world, 59.8% of the EU average and even
worse performance compared to Asian countries and North America (31.4% and
51.3%, respectively).
688
When comparing Romania with other groups of countries in terms of income

level, its volumes of high-tech exports are way behind the ones of other countries
except the low-income countries, the gap being very large. Thus, the Romanian high-
tech exports average share represents 49.5% of the average share of high-income
countries, 41.4% of the average share of upper-middle income countries, 46.2% of
the average share of low & middle-income countries, and 200.3% of the average
share of low-income countries. It is worth mentioning that Romania belongs to the
upper-middle income according to the World Bank classification in 2020, following
a very good performance in 2019, when for the first time Romania was in the high-
income group of countries thanks to the higher volume of GDP per capita. Another
interesting finding deriving from the table is that the East Asia & Pacific countries
registered an important value of standard deviation – 3.6, which is very much
resembling the one registered by Romania as proportional growth – 1.4, more than
10% of the average shares in both cases.
Table 1. An international picture of weight of high-tech exports
in total manufactured exports during the period 2013-2018 (p.p.)
Country / Std.
2013 2014 2015 2016 2017 2018 2019 2020 Average
Group deviation
Romania 7.4 8.4 9.4 10.4 9.8 10.1 11.1 11.9 9.8 1.4
World 18.9 18.9 19.9 20.0 20.5 20.4 20.7 22.2 20.2 1.1
European
16.4 16.5 17.2 17.5 16.0 15.6 16.2 16.1 16.4 0.6
Union
East Asia
28.2 27.2 28.0 28.0 33.9 34.4 33.9 35.7 31.2 3.6
& Pacific
North
19.2 19.4 20.2 21.0 18.4 17.9 18.2 18.7 19.1 1.0
America
Latin
America
13.5 13.3 13.9 14.8 14.6 14.3 14.1 15.0 14.2 0.6
&
Caribbean
High-
18.5 18.6 19.5 19.7 20.1 20.0 20.2 21.7 19.8 1.0
income
Upper-
middle 23.1 22.7 24.0 23.8 23.8 23.8 23.6 24.8 23.7 0.6
income
Low &
middle 19.8 19.7 20.8 20.7 21.3 21.5 21.9 23.3 21.2 1.2
income
Low
N/A N/A 4.9 2.9 3.6 4.3 5.4 N/A 4.2 1.0
income
Source: Authors calculations based on World Development Indicators
[TX.VAL.TECH.MF.ZS], last update 15.02.2022, extracted on 28.03.2022.
The leading countries with highest shares of HTMs in manufactured exports

during the period 2013-2020 belong to Asia and are situated far ahead from the
followers. Philippines, Singapore, Malaysia record more than 50% average share of
high-tech exports in total manufactured exports, followed by Vietnam with 38.09%
(Figure 1). Among the countries with a more discreet performance compared to
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Romania, we can find Albania (0.52%), Turkey (3.13%), Portugal (5.72%),

Luxembourg (6.78%), Spain (7.12%), Italy (7.98%) or Finland (9.65%).
Figure 1. Share of high-tech exports in total manufactured exports

(p.p., average 2013-2020)
Philippines 62,07
Singapore 52,14
Malaysia 50,65
Vietnam 38,09
Korea, Rep. 32,33
Malta 31,73
China 30,80
Ireland 27,09
France 26,58
Thailand 24,10
Iceland 24,03
Netherlands 23,59
United Kingdom 22,83
Norway 21,76
Estonia 20,30
Switzerland 20,11
United States 20,04
Australia 19,51
Czech Republic 18,74
Latvia 18,10
Japan 17,69
Hungary 17,44
Germany 16,73
Sweden 16,34
Cyprus 14,87
Denmark 14,22
Brazil 13,66
Austria 13,58
Belgium 12,60
Russian Federation 12,51
Greece 12,18
Lithuania 12,04
Slovak Republic 10,80
Croatia 10,45
Poland 10,13
Romania 9,81
Finland 9,65
Bulgaria 9,42
India 8,93
Indonesia 8,61
Chile 8,37
Italy 7,98
Argentina 7,43
Spain 7,12
Slovenia 6,97
Luxembourg 6,78
Portugal 5,72
Bosnia and Herzegovina 3,90
Turkey 3,13
Albania 0,52
0,00 10,00 20,00 30,00 40,00 50,00 60,00 70,00
Source: Authors calculations based on World Development Indicators

[TX.VAL.TECH.MF.ZS], last update 15.02.2022, extracted on 28.03.2022.
690
Table 2 illustrates a sinuous evolution of the IT&C share in HTMs of Romania:

if its share in total high-tech exports recorded a maximum of 70.4% in 2015, it
decreased to 65.9% in 2017 and increased again until 67% in 2018. Significant
increases within the analysed period are recorded by the share of scientific
instruments sector (82.3%), reaching an important value of 20.6% in 2018 and in
case of chemistry, where we notice an increase of 30%. The sectors with a negative
evolution of their weight in the total exports are the aerospace (a contraction of more
than 300%), electrical machinery (a contraction of 71.9%), pharmacy (contraction
of 71.4%) and non-electrical machinery (a contraction of 44%). The armament sector
records insignificant volumes, decreasing to a share of only 0.1% of high-tech
exports of Romania in 2018.
Table 2. Romanian high-tech sectors in total high-tech exports
during the period 2013-2018
HTMs sector 2013 2014 2015 2016 2017 2018
Aerospace 3.7% 3.3% 2.2% 1.3% 1.5% 1.2%
Information Technology
68.7% 68.3% 70.4% 70.0% 65.9% 67.0%
and Communications
Pharmacy 4.8% 4.1% 3.2% 2.7% 2.7% 2.8%
Scientific instruments 11.3% 13.0% 14.1% 16.2% 21.4% 20.6%
Electrical machinery 5.5% 5.4% 5.1% 4.9% 3.4% 3.2%
Chemistry 2.0% 2.2% 2.1% 2.0% 2.4% 2.6%
Non-electrical machinery 3.6% 3.4% 2.8% 2.7% 2.6% 2.5%
Armament 0.4% 0.4% 0.1% 0.2% 0.1% 0.1%
Source: Authors calculations based on Eurostat, [htec_trd_group4], last update 08.02.2021,
extracted on 28.03.2022.
5. Conclusions
Starting from the scientific hypothesis and applying the research methodology,
the authors found that the hypothesis H1 is partially confirmed as the share of HTMs
in total exports or manufactured exports of Romania generally lags behind most
developed or developing countries, and there are a few exceptions of countries with
smaller shares of HTMs in their manufactured exports in our panel. Yet, the trend of
high-tech exports of Romania is positive and encouraging, their share in
manufactured exports reaching 11.9% in 2020. Moreover, if we add the value of
MTMs, which are considered by some researchers the heartland of mature
economies (Burciu et al., 2020), Romania performed very well, recording every year
an important growth until 62.5% in 2019 (ranking 21st in the world), right after the
USA with 63.6% and Malaysia 65.7% (The World Bank, 2022). This is a surprising
improvement, since the lowest total recorded share of HTMs and MTMs in
manufactured exports was only 21.8% in 1998.
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The hypothesis H2 is confirmed as Romania changed its export structure from

mainly low-tech products toward medium and high-tech output. The IT&C sector
held the highest part of high-tech exports of Romania with an average of 69.4% in
total high-tech exports during the period 2013-2018. We should also mention the fast
growing share of scientific instruments in high-tech exports, which reached 20.6%
in 2018. The very large share of IT&C sector reveals an important vulnerability of
Romanian high-tech exports in the context of trade barriers which might be raised
by other countries in order to protect their respective sector whereas it might be also
a big opportunity for restructuring the Romanian economy. However, importing
high-tech intensive products for a while and exporting semiconductors and other
intermediary products could be an appropriate strategy which depends on the
production capacity, external competition, and/or the international market evolution.
The ability of developing countries to reach the level of developed countries
depends on the high-tech exports that these countries can make. Mehrara et al. (2017)
identified the determinants of the high-tech exports evolution: the human capital
(proxied by the index of gross tertiary education enrolment rate), the institutional
quality index, the ratio of imports value to GDP (representing the trade openness)
and GDP. Sandu & Ciocanel (2014) show that 1 percentage point increase in the
R&D government expenses would lead to an increase of 8.23 p.p. in the share of
high-tech exports in total exports after wo years and an increase of 1 p.p. in R&D
made by the private sector would determine an increase in HTMs exports share of
9.17 p.p. The impact is even higher if a temporal lag of 5 years is considered, as
1 p.p. increase in public R&D is expected to lead to an increase of 14.42 p.p. in
high-tech exports share and if the lag is extended until 7 years, the positive effect
will reach 16.07 p.p. Therefore, the decision-making factors should prepare a set of
medium and long-term measures and initiatives starting with stimulating the R&D
expenses, improving the quality of education, and acquiring the equipment needed
for producing goods with a high level of technological intensity, the final goal being
the increase of volumes and share of high-tech exports in total exports.
Acknowledgement(s)
This paper was co-financed by The Bucharest University of Economic Studies.
References
[1] Braja, M., Gemzik-Salwach, A. (2020). Competitiveness of high-tech exports in the EU
countries. Journal of International Studies, 13(1), pp. 359-372.
[2] Burciu, A., Kicsi, R., Bostan, I., Condratov, I., Hapenciuc, C.V. (2020). Sustainable
Economic Growth Based on R&D Amplification and Technological Content of Exports.
Evidences from Romania and The V4 Economies. SUSTAINABILITY, 12(5), pp. 1-17.
[3] Ekananda, M., Parlinggoman, D.J. (2017). The Role of High-Tech Exports and of Foreign
Direct Investments (FDI) on Economic Growth. European Research Studies Journal,
20(4A), pp. 194-212.
692
[4] Eurostat (2022). [online] Available at: https://ec.europa.eu/eurostat/, accessed 28 March

2022.
[5] Gheorghe, F.V. (2018). External Trade of Romania – Ten Years after EU Accesion
(2007-2016). The 12th international conference Challenges of the Knowledge Society.
Economic Sciences, May 11th-12th, Bucharest, Romania, pp. 857-865.
[6] Kheyfets, B., Chernova, V. (2021). Comparative Assessment of the Influence of a
Technological Factor on Economic Growth. Eastern-European Journal of Enterprise
Technologies, 1(13-109), pp. 6-15.
[7] Mehrara, M., Seijani, S., Karsalari, A.R. (2017). Determinants of high-tech export in
developing countries based on Bayesian model averaging. Proceedings of Rijeka Faculty
of Economics, 35(1), pp. 199-215.
[8] Sandu, S., Ciocanel, B. (2014). Impact of R&D and Innovation on high - tech export.
Procedia Economics and Finance, 15, pp. 80-90.
[9] The World Bank (2022). [online] Available at: https://databank.worldbank.org/source/
world-development-indicators, accessed 28 March 2022.
[10] World Development Indicators [TX.VAL.TECH.MF.ZS], last update 15.02.2022,
extracted on 28.03.2022.
[11] Zaman, G., Miron, D., Ionescu, M., Lazea, V. (2018). 100 de ani de comerț exterior
românesc. Bucharest: Editura Academiei Române [100 years of Romanian foreign trade.
Bucharest: Romanian Academy Publishing House].
693

June 16-17, 2022
Permanentizing Crisis: The Impact

on Current Turbulent Business Environment
Hezi SHAYB1, Radu MUȘETESCU2*
DOI: 10.24789788367405072-065
Abstract
We intend to explore the causes of the perceived process of permanentizing the
occurrence of crisis in the current political and business discourse and the consequences of
such a phenomenon on the business environment. We try to assess whether such a process is
an objective result of the emergence of a turbulent business environment at the global level
or an artificial result of developments in the political arena. We will explore the
consequences of this trend and its relevance to business decision making.
Keywords: crisis, crisis management, interest rate, monetary policy, emergency

politics.
JEL Classification: H12, G01, E43.
1. Introduction
The last period has witnessed an apparent process of the proliferation of crises.
Recurrent, overlapping, and apparently unavoidable, such crises not only make
headlines in the international and domestic mass media but also seem to dominate
the agenda of policy makers around the world. Pandemics, wars, and climate change
are just a few examples. As a consequence, it has been argued that the “normal”
political process has been abandoned in favour of “emergency” politics. While this
process seems to have origins fundamentally outside of the economic field, a
potential powerful explanation may come, maybe paradoxically, exactly form the
field of economics. It is a result of a decades-long process of de facto abolition of
the interest rate by monetary authorities and a decades-old rise in the time preference
both at the social level but particularly in the field of politics.

© 2022 H. Shayb, R. Mușetescu, published by Sciendo. This work is licensed under the Creative Commons
The idea that national emergencies challenge the way politics is usually
undergone has a long tradition in political thought (Lobel, 1989). Even in ancient
times, the occurrence of war translated into a different approach to politics and the
way government was operated and public affairs were dealt with. War was the
extreme event that allegedly forced governments to make appeal to extraordinary
measures in order to deal with it that put into danger the survival of the state. In
consequence, governments that faced such existential challenges had to choose
between death and structural failure and measures that could be qualified as
dramatic, including the restriction of citizen rights.
From the perspective of the political science, the survival of the state was put into
balance with the protection of individual rights (Klieman, 1979). The Machiavellian
approach, which has fundamentally lied at the core of any state during all ages,
allowed the sacrifice of the latter in order to further the former. In modern
political debates, the process of transformation of the representative democracy –
that seemed to have won the competitive process between political systems – into
an administrative state with no accountability has been perceived as the
most challenging.
Meanwhile, the discussion on the impact of such a political framework on
businesses is still at the level of exploration. There is still an area that economists
seem to have largely avoided. This is relevant for the business environment, as the
approach of business decision-makers has been “hand-to-mouth” and ad-hoc. The
institutionalization of risk management and the formulation of certain crisis-
management approaches did not dig into the area of systemic and structural crises.
Risk management fundamentally assumes the continuity of the core elements of the
economic infrastructure and political institutions. In the current environment, crisis
management should question this assumption. So companies have to learn how to
deal with crisis that changes the elements of the economic and political system they
are operating in.
This research attempts to identify the type of reactions from the part of the private
agents operating in a business environment who are facing the critical challenges of
a political environment which is dealing with crisis that seem to be permanentized.
What kind of decisions could be made in such a framework where governments are
expected to deal on a permanent basis with crisis?
4. Research Methods
We will employ the theoretical framework as envisaged by economists such as
Ludwig von Mises, Murray Rothbard, and Friedrich von Hayek in order to find the
impact of the turbulence in the regulatory framework on the way the businesses are
operating. The Austrian School of Economics, employing a logical-deductive
approach in reasoning, starts from an a priori assumptions (which are empirically
695
validated) in order to identify universal causality relations between economic

concepts and, in practice, economic phenomena (Hoppe, 2007). Very interestingly,
the Austrian method is fundamentally abstract and a priori (such as mathematics) but
can be employed in order to understand actual phenomena only in a speculative way,
as any analyst employing such a theoretical method has to make judgments of
relevance regarding the actual factors operating into the real economy. In other
words, a good theory can be employed in a way that is irrelevant, and it could miss
the realistic approach in explaining the real developments in the economy or society.
This is the challenge of the relationship between theory and history as analysed by
the Austrian economist Ludwig von Mises (von Mises, 1985).
5. The Rate of Interest in Society

Among the most challenging debates in economics as well as public policy is the
misunderstanding of the concept of interest rate. The contemporary democracy has
allowed for the progress of redistribution and socialization on multiple fronts, but
among the most visible ones is the monetary policy. Besides the discussion related
to the impact of monetary policy on business cycles and other macroeconomic
phenomena, a very specific discussion can be opened about the impact of the fixing
of the rate of interest by the monetary authorities.
The rate of interest in a society is not exclusively related to the capital market or
to the monetary policy. As Ludwig von Mises argued, “Interest is not merely interest
on capital. Interest is not the specific income derived from the utilization of capital
goods” (von Mises, 1996, p. 524). This economist advanced the concept of
“originary interest” as not being “… specifically connected with any of the three
classes of factors of production which the classical economists distinguished”. In
fact, “original interest is the ratio of the value assigned to want-satisfaction in the
immediate future and the value assigned to want-satisfaction in remote periods of
the future. It manifests itself in the market economy in the discount of future goods
as against present goods” (idem, p. 526).
Starting from the time preference expressed at a social level but also taking into
consideration additional factors, a prevalent rate of interest emerges in any society.
This is the rate of interest that allows the structure of production to expand in a
natural way by producing economic goods that are required by consumers not only
in terms of variety and preferences, but also in terms of gratification of the time
preference (Rothbard, 2009).
Manipulation of the interest rates by the monetary authorities is an attempt to
erase the scarcity of capital and artificially increase the level of welfare in society:
“The age-old disapprobation of interest has been fully revived by modern
interventionism. It clings to the dogma that it is one of the foremost duties of good
government to lower the rate of interest as far as possible or to abolish it altogether.
All present-day governments are fanatically committed to an easy money policy”
(von Mises, 1996, p. 572).
The rate of interest that closes zero means two adverse impacts on the supply and
demand of capital and investment: from a supply side, a zero interest rate means that
696
the cost of capital is close to zero and that longer-term investment projects become
attractive for private investors. On the other hand, the same level of the interest rate
means a totally different perspective from the part of consumers / the demand: such
an easy access to consumption credit means that these market participants will
advance their consumption from the future to the present. In consequence, a gross
mismatch emerges between the two sides of the market: from a supply side
perspective, lower interest interests mean that longer-term production projects
become attractive. From the demand side perspective, the consumption is brought
into the present and not allowed to be postponed in the future.
As von Mises pointed out, “The loan market does not determine the rate of
interest. It adjusts the rate of interest on loans to the rate of originary interest as
manifested in the discount of future goods.” (von Mises, 1996, p. 527). When
monetary authorities decrease the official rate of interest, they alter the natural
allocation of resources of society not only between goods but between the present
and the future considering the relation between the rate of interest and the time
preference of the society. It is a gross mistake to perceive that the manipulation of
the rate of interest does have an impact only on the capital markets. In fact, it does
have an impact on all the valuation in society of present goods against future goods
in general. And among them, we could include also, in the political system of
democracy, the political agendas and programs of reform not to speak of the morality
and ethics at individual level in society (Hulsmann, 2008).
As a result of fixing the interest under the level of the “originary” rate leads in
time to incentives that favour a higher time preference. Such a modified time
preference would manifest itself on multiple fronts, including the support for
redistributive public policies and direct gratification of consumers. Maybe
paradoxically, the political environment prefers taking decisions that are oriented on
the short term, highly redistributive toward “big numbers” and free from any
principled approach. In consequence, the political discourse has adopted an apparent
permanentization of crisis in public policies in order to reach such objectives. And
fundamentally, this is also a result of the higher time preference of the consumers in
their citizens’ capacity.
6. Findings
Under such circumstances, business strategy faces critical decisions. The core
challenge is that management and ownership have to “make bets while the rules of
the game are changing” as the exogenous changes that companies cannot control
or influence are critical for company survival. It could be argued that, in such times,
the ability to understand complexity and experience of assigning “relevance” is
becoming critical, as important as the operations and knowledge management.
Maybe, in what could be termed as stable environments, the ability to cut costs,
optimize supply chains, and outcompete other producers is critical. However, under
turbulent business environments where the crises seem to be permanent, recurring,
and overlapping, the ability to identify the path to follow is the most important aspect
(Greenspan, 2007). And, in this respect, not only the knowledge of its own market
697
is important for companies, but the understanding of the political processes and
developments in other sectors is paramount. Private decision makers must not only
be strategic and tactic, they must also be “systemic”.
North and Kumta (2018, p. 304) argue that there is a different approach
between what they define as “stable context” and “turbulent context”: “In an
environment that is characterised by unpredictable, varying and unexpected crisis
situations, knowledge management encourages swift problem solving, permanent
experimenting, and quick collective learning as well as living with mistakes”.
Table 1. Differences between Knowledge Management
in Stable and Turbulent Contexts
Knowledge management
in stable context in turbulent context
codify knowledge and document process share tacit knowledge
build on experiences develop ability to learn fast and “turbo
problem-solving”
disseminate “Best Practices” develop “Next Practices”
ensure knowledge transfer across employee facilitate ad-hoc availability of knowledge
generations
Source: North, Kumta, 2018.
They consider that “in the future, organisations would need to carefully consider
when it is worth the effort to make knowledge explicit and document it or whether it
is more effective to switch over to creating collective implicit knowledge (process of
socialisation) in rapidly changing situations” (idem, p. 303).
There are also some sceptical perspectives on the idea that the contemporary
moment is something new for the history of business and economics: “In fact, the
global economic map is always in a state of ‘becoming’. It is always, in one sense,
‘new’, but it is never finished. Old geographies of production, distribution and
consumption are continuously being disrupted and new geographies are
continuously being created” (Dicken, 2015, p. 14).
Meanwhile, the decrease in the rate of interest in society leads to what has been
termed by Austrian economists as “malinvesment”. As the stock of capital is fixed
in a society (and as a result of past acts of savings), the decrease in the rate of
interest leads to the choice of investment projects that maximizes the gains from
“official rate” but do not maximize the social welfare. In such a situation, the
economic calculation of private entrepreneurs is “falsified” as they do not get the
right picture because of the artificially decreased interest rate. They choose to make
longer-term investments that would be revealed later as being in disaccord with the
preferences of the consumers. For a large number of producers, this relevance would
come too late.
Such a perspective would mean that, indeed, times which are perceived as being
“difficult”, “crisis”, and so on are present in every moment of the history. Maybe, in
certain situations, the sense of novelty is a result exactly of the idea of every
generation, which assumes, most probably, that its experience is unprecedented
and novel one. Members of other generations may disagree. In fact, every moment,
698
is a challenging moment and entrepreneurs have to deal with it as being special and
not as the others.
7. Conclusions
The current economic and political environment seems to have adopted a
discourse in which crises are becoming a permanent feature of public policy. Among
other reasons, the monetary policy of undervalued interest rates had its own
contribution to this outcome. It could be argued that contemporary politics is a result
of “higher time preference” at the level of society. In such an environment,
businesses have to conduct operations not only facing operating, financial, or other
types of risks but also systemic, structural crises that have the potential to alter the
fundamental institutional premises on which economy works. Knowledge
management is maybe among the most important tools in this respect and business
leaders have to learn how to use tacit knowledge in order to develop abilities to learn
fast and “turbo” solve the problems.
References
[1] Dicken, P. (2015). Global Shift. Mapping the Changing Contours of the World
Economy, Seventh Edition, The Guilford Press, New York.
[2] Greenspan, Al. (2007). The Age of Turbulence. Adventures into a New World, The
Penguin Press, New York.
[3] Hoppe, H.H. (2007). “Economic Science and the Austrian Method, Ludwig von Mises
Institute, Auburn.
[4] Hulsmann, J.G. (2008). The Ethics of Money Production, Ludwig von Mises Institute,
Auburn.
[5] Klieman, A.S. (1979). Preparing for the Hour of Need: Emergency Powers in United
States, The Review of Politics, 41(2).
[6] Lobel, J. (1989). Emergency Power and the Decline of Liberalism, The Yale Law
Journal, 98(7).
[7] von Mises, L. (1996). Human Action. A Treatise on Economics, Fox & Wilkes, San
Francisco.
[8] von Mises, L. (1995). Theory and History. An Interpretation of Social and Economic
Evolution, Ludwig von Mises, Institute for Economic Research, United States of
America.
[9] North, K., Kumta, G. (2018). Knowledge Management. Value Creation through
Organizational Learning, Second Edition, Springer International Publishing.
[10] Rothbard, M.N. (2009). Man, Economy, and State with Power and Market, Second
Edition, Scholar’s Edition, Ludwig von Mises Institute, Auburn.
699

June 16-17, 2022
An Analysis of e-Commerce Development in Vietnam

and Policy Implications for Business after COVID-19
Le Thanh TUNG1
DOI: 10.24789788367405072-066
Abstract
The paper aims to clarify the development of e-commerce in Vietnam, an emerging
economy in Southeast Asia. The survey data for the analysis was carried out by the Vietnam
e-Commerce and Digital Economy Agency included 4466 enterprises. The study period is
two years, from 2019 to 2020. Employing the thematic analysis approach, the study results
reveal that e-commerce has been popularly applied in many business activities. E-commerce
has helped businesses stabilize supply chains to cope with strict social distancing measures
to fight the epidemic. Besides, a large number of companies confirm that e-commerce is
necessary for faster business recovery in the post-COVID-19 pandemic era. The result also
confirms that e-commerce continues to play an important role in helping enterprises advance
to a new normal status in business in the next years. The study has some contributions when
highlighting the critical role of e-commerce not only during the outbreak of the pandemic,
but also regarding business recovery in the coming time.
Keywords: e-commerce, business recovery, business strategy, business

transformation, digitalization.
JEL Classification: D12, D47, F13.
1. Introduction
Globalization is increasing and helps to connect countries closely in trade
activities, especially through e-commerce. Industry revolution 4.0 with artificial
intelligence (AI) and the Internet of Things (IoT) is creating a boom for the
development of e-commerce in all countries worldwide. The recent statistics from
the world's leading website for e-commerce, Statista.com, showed that as much as
4,280 billion USD in goods and services were traded globally through e-commerce
in 2020. The transaction value through the form of e-commerce in 2020 also
increased sharply by 27.5% compared to 2019 (Statista, 2020). In the next years,
the growth momentum of global e-commerce is expected to continue to be in the
1 Ho Chi Minh City Open University, Ho Chi Minh City, Vietnam, email: [email protected].
© 2022 L.T. Tung, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
double digits. The revenue from e-commerce has continued to increase during the
COVID-19 pandemic (Kawasaki et al., 2021). This process will be propelled by
the dynamic areas such as Southeast Asia which has an expanding high-income
class. Then, the global growth of e-commerce will be expected to significantly
change over the next few years (Statista, 2020). Because of the huge potential
demands, new markets are emerging, and existing markets also have opportunities
for further expansion.
Vietnam was ranked as the 25th largest market for e-commerce transactions with
total revenue was 8 billion USD in 2021, an increase of 24% compared to 2020
(EcommerceDB, 2022). This country also has a dynamic business environment with
potential and high benefits for investors (Tung, Binh, 2021). The outbreak of the
COVID-19 pandemic is also a big boost for the promotion of e-commerce
development in developing countries with fast economic growth, such as Vietnam.
Although this economy suffered from the negative effects of social distancing
measures to combat the epidemic (Thanh, Tung, 2022), it is a period when
e-commerce has made robust strides in Vietnam. The statistic from EcommerceDB.
(2022) shows that the biggest companies in the Vietnamese e-commerce market are
thegioididong.com, fptshop.com.vn, shopee.vn, dienmayxanh.com, and cellphones
(EcommerceDB, 2022). The expansion of e-commerce in Vietnam is predicted to
continue over the next few years, as expected by the Statista Digital Market Outlook
(Statista, 2020). The report indicates that the annual growth rate for the next four
years can be reached at 7%. Besides, the statistics of the Vietnam e-Commerce and
Digital Economy Agency (VEDEA) show that there were 41% of the population
have purchased online at least one product in 2021 (VEDEA, 2021).
Table 1. Size of the retail e-commerce market in Vietnam, 2016-2020
Statistical indicators 2016 2017 2018 2019 2020
Number of online customers 32.7 33.6 39.9 44.8 49.3
(millions of people)
Average online purchase value 170 186 202 225 240
per person (USD)
Percentage of retail e- 3.0 3.6 4.2 4.9 5.5
commerce revenue to total the
economy’s retail (%)
Percentage of people using the 54 58 60 66 70
Internet in total population (%)
Source: VEDEA, 2021.
In order to create a legal environment for the development of e-commerce in

Vietnam, policymakers have established consistent solutions to support the
sustainable development of e-commerce. These solutions have helped to maintain a
rapid growth momentum of the e-commerce market during the two years of the
COVID-19 pandemic. The Vietnamese companies continuously recorded a strong
growth rate in both the percentage of people using the Internet as well as the number
of consumers shopping online and the value of their purchases. The statistics of
701
VEDEA (2021) are estimated that the number of consumers shopping online in 2020
is about 49.3 million people with an average shopping value of about 240 USD per
person. The percentage of Internet users participating in online shopping in 2020 in
Vietnam accounted for 88%, while in 2019 it was 77%. The payment for online
shopping is popular in cash, but in 2020 this kind of payment has decreased from
86% to 78% of the total payment in the market. Additionally, the report notes that
the percentage of payments via e-wallets and credit, debit, and scratch cards has a
positive step compared to the previous year. In addition, the online shopping value
of each user in 2020 also increased higher than in 2019. During the COVID-19
pandemic, around 57% of consumers confirmed they ordered the products in e-
commerce channels. As a result, e-commerce revenue in Vietnam increased sharply.
In 2016, the value was only 5 billion USD, by 2019 it has doubled when reaching
over 10 billion USD, and in 2020 the revenue was 11.8 billion USD (VEDEA, 2021).
This paper aims to identify the development of e-commerce in Vietnam, an Asian
emerging economy (Tung, 2019), in recent years, especially in 2020 when the market
faced the outbreak of the COVID-19 pandemic. The study has two contributions to
the current literature. First, by using a national survey with a large number of
e-commerce enterprises, the study result is helpful for exploring the perspective
development of e-commerce in a highly profitable market such as Vietnam in the
COVID-19 pandemic. Second, the study result suggests valuable practical
implications for both managers in companies and policy-makers to enhance the
efficiency of this kind of business in the future.
The structure of the paper includes five sections. Section 2 is a review of related
studies. The methodology and data source are shown in Section 3. The study results
of the paper are presented in Section 4. Finally, Section 5 includes a conclusion and
some managerial implications.
E-commerce is a purchase activity done on the Internet (by computer, mobile,
smartphone, or tablet) (Einav et al., 2014). On the other hand, e-commerce is
popularly understood as a process of buying and selling tangible products and
services made by online tools (Utami et al., 2021).
Gregory et al. (2019) consider the interaction between e-commerce and exporting
performance. The study confirms that specialized e-commerce marketing
capabilities directly increase the degree of distribution and communication
efficiency of companies. Then, this variable enhances export venture market
performance. Adam et al. (2020) focus on the relationship between e-commerce)
adoption at a global level and customer activities. The results show that national
e-commerce adoption has been affected by some factors such as information
technological access, political and regulatory environment, and human resource
development.
Li et al. (2020) explore that mobile e-commerce retailing applications can
significantly increase online purchase efficiency and support system improvement.
Therefore, the applications of mobile apps in e-commerce retailing affect the online
702
shopping behaviour of consumers. Ocloo et al. (2020) found that some elements,
such as perceived desirability, organization’s readiness, and competitive pressure,
had a positive effect on the e-commerce adoption levels of companies.
Kawasaki et al. (2021) investigate the impact of e-commerce on consumers'
psychological intentions with comparison before and after the COVID-19 outbreak.
The study result confirms that the consumers recognize e-commerce's usefulness,
therefore, they consider e-commerce as an important channel for purchasing
products. On the other hand, the customers' attitudes toward e-commerce have been
significantly improved by the COVID-19 pandemic outbreak because they tried to
avoid the virus in the context of following social distancing policies.
Orji et al. (2021) analysis of the impact of e-commerce adoption on firm
performance. The study results indicate that technical elements are the highest-
ranked and imply that e-commerce adoption had a strongly linked interaction with
the financial and operational benefits of the companies. The study highlighted a
roadmap for information technology adoption in a health pandemic to improve the
competitiveness level of companies in global value chains.
Cheba et al. (2021) show that the e-commerce market has expanded quickly,
especially in large cities. The study focused on the relationships between some main
elements that have potential effects on sustainable e-commerce development in
cities. There are several indicators included: e-commerce drivers, measurement of
the e-commerce market in cities, and effect level of the development of the
e-commerce market in cities on the environment.
Haji (2021) highlights the important role that e-commerce plays in international
trade worldwide, especially in some emerging economies such as Brazil, Russia,
India, China, and South Africa (BRICS group). The study reveals that e-commerce
is an effective tool for fast, inclusive, and sustainable economic growth, as well as
for increasing the living standards and reducing the poverty rate. Tolstoy et al. (2021)
note that e-commerce is a huge chance for small and medium enterprises (SMEs) to
expand their businesses in the global digitalization process.
In overview, based on a fast assessment of recent study results, the e-commerce
development is much varied and is dependent on the social-economic characteristics
of the country. Besides, the previous study results on e-commerce development are
quite complex; however, the information of this new kind of transaction is quite
valuable for both managers in companies and policy-makers in the public areas.
Furthermore, to the best of our knowledge, there is no evidence focused only on the
e-commerce development using an updated database in Vietnam, especially in the
case of the outbreak of the COVID-19 pandemic. Therefore, this study tries to fill
this empirical research gap in the current literature.
3. Research Methods
Faced with uncertain prospects caused by the COVID-19 pandemic, different
perspectives help to have a variety of flexible and good solutions. The thematic
analysis approach (Braun et al., 2018) is a good approach to decomposing themes,
events, and potential happenings in the Vietnamese e-commerce market and
703
establishing the future development paths. The comparative research method (Esser,
Vliegenthart, 2017) is applied to discuss the current trends of e-commerce
development in Vietnam. Descriptive statistical analysis (Mann, 2006) and graphing
techniques are used to analyse the statistics of the survey done by VEDEA (2021).
The data used in this paper was sourced from the White Paper of the Vietnam
e-Commerce 2020 conducted by the Vietnam e-Commerce and Digital Economy
Agency (VEDEA). The survey was carried out in 2021 with the participation of 4466
enterprises in Vietnam. The study period of the survey is two years, from 2019 to
2020. The data was collected in the form of directly filling out the questionnaire. The
statistics in the sample are presented in the table below.
Table 2. Characteristics of the study sample
Characteristic Number %
Owner of the enterprises
State enterprise 268 6
Private enterprise 3975 89
Foreign enterprise 223 5
Size of the enterprises
Small and medium enterprise (SMEs) 4019 90
Large enterprise 447 10
Business sector of the enterprises
Commerce 1027 23
Service 893 20
Construction 670 15
Mining and Manufactory 357 8
Logistics 313 7
Agriculture 313 7
Tourism and Hospitality 179 4
Communication and Information 134 3
Science and Technology 89 2
Others 491 11
Total number of observations 4466 100
Source: Calculated from data of the VEDEA, 2021.
4. Findings
4.1 Channel for Receiving Order of e-Commerce

The survey shows that enterprises have used email as a popular communication
channel of e-commerce when 84% of businesses used this tool to receive orders in
704
2019 but this rate has decreased to 81% in 2020 (Figure 1). Email is a useful tool in
the office environment, but this tool has many limitations in supporting e-commerce
activities where the high diversity of information and images is a mandatory
requirement. The analysis result also revealed that businesses have employed social
networks as an efficient tool to support the receipt from orders of the e-commerce
channel. In detail, 52% of businesses said they used social networks in e-commerce
activities in 2019, however, this number has significantly increased to 63% in 2020.
Therefore, in the context of the COVID-19 pandemic outbreak, social networks have
played an important role in the connectivity between enterprises and customers.
Figure 1. Channels to receive the e-commerce order
90 84
81
80
Channel to receive orders
of the e-commerce (%)
70
63
60
52
50
40 37 37
29
30
19
20
10
0
Email E-commerce E-commerce Social networks
website exchange
2019 2020
In addition, e-commerce websites also play a high positive role when 37% of
businesses confirmed that they received orders through this channel. However, this
rate has not changed in 2020. The evidence shows that customers still raise their
searching and purchase behavior through business websites. Notably, there is a
marked increase in the receipt of orders through e-commerce exchanges, from 19%
in 2019 to 29% in 2020. Thus, centralized e-commerce channels are playing an
increasingly important part in markets.
The survey also reveals that some types of products have been traded through
e-commerce channels at the highest frequency (Figure 2). It is useful information
for companies to prepare goods and services through e-commerce. 17.9% of
businesses said that electronic devices are products supplied that they provide
705
to the e-commerce market. Followed by some items such as food (16.6%),

computer service (9.8%), clothes (9.7%), housing service (9.1%) and travel and
hospitality (4.7%). The survey indicates that companies need to step up the
diversification of products to bring flexible choices to consumers by using
e-commerce in the coming time.
Figure 2. Types of products transacted through e-commerce channels
Electronic device 17,9
Foods 16,6
Computer service (website,

9,8
software)
Types of products transacted through
Clothes 9,7
e-commerce channels (%)
Housing service 9,1
Travel and hospitality 4,7
Transport 3,5
Training and consulting 3,4
Book 2,9
Beauty service 2
0 5 10 15 20
Source: Calculated from data of the VEDEA (2021)
4.2 Promoting for the e-Commerce Channel at Companies

Promotional activities for promoting e-commerce channels are very important in
the context of increasing competition in the market. Advertising is often a costly
activity in the e-commerce field.
The analysis shows that this activity is prioritized by companies with promotion
channels via social networks (49% of enterprises in 2019 and 53% of enterprises in
2020), online newspapers (24 in 2019 and 25% in 2020), and the app-store (14% of
businesses apply in 2019 and 17% in 2020).
706
Figure 3. Promote for the e-commerce channel

60
53
49
Promote for the e-commerce channel (%)
50
40
33
29 29
30 25
25 24 24
19
20 17 15 15
14 14 13 15
13
10
2019 2020
Source: Calculated from data of the VEDEA. 2021.
Figure 4. The proportion of costs of e-commerce
60,0% 54,8%
54,0%
The proportion of costs of e-commerce
50,0%
40,0%
30,0% 26,7% 27,3%
20,0% 14,5% 13,1%
10,0% 4,8% 4,8%

0,0%
Infrastructure costs of Expenses for Online advertising Offline advertising
e-commerce operating e-commerce costs costs
activities
2019 2020
707
However, advertising activities for e-commerce channels tended to decrease in

most types when the COVID-19 pandemic had a huge negative impact on the
performance of companies. Specifically, the forms of advertising on search tools on
the Internet and SMS/email have significantly decreased. In addition, the percentage
of businesses that did not run any advertising activities has increased; specifically,
in detail, 19% of enterprises confirmed that they did not conduct advertising
activities in 2019 but in 2020 the number was changed to 24%.
Figure 5. Advertising cost for e-commerce channel
60 57
53
50
Advertising cost for e-commerce
40
35
channel (%)
33
30
20
12
10
10
0
Below 10 million VND From 10 million VND to Over 50 million VND
50 million VND
2019 2020
The cost of operating e-commerce activities is useful information obtained

from the survey. The data analysis shows that companies confirm that the cost of
operating e-commerce activities is the highest, followed by infrastructure for
e-commerce activities and online advertising. The evidence also suggests that
businesses spend relatively little on advertising e-commerce channels through
offline tools such as newspapers.
Spending on advertising activities for the field of e-commerce has also been
promoted by companies in recent years.100% of the companies in the survey sample
said that they have spent on promotional activities for e-commerce channels.
However, companies' expenditure on advertising for e-commerce activities is still
low when 53% of companies spent less than 10 million VND (approximately 450
USD) in 2019, and up to 57% of companies spend in this range in 2020. Obviously,
708
in the context of the COVID-19 pandemic, when many business fields faced huge
losses, companies have tended to cut costs and save resources for surviving and
overcoming the difficult periods of the outbreak of the pandemic.
The statistics from the survey still show that e-commerce is an important area for
companies to run their business. The maintenance of advertising expenditures for
e-commerce is clear evidence that e-commerce is one of the core activities to help
businesses operate during the COVID-19 pandemic in Vietnam.
4.3 The Efficiency of e-Commerce during the COVID-19 Pandemic

One of the most critical questions asked in the survey was about the opinion of
business leaders on the effectiveness of e-commerce activities in 2020. The question
“How does the efficiency of e-commerce during the COVID-19 pandemic?” was
used to collect the information. The statistical analysis confirms that 96% of business
leaders answered that e-commerce activities are effective. Specifically, up to 24%
responded at a high-efficiency level, 58% said that the efficiency was moderate, and
14% rated it as low efficiency. The survey shows that only 4% of businesses rate
e-commerce as an ineffective tool.
Figure 6. The efficiency of e-commerce during the COVID-19 pandemic
70
The efficiency of e-commerce during
60 58
the COVID-19 pandemic (%)
50
40
30 24
20 14
10 4
0
Non-efficiency Low efficiency Medium High efficiency
efficiency
The survey confirmed that e-commerce activities have been effective in helping
the business community overcome difficulties caused by the outbreak of the
COVID-19 pandemic. E-commerce was an effective connection between
businesses and consumers in the market in 2020. Besides, in order to explore the
effectiveness of e-commerce through a number of operating channels, the question
“How does the effectiveness of e-commerce through this channel (social
709
networks/E-commerce website/E-commerce mobi-phone/E-commerce exchange)?”

is used to extract this information.
Figure 7. The effectiveness of e-commerce through some channels
Social networks 15 48 37
E-commerce website 19 57 23
E-mommerce mobi-phone 23 54 23
E-commerce exchange 26 55 19
0% 20% 40% 60% 80% 100%
Low efficiency Medium efficiency High efficiency
The analysis shows that social networks are the most effective e-commerce
channel when up to 37% of businesses confirmed a high efficiency level, 48% ranked
at medium efficiency. Ranked second is the website, this e-commerce channel
received a 23% high-efficiency rating and a 57% average rating. Besides, the mobile-
phone is a useful channel for e-commerce when up to 23% rate at high efficiency
and 54% rate at medium efficiency level. The e-commerce exchange had 19% high
efficiency rating and 19% average efficiency. Thus, the survey result continues to
confirm that promoting e-commerce is an important business strategy in the coming
time.
4.4 Challenges for the e-Commerce Development

The challenges of e-commerce operations are also useful information received
from the survey. These challenges may become barriers to the development of this
type of business in the near future. The leaders of companies need to focus their
resources on overcoming these challenges to promote the effectiveness of
e-commerce. The questionnaire was conducted with a Likert scale consisting of
3 levels, 0: No challenge, 1: moderate challenge, and 2: major challenge. Then, the
mean indicator index of this survey criteria is calculated and shown in Figure 8.
710
Figure 8. Challenges for the e-commerce development

1,6
1,4 1,35
1,17
1,2 1,1
1
0,82 0,79
0,8
0,6
0,4
0,2
0
Invest in Marketing Operation of e- Spending on Other costs
logistics (Attract commerce upgrading new
customers) channel technology
The statistical analysis shows that companies consider that the biggest challenges
in promoting the development of commerce are marketing (to attract the new
customers), spending on new technology, and costs for supply chain operation,
respectively. On the other hand, businesses insist that logistics and other costs of
e-commerce are not challenges for promoting this type of business in the near future.
5. Conclusion
The purpose of this paper is to explore the development of e-commerce in
Vietnam. The study database is taken from the survey conducted by the Vietnam
e-Commerce and Digital Economy Agency (VEDEA, 2021) with 4466 enterprises.
The target period of the survey is two years 2019 and 2020. The study result has
revealed that e-commerce has played an important role in promoting business in
Vietnam by increasing the connection between companies and customers in the
market. The development of e-commerce is expected to be much stronger in Vietnam
in the coming time. There are a large number of companies announced that e-
commerce is effective for businesses, but the costs related to e-commerce operation
are also challenges in the coming time.
There are some managerial implications drawn from the results of this study.
First, leaders of companies need to spend more resources on e-commerce activities
in the coming time because the level of competition in the market will increase.
Companies must consider e-commerce development as one of the core elements of
711
their business strategy in the post-COVID-19 pandemic. Second, businesses need to

continuously improve product quality and service quality because these are key
points affecting consumer purchase behavior, as well as increasing customer loyalty.
Third, companies should continue to promote themselves through social networks
and online newspapers. These platforms will provide businesses with the necessary
tools to contact customers, thereby helping to increase the access number to e-
commerce sites, then increase sales. Fourth, investment in upgrading technology
infrastructure is necessary (both software and hardware infrastructure) in order to
ensure the safety of customer information and transactions, contributing to
improving buyers' confidence in online purchase activities. On the other hand,
policymakers need urgent policies to upgrade the national information infrastructure
system and complete regulations in laws related to e-commerce. National incentive
and support policies (e.g., allowance credit funds) are needed for developing this
type of business in Vietnam in the near future.
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June 16-17, 2022
The Influence of Augmented Reality on Purchase

and Repurchase Intention in the Fashion Industry
Melika AZIM ZADEGAN1*, Siavash FARAHBAKHSH2,
Francesco BELLINI3
DOI: 10.24789788367405072-067
Abstract
Augmented Reality allows for the real-time application of simulated computer-generated
visual elements to the physical world. The exponential development of businesses and
emerging technology is combining to create a scenario in which marketing must adapt to
changes on a regular basis. The major purpose of the current research is to investigate
how AR technology could be used as a sales and marketing strategy for businesses. With an
experimental methodology, this study objectively addresses the research gap in the Fashion
Industry by measuring the influence of AR on consumer purchase and repurchase
intention in the Fashion Industry. In this study, we adopted a quantitative approach,
including an online questionnaire with a Likert scale. Generation Y, as the digital natives,
was chosen as a good target population for the experimental investigation of the effects
of AR apps on purchase and repurchase intention. To carry out the statistical analysis
SPSS 17.1 was used to assess the correlation between the defined variables. Finally, the
findings of this study are crucial in understanding if shopping-oriented Augmented Reality
applications are more enjoyable and useful to purchase than their Internet equivalents.
Keywords: Augmented Reality, Virtual Reality, Interactive Technology, Customer

Perception, Purchase Intention.
Introduction
The exponential growth of businesses, along with emerging technology, is
resulting in a scenario in which marketing must adapt to changes on a regular basis.
While marketing campaigns have been thoroughly examined and are directly
targeted to traditional tactics, the addition of various methods focused on technical
1 Sapienza University, Rome, Italy, [email protected].

© 2022 M. Azim Zadegan, S. Farahbakhsh, F. Bellini, published by Sciendo. This work is licensed under the
Creative Commons Attribution 4.0 License
innovations makes it possible to sell new goods more interactively (Tardan et. al,,
2017). New advancements and ideas focused on virtual reality – VR – have been
created at the technical level, allowing users to immerse themselves in virtual
real-time environments with the help of computer systems (Klempous et al., 2017).
Furthermore, technological advancements in digital displays, motion sensors,
computer vision, and computation have fueled the exponential growth of VR
technologies in marketing. These advances have made VR even more immersive
and appealing to consumers. Although the gaming industry has seen the most
comprehensive innovations to date, medicine, education, travel, entertainment, and
marketing are all significant fields of application. Additionally, With the growth of
smart device applications, augmented reality (AR) has been created as an interactive
tool in the marketing context, with a growing variety of uses in business. The
potential of augmented reality to cover the physical environment with virtual
features, such as images and information that may interact with the physical
environment in real-time, opens up new possibilities for content delivery to users.
As a result, augmented reality has the potential to alter consumer activities such as
product and information searches (Javornik, 2016). With the increased use of
augmented reality in recent years, there is a need to better understand its application
in consumer psychology.
Thus, encouraging marketing in accordance with virtual reality in an application
that will provide the user with convenience and ease when trying to order, with
personalized and interactive focus, in the desired virtual context; making it much
easier to adjust and change the desired features using a Smartphone or tablet
(Yaoyuneyong et al., 2016; Zhang et al., 2000). As a result, the fashion industry is
considered to be a case study where the use of the mentioned application for
marketing growth becomes important.
Despite previous AR analyses, the majority of the studies focused on perceptions,
motives, or responses to the AR app rather than broad brand-related outcome
variables (Javornik, 2016). Scholz and Smith (2016) created a strategic technique for
managers to use when developing AR campaigns. They discovered that building
effective AR networks required a comprehensive understanding of how people
interact with AR technologies (BCG, 2018). While few studies have looked into the
fundamental mechanisms of AR (e.g., Huang, Hsu Liu, 2014), Scholz and Duffy
(2018) have shown that consumers integrate AR apps into their personal space and
self-awareness, and Hilken et al. (2017) have shown that AR apps can influence
purchasing and word-of-mouth actions by increasing decision comfort and both
hedonic and utilitarian incentives.
Additionally, fashion retail companies are combining Virtual Reality with digital
marketing technologies to reach customers in an immersive and unique way that
digital marketing lacks before adoption. Digital marketing, by its very nature, was
not very successful in building interaction. However, the convergence of the two
marketing strategies has improved digital engagement and the way consumers view
715
apparel items. Traditional marketing practices, along with digital marketing, have
made a magnificent contribution to building brand recognition among consumers.
Thus, the integration of digital marketing technologies with AR likely changed
traditional ways of marketing by allowing consumers to try goods using tools such
as virtual testing rooms and AR shopping applications before purchasing fashion
items. In line with this, Kim and Cheeyong (2015) emphasized the importance of
creativity in the marketing industry and how it benefits the fashion retail industry.
For a long time, the fashion retail business has been looking for changes in the realm
of fashion marketing. It will help customers to observe models in the display of
fashion products on their smartphones because of the combination of digital
marketing and virtual reality technologies and will have a completely new shopping
experience.

The key research questions that we set out to answer are:
RQ1) What is the current condition of AR awareness and practical application in the
marketing world and among people?
RQ2) In the fashion industry, does the quality of AR applications affect customers'
purchase and repurchase intentions?
RQ3) In the fashion industry, does customer satisfaction influence purchase and
repurchase intentions?
To answer these questions, we propose a customer-centered methodological
structure, to give insights into consumer marketing applications and trends in
academic AR research. As a result, the goal of this research is to assess the impact
of augmented reality on customer purchasing and repurchasing behavior in the
fashion industry, as well as how businesses utilize this feature in online sales.
4. Research Methods
The current study is a deductive-quantitative study in which the hypotheses
regarding the impact of the application of AR apps on the purchase and repurchase
intention of customers in the fashion industry have been tested. Moreover, the
collected data were analyzed quantitatively to determine the associations between
the study variables. The selected research framework was a survey, within which the
research questions were addressed, and the hypotheses were tested.
The target population in this study was Generation Y in Italy and the responses
were gathered from October to December year 2020. A simple random sampling has
been chosen for the current study. Because the participants and cultural context of
this study differed from those of previous studies, the researcher designed a
questionnaire to collect the information needed for the study rather than using
existing instruments. An extensive review of the literature and scales used in
different educational backgrounds guided the development of the questionnaire
(Gressard, Loyd, 1986). We then decided to see if augmented reality apps could
replace the role of in-store shopping. The respondents indicated their preferences on
716
a 5-point Likert scale (Strongly disagree to Strongly agree). A panel of experts

evaluated the questionnaire's validity. Three specialists (Professors of Digital
Technology and Innovation Management, as well as Marketing) and four survey
design professionals made up the panel. Cronbach's alpha was used to verify the
scales' reliability. Cronbach's reliability coefficients (alpha values) for the scales
were more than 0.744, indicating a stable scale (Nunnally, 1978). The questionnaire
was translated into Italian and then back into English to ensure its suitability for the
participants. The questionnaire was accompanied by a letter of recruitment and
a letter of informed consent, as per Dillman's (1978) instructions. From the 27 th to
the 29th of October, 2020, an online questionnaire was distributed. A total of
119 questionnaire responses had been gathered from the participants by the 17 th of
November. The response rate was high enough to prevent the survey from being
distributed again. Because there was a lack of research to answer our research
questions, primary data had to be acquired (Ghauri, Grnhaug, 2005). It reflects the
original data gathered by researchers in order to obtain the information required for
the analysis (Saunders et al., 2007).
The goal of this study is to see how well our independent variables, such as
Innovation, AR Quality, and Consumer Satisfaction, correlate with our dependent
variables, Purchasing and Purchase Intention. We use the SPSS 17.1 software to
create a bivariate model to investigate the relationship between them. In order to
determine statistical significance, a level of 0.01 was chosen. After data gathering,
the impact on dependent variables should be evaluated. The variables of each group
were tested for normality distribution and, as can be seen, the results show that the
distribution of data is not normal because the significance level is less than 0.01.
5. Findings
According to the descriptive statistics, 43.7 % of the respondents are male
and 48.7 % are females. Also, 29.4 % of the respondents belong to groups aged
18-24 years old and 38% of the respondents have a Bachelor’s degree. Also, the
correlations between the variables were looked at to gain first insights into
the relationships of the variables. As the variables are normally distributed, the
correlations were assessed with Spearman’s correlation. The correlation
between variables indicates both the direction and the strength of the relationship
(Pallant, 2005).
To investigate if and how the AR shopping experience can affect customers'
purchase and repurchase intention, a set of research questions was developed and
must now be addressed.
RQ1: What is the actual state of awareness and realistic application of AR in

marketing academies?
Generation Y is viewed as a significant category by marketers since it is broad
and has significant purchasing power (Parment, 2013). Digital natives are members
of this generation, and 71% of them own mobile devices such as smartphones or
tablets (Rowinski, 2012). Furthermore, according to Barkley (2011), much of this
717
group is early adopters and hence more likely to accept Virtual Reality. Furthermore,
the findings of our study were consistent with his research. As a result, the new
generation Y is more enthusiastic about using them in the fashion sector.
RQ2: Does the quality of augmented reality applications affect customers’ purchase
intention in the Fashion Industry?
Yes, the results of our research suggest that the ease of use of AR applications in
the fashion industry has a positive impact on customers' purchase and repurchase
intentions. As a result, the findings suggest that an engaging AR application can
impact users' purchasing intentions and potentially turn them into buying consumers,
rather than just being a fun novelty.
RQ3: Does customer satisfaction after using AR affect the purchase and repurchase
intention in the fashion industry?
Yes, the significance of correlation shows that there is an important correlation
between these two factors which must not be underestimated.
6. Conclusions
The current study highlighted the significance of augmented reality in shaping
online consumers' perceptions of purchase and repurchase intention as acceptable
items. To this end, the current study used innovation, AR app quality, and customer
satisfaction as independent variables, as well as purchase and repurchase intention
as dependent variables, to see if these two factors can influence the relationship
between AR and purchasing intention in the fashion industry. Consumer purchase
and repurchase intentions have been found to be influenced by augmented reality.
According to the findings, AR can influence consumer purchasing behavior and
increase purchasing intentions since customers can acquire a full picture of a product
a brand offers, including full details, sizes, attractions, use, and drawbacks. The
customer must be technologically knowledgeable in order to use smartphones
and applications. Because smart devices and applications are user-friendly and
compatible, familiarity is not difficult to achieve.
Currently, there is much discussion in organizations regarding the importance of
utilizing technology and promoting organizational offerings in the marketing
campaign (Laroche et al., 2013) and how social technology influences customer
buying intention towards a specific brand (Wang et al., 2015). In this specific
situation, there is a desperate need to investigate the different means of technological
innovation that can impact purchasing decisions (Saboo et al., 2016). In addition,
Javornik (2016) emphasized the importance of technology innovation, such as
augmented reality, in understanding brand development. The current study's purpose
is to fill these gaps in the literature through an experimental approach (Carmigniani
et al., 2011; Javornik, 2014; Javornik, 2016). Customers' purchasing intentions are
influenced by augmented reality, especially those who are literate and interested in
employing cutting-edge technology (Song, Zinkhan, 2008). The study has proven
and suggested a strategic step for firms that are repositioning themselves through
718
technological advancements and are experiencing decreased sales because of strong

competition. Repositioning brands can assist businesses in gaining a fair market
share and a lump sum profit. Such activities can affect not just online purchase
habits, but also develop a word-of-mouth marketing strategy. Previous research has
found that augmented reality has a beneficial impact on purchasing intent (Rese et
al., 2014; Jung et al., 2016). In order to gain a profitable market share, marketing
managers need to develop strategies that allow them to readily attract customers for
their businesses.
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June 16-17, 2022
Importance of Information in the Risk Management Process

Anca BĂNDOI1, Costinel Cristian MILITARU2,
Mariana Paraschiva OLARU (STAICU)3, Alina Mădălina BELU4*
DOI: 10.24789788367405072-068
Abstract
Risk management is a systematic process for optimizing resources in accordance with the
organizational policy of risk management. In the risk management process, information on
potential risks should be documented and structured, thus facilitating decision-making for
their proper treatment. Risk management must be integrated into day-to-day activities
through defined roles and responsibilities in all areas of activity. The identification, analysis,
and evaluation of risks must be reviewed periodically or when the situation requires it: when
changing the business model of the organization, at any adjustment of the organizational
structure and activities or working procedures within the organization, when changing
information processing technologies, to major changes in the system, following incidents,
following the application of risk controls. Risk management helps to include risk
management issues in management practices and to make decisions throughout the life
cycle of activities. Risk management can help maximize overall results, if carried out in an
integrated manner, in areas such as: controlling the consequences of operational risks
generated by information systems; management, costs, and planning of information systems
activities. The main objective of the study is to analyze the information related to the main
risk assessment methods and to manage the risk management process.
Keywords: information, risk, management, objectives, evaluation.
1. Introduction
All economic organizations, no matter how big or small, face internal and
external factors that create uncertainties about their ability to achieve their own
goals. The effect of this uncertainty is the risk, which is inherent in all activities. The
reduction of barriers and accelerated technical progress lead to major developments
© 2022 A. Băndoi, C.C. Militaru, M.P. Olaru (Staicu), A.M. Belu, published by Sciendo. This work is licensed
in terms of security and stability of systems. In addition, in such a dynamic world,

where the degree of uncertainty is constantly increasing, risk management associated
with the activities of organizations requires a good knowledge of the context through
timely and good quality information. The success of organizations operating in
different areas of economic and social life depends on the ability of managers to
know the environment in which they operate, but also anticipate future events, based
on the analysis of present information. Information is the sector that is getting
increasingly important. There is a tendency to move sources from the area of
productive activities to the sphere of use of intelligence.
Risk management must operate in a management structure that provides the
fundamentals and organizational arrangements that will incorporate it throughout the
organization at all levels. The risk management structure helps the organization
manage risks effectively, by applying the risk management process, at different
levels and in specific organizational contexts. Risk management, as an important
component of strategic management, is intended to address the appropriate risk
response, using various methods and analytical and operational means to identify,
prioritize, and adopt appropriate measures to avoid losses and achieve the
organization's objectives. At the strategic level, it is important for the manager to
identify, through intelligence analysis, the potential risks to which the organization
is exposed, so that the decision achieves the intended purpose. The correct evaluation
of the context, the realization of the appropriate scenarios, and the prediction of the
result that will be obtained following the decision constitute the main performance
criterion according to which it should be evaluated.
The process of risk identification is the initial stage in the risk management
process. Its goal is to identify all potential sources of risk in order to remove or lessen
the likelihood of their occurring, as well as the impacts or impact they may have.
The risk is related to uncertainty and is associated with a probability of
materialization. The risk is not certain and does not refer to a difficult problem
that has already materialized. Risks must be identified and managed at any level
where it is perceived that there may be consequences in relation to the achievement
of the organization's objectives.
Risk management is an important means by which an efficient internal
management control system is implemented. Risk management includes identifying
and assessing risks, as well as identifying and implementing risk responses in order
to reduce the likelihood of risks materializing, as well as the consequences that come
from the materialization of risks. Risk identification is a continuous activity that
allows the company to relate to the process of change and adaptation, according to
effective risk management.
Each employee must understand the value and importance of the risk
management process in the current activity, as well as the ramifications it may have
on accomplishing the organization's goals. In order to manage risk effectively and
to avoid an excessive and uncontrolled volume of risks, it is important that any
organization manages the risks that really affect its objectives. It is necessary to
provide an information framework to make known to all staff the risk management
723
process by creating a section on the organization's intranet in which experiences are

learned and communicated to those who can benefit from them.
The risk management process has a special importance and a high impact on the
achievement of the objectives of any organization and requires adequate protection
regarding the access and provision of information to unauthorized persons from the
external environment.
In the process of identifying risks, the objectives and activities that contribute to
their realization are always taken into account. For a proper identification of risks, it
is absolutely necessary to have a document, containing the objectives assumed at the
level of the organization (Fayol, 2005). This can be a management plan, a strategic
plan that includes general objectives, and specific objectives, activities that
contribute to achieving the objectives (Hull, 2006). Each organization must define
its general objectives in close accordance with the mission of the organization, the
achievement of which is carried out in conditions of efficiency, effectiveness, and
economy (Sims, Bias, 2019).
After identifying the objectives and related activities, we will move on to the next
stage, identifying vulnerabilities (internal / organizational weaknesses, which may
cause risks) and threats (coming from outside the organization). The number of
hazards rises in direct proportion to the organization's complexity and the number of
operations carried out to attain the goals (Jorion, 2011). Risks need to be identified
at all levels, where it is perceived that there are consequences for achieving the
objectives and problem-solving measures can be taken. An identified risk can impact
several objectives of the organization with different degrees of impact.
Depending on the degree of maturity of the organization, risk identification can
be in one of two phases (Penza, Bansal, 2000):
1) Risk identification in the initial phase – specific to newly established
organizations, without a history in terms of risk management or without a very
well developed risk management;
2) Permanent risk identification – specific to organizations that have developed
a coherent and consolidated system of internal managerial control and implicit
risk management.
Risk identification is not a strictly objective process but depends very much on
the perception of those involved. The identified risks must be grouped; the grouping
of risks is done according to the perception and needs of the organization. Risk
grouping in an organization (risk exposure) leads to its risk profile (Saunders, 2019).
It is unique from the perspective of the objectives, the activities carried out, and the
general context. Risk identification and assessment is a specific attribute of each
organization. The risk profile provides an overview, including the general,
documented, and prioritized assessment of the range of specific risks facing the
organization (Down, 2012). The impact of risks on the objectives is not what defines
them. Impact is a result of how the materialization of a risk affects those objectives,
724
not a risk. The main factors that can influence the external risk environment and that
each organization must take into account are (Holton, 2013):
• Laws and regulations – each organization must identify those laws and
regulations, based on which they operate and which define the limits of action of
the organization;
• Modification / updating of the objectives of the management program - in some
situations, the treatment of some risks by the managers is influenced by the
financial decisions;
• Sometimes, the decrease of capital – affects the attraction / maintenance /
facilitation of staff training courses.
An important role in the risk management process is the risk assessment. The risk
assessment is performed following a type of risk response in an order of priority and
represents the subsequent stage of risk identification. The process of risk assessment
stages (Saunders, 2019):
▪ calculating the likelihood of dangers materializing;
▪ evaluating the impact on objectives/activities in the event of risk materialization;
▪ risk exposure assessment – probability and impact in combination.
The purpose of risk assessment consists in: establishing a hierarchy of identified
risks and, depending on risk tolerance, establishing the most appropriate risk
management measures (Greene, 2020). Risk tolerance is the amount of risk that an
organization is prepared to tolerate or is willing to expose at some point in situations
where risk may be an opportunity or threat (Greuning, Bratanovic, 2004). Once the
risks have been discovered and assessed, as well as the tolerance level, the type of
risk response for each risk must be determined (strategy adopted). In this way, it is
determined whether risks can be managed or not.
The response to the question: Why is risk management necessary? is the decision-
making dilemma from which we begin our study strategy. As a result, the goal of
this article is to examine information on the most common risk assessment
methodologies and how to effectively manage the risk management process.

The research's goal is to analyze information on the main methods of risk
assessment and the management approach that corresponds to the risk management
process. Several evaluation methodologies were highlighted in the analysis of the
firms that were the topic of the research study, providing a foundation for a more
in-depth examination of the risk management concept:
1) MEHARI Method (MEthode Harmonisee d`Analyse de Risques Informatique):
covers the phases corresponding to the identification, estimation, respectively,
treatment, or acceptance of the risk. The method applies both qualitative and
quantitative tools, using a database of risk situations that the analyzed system may
face. Methodological support is a computer application that allows calculations,
simulations, and optimizations.
2) The method of risk matrices: Predominantly quantitative, it analyzes separately
the four basic components of the critical infrastructure: physical, functional
725
(procedural), informational, and human (serving staff). It operates with the model
of the relationship between the threats-vulnerabilities pairs, based on which the
risk matrix is built.
3) OCTAVE method (Operationally Critical Threat, Asset and Vulnerability
Evaluation): addresses both organizational and technological issues, necessary to
ensure the security of critical infrastructure, in a continuous evaluation process.
OCTAVE as the probability of occurring a loss caused by the absence or
inadequacy of prevention methods, and the implementation of the Security Plan
as a protection strategy, through control over assets or processes, in the form of a
list of mandatory activities.
4) VAR method: it is a mixed method, both qualitative and quantitative risk
assessment. It starts by identifying the most drastic effects that the production of
security risks could have on the organization.
The data was collected using a questionnaire, which is a quantitatively organized
research method, between November 2020 and February 2021. A total of 523 valid
questionnaires were obtained, with each questionnaire taking about 20 minutes to
complete. The research study involved company managers from four fields of
activity in Romania: IT, energy, automotive, production.
4. Research Methods
The multicriteria decision-making processes that we used in the research of the
maximum utility technique pose challenges of supporting economic decision-
making in the modeled socio-economic universe (Morgan, 2020).
The procedures for imitating the rational mode of decision-making are, in more
or less elaborate forms, the conceptual essence of models. Modeling aims to make
the most of the information base scientifically, and procedures for imitating the
rational mode of decision-making are, in more or less elaborate forms, the conceptual
essence of models. The global utility method's steps are as follows (Morgan, 2020):
Step 1. Create a utility matrix using elements, i = 1, ..., r and j = 1, ..., n.
The equation is used to calculate each element of the matrix for the maximum
criterion:
xij − xi min
xij = uij = (1)
xi max − xi min
and for each minimal requirement with expression:
xi max − xij
xij = uij = (2)
xi max − xi min
where:
xij = the value of indicator i associated with indicator j;
xi max = the minimum value of indicator i;
xi min = the maximum value of the indicator i.
726
Step 2. Calculate the overall utility for each project as the sum of the products in
the utility matrix element (the project's column vector) and the important coefficient
for each indicator.
r r
UG j =   i uij , where   i = 1 (3)
i =1 i =1
Step 3. Choose the project that corresponds to the maximum global utility.
maxUG j  V j j = 1, ...,n (4)
For the division of some choice Vi variations (n variant) and the selection of the
best one by considering many criteria of appreciation (Cj, j = 1, ..., n) and the global
utility at the same time. The multi-attribute problem is about finding the best mix of
traits (variant characteristics).
This entails converting all numerical quantities aij (in related units of measure)
and qualitative features into utilities uij, i.e., numerical values in the range [0, 1]. The
independence of the criterion is a fundamental assumption in the weighted sum
method's correct function. The optimal option is indicated by the greatest of the
synthesis utilities.
5. Findings
Table 1 presents the informational basis of the study, respectively, the share of
importance that managers give to each method of risk assessment.
Table 1. Importance of evaluation methods related to the field of activity

FIELD OF ACTIVITY
MODELS
IT ENERGY AUTOMOTIVE PRODUCTION
OF RISK
% % % %
ASSESSMENT
(v1) (v2) (v3) (v4)
MEHARI method
16.45 22.35 27.50 12.50
C1
Risk matrix method
10.55 15.15 11.90 23.61
C2
OCTAVE method
8.90 13.25 9.80 10.54
C3
VAR method
23.45 16.00 11.82 23.55
C4
Source: Based on the information gathered by the authors.
The resulting results indicate that managers first take into account the VAR (C4)
valuation method - its ultimate goal being to achieve an optimal balance between the
assumed level of risks and the expenses necessary to minimize them, and in the last
instance managers take into account the OCTAVE Method (C3) – Figure 1.
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Figure 1. The share of evaluation methods

90
80
70
60 PRODUCTION %
50 AUTOMOTIVE%
40
ENERGY %
30
20 IT %
10
0
C1 C2 C3 C4
Going through the calculation algorithm involved:

Step 1 – building the unit matrix with the elements x ij Figure 2.
Figure 2. The matrix of units
Step 2 – Calculation of global utilities for each field of activity (Tabel 2):
Table 2. Results of the calculation of global units

GLOBAL UTILITY RESULT
IT 2.25
ENERGY 2.66
AUTOMOTIVE 2.10
PRODUCTION 1.38
Step 3 – Table 2 shows the calculation of global utilities, the highest global utility of
companies in the field of ENERGY.
As a result of using the formula for calculating the maximum global utilities
technique, it can be determined that ENERGY firms have the best understanding of
risk management.
728
6. Conclusions
In today's organization, you have to take responsibility for information because
it is your main working tool. But most do not know how to use it. Few know how to
interpret information. In most cases, managers ignore the risk management process,
as well as the risks associated with the security of the organization. In general,
activities that are not directly quantifiable and for which a level of profit generated
cannot be directly presented, tend to be ignored by senior management, which is why
risk management activities require awareness-raising, both among the managers of
the organization and at the level of employees. There is also a fear that these projects
will highlight inconsistencies and shortcomings in the management of the security
system. Although a high level of security may seem costly, the lack of adequate
security will certainly prove catastrophic in the long run for the organization.
In this sense, we propose some rules associated with risk identification:
• the difficult problems that have already materialized should not be ignored - these
can be potential risks in the future, if the organization acts in the same
circumstances;
• those problems that will surely materialize, should not be identified as risks.
These are not risks, but certainties. Certainties are managed and usually involve
resource allocations, changes in objectives, changes in strategy;
• risks have a cause and effect; there is a cause and effect of the materialization of
risk. The cause is a favorable context for the occurrence of the risk. The effect is
the impact of the materialization of the risk;
• a distinction must be made between inherent risk and residual risk. The inherent
risk is the specific risk, related to the achievement of the objective, without risk
management measures being taken, while the residual risk is that risk that remains
after the risk response has been established and implemented. Residual risk is the
expression of the fact that the inherent risks cannot be fully controlled. No matter
how much action is taken, uncertainty cannot be removed.
Regardless of the method used, the information on risk management control
measures must ensure an acceptable level of risk, so that it is within the accepted
tolerance limit. The process of managing information related to risk management
requires the involvement of all employees, both those with management positions
and those with executive responsibilities, by establishing clear responsibilities at the
level of all organizational and decision-making structures. In the risk information
management process, both management and executive staff must:
▪ understands how and how the risks affect the organization (identification of the
risk and its evaluation);
▪ obtains information about risks – the sources and factors that generate it;
▪ allocate adequate resources for risk management;
▪ analyze the effects of risks by assigning responsibilities;
▪ disseminate good practices and inform all departments about the possibilities
for risk reduction.
729
For the efficient management of the risk management process, it is necessary to

have:
a) a structure with attributions in risk management;
b) a risk management officer at the level of each department at the first management
level (risk manager);
c) a system procedure regarding risk management.
A broad response to the topic of why risk management is required. It is triggered
by the realization that there are uncertainties regarding the nature of the threats to
attaining the objectives, as well as the nature of the opportunities, in both the
organization and the environment in which it operates. Any manager must deal with
the issue of managing threats, because failing to meet their objectives would
disqualify them, or failing to take advantage of chances for the benefit of the firm
would demonstrate their efficiency. If uncertainty is a constant companion, then how
we respond to it must also be a constant concern.
In conclusion, a risk analysis on the information used cannot completely
eliminate the risk, but can give the management of an organization the ability to:
1) decide whether or not the risk is acceptable;
2) knows the consequences of the decision, both positive and negative;
3) reduce risks through control measures.
References
[1] Down, K. (2012). Measuring Market Risk. Chichester: John Wiley of Sons.
[2] Fayol, H. (2005). General and Industrial Management. London: Pitman.
[3] Greene, R. (2020). Strategic Talent Management: Creating the Right Workforce. London:
Routledge.
[4] Greuning, H., Bratanovic, J. (2004). Analyzing and Managing Banking Risk, A
Framework for Assessing Corporate Governance and Financial Risk. Bucharest: Irecson.
[5] Holton, G. (2013). Value-at-risk: theory and practice. Massachusetts: Academic Press.
[6] Hull, J. (2006). Risk Management and Financial Institutions. Chichester: John Wiley &
Sons.
[7] Jorion, P. (2011). Value-at-Risk: the New Benchmark for Controlling Market Risk.
Pennsylvania: McGraw-Hill.
[8] Morgan, J. (2020). Mathematical Methods. London: John Catt Educational.
[9] Penza, P., Bansal, V. (2000). Measuring Market Risk with Value at Risk. Chichester: John
Wiley & Sons.
[10] Saunders, A. (2019). Credit risk measurement: New approaches to value at risk and other
paradigms. Chichester: John Wiley & Sons.
[11] Sims, R., Bias, S. (2019). Human Resources Management Issues, Challenges and Trends:
Now and Around the Corner. Charlotte: IAP.
730

June 16-17, 2022
Challenges for a Digital Sustainable Supply Chain

in a Circular Economy Context
Ovidiu-Iulian BUNEA1*, Răzvan-Andrei CORBOȘ2,
Ruxandra-Irina POPESCU3
DOI: 10.24789788367405072-069
Abstract
The aim of this paper is to distinguish the main challenges Romanian companies face in
implementing a sustainable digital supply chain. This issue is seen through the lens of the
need to address the principles of the circular economy. In this regard, the paper also
examines the extent to which managers are aware of the principles of the circular economy
and the extent to which the organization aims to identify ways to make the transition from
the linear economy to the circular economy. We start from the premise that today the
implementation of a sustainable digital supply chain requires the ability to access, analyze,
and manage large volumes of data with the support of a robust information architecture. We
expect the results to prove that although the managers of the Romanian companies included
in our study show a fairly high level of knowledge of the principles of the circular economy
and want to address concrete steps in this direction, the implementation of a digital
sustainable supply chain, necessary for this transition, brings economic, technical, and IT
security challenges.
Keywords: digital supply chain, circular economy, sustainability, digitization.
JEL Classification: Q56, M11.
1. Introduction
The growing population of the planet, the booming global economies, and the
visibly improved lifestyle of people have caused a dramatic increase in the volume
of natural resources exploited. Studies have shown that the demand for most natural
resources has grown steadily (Preston and Herron, 2016; Popescu et al., 2017). For
these reasons, global organizations feel the pressure of serious operational
challenges, especially at the strategic level. Obviously, this constant and growing

© 2022 O.-I. Bunea, R.-A. Corboș, R.-I. Popescu, published by Sciendo. This work is licensed under the Creative
demand for natural resources has led to shortages of certain material resources,
which translates into higher costs for organizations to provide material resources,
which further converge towards the realization of less sustainable products / services.
For the most part, we find organizations that rely solely on the traditional model
of the linear economy, while the conventional approach to the reuse and recycling of
used materials is neither cost-effective nor reduced in terms of reducing material
resources (Kumar et al., 2021). Fang and Zhang (2018) pointed out that global supply
chains, in particular, feel the pressure of regulatory institutions to increase the level
of sustainability, especially on the operational side of the supply chain. At the same
time, technology has become one of the most important drivers of a sustainable
operational organization (Wamba, Queiroz, 2020). Therefore, organizations should
closely monitor these technological developments in order to carry out their
operational activities in accordance with environmental requirements, but also at a
reasonable cost level.
Several previous studies have indicated that there are a number of links between
technology and sustainable operational activities (Jabbour et al., 2020; Bag et al.,
2020). However, we note that the level of analysis of barriers and challenges for
sustainable operations in the context of the circular economy and the digitization of
sustainable supply chains has not been pursued. Kumar et al. (2021) argues that most
studies to date have examined separately the challenges of adopting the principles of
the circular economy and the use of Industry 4.0 specific technologies, which we
believe have the ability to form the basis for enabling digital sustainable supply
chains. Today, the digitization of supply chains is a major strategic topic of interest
for both the academic community and practitioners (Ageron et al., 2020), while
certain organizational, technological, and strategic barriers stand in the way of this
digitization. Therefore, our study aims to distinguish the main challenges Romanian
companies face in implementing a sustainable digital supply chain in the era of
circular economy, especially in the context in which a sustainable supply chain not
only has the potential to contribute to the well-being of the population, but also
manages to reduce costs, increase market performance both downstream and
upstream, increase sales and profit margins of organizations, as some studies show
(Younis et al., 2016; Cankaya, Sezen, 2018).
2. Setting the Context Based on the Literature Review

The age of Industry 4.0 and the circular economy pose a number of challenges
for organizations in terms of their ability to take advantage of the opportunities that
lie ahead to achieve, maintain, and develop a certain level of sustainability. Lack of
skilled labour, inefficient regulations and legislation, and long-term investment
objectives are just some of the challenges in implementing Industry 4.0, following
the principles of the circular economy in terms of sustainability (Kumar et al., 2021).
The problems that arise are both strategic and economically when it comes to the
financing capacity of such initiatives.
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2.1 Industry 4.0 and the Circular Economy

Both Industry 4.0 and the circular economy are two main topics of discussion
when it comes to industrial research. On the one hand, Industry 4.0 involves a series
of technologies that ultimately lead to success in digitizing the operational activities
of organizations (Ghobakhloo, 2020). The Internet of Things (IoT) has made it easier
for companies to collect and manage big data. However, there are a number of
difficulties in maintaining a high level of operational sustainability due to a lack of
an integrated approach to Industry 4.0 specific technologies and circular economy
principles (Ozkan-Ozen et al., 2020). Implementing these technologies requires a
skilled workforce with expertise (Vrchota et al., 2019). The circular economy starts
from the premise that nothing is lost because the waste that the organization produces
has the capacity to be used as a resource within the same organization or by others.
Geissdoerfer et al. (2017) define the circular economy as a regenerative system in
which material inputs, as well as waste, emission, and energy leakage, are aimed at
being minimized by slowing, closing, and narrowing material and energy loops.
Long-term design, maintenance, repair, reuse, remanufacturing, refurbishment, and
recycling can all help.” By ensuring better transparency of information between
supply chain parties, supply chain digitalization will assist in eliminating
uncertainty. Furthermore, automation of the supply process can greatly reduce the
time required for the supply cycle and contribute to resource optimization, enabling
capacity growth to meet the needs of the circular economy (Bunea, 2021).
From a perspective of the benefits that can be brought to environmental
elements, some studies (Manavalan, Jayakrishna, 2019) have indicated that the
interdependence between the concept of circular economy and the sustainability of
supply chains is beneficial. In addition, investing in technology means increased
operational efficiency that supports a smoother transition to so-called circular supply
chains. However, the main issue here remains the major investment required, which
for young industries remains a challenge, but in the long run, from a strategic point
of view, and not only can we witness enhanced sustainability. Government policies
aimed at sustainability and encouraging the use of digital technologies are the main
motivating factors for organizations in moving to the circular economy, in line with
the standards and requirements of industry 4.0 (Manavalan, Jayakrishna, 2019).
2.2 Issues in the Digital Supply Chain

Supply chain-specific networks can be enabled by information technology, which
ensures efficient collaboration by transmitting useful information within supply
chains. However, an adverse effect may be that certain protection barriers specific
to traditional supply chains are reduced or even removed (Zhang et al., 2019). The
barriers we refer to have traditionally separated supply chains from what we call
cyberattacks because they were not connected to the Internet and therefore exposed.
The benefits of an Internet connection are well known but not without risks, as it
allows for exposure to many external and internal risks in the systems used in the
supply chain. In this way, potential cybercriminals can exploit these vulnerabilities.
733
Another issue of digitalization of supply chains may be issues related to trust

between supply chain partners, but especially between these partners and other third
parties (Niemann et al., 2019). Additionally, inefficient processing of data in supply
chains, as well as their storage, raises certain risks because valuable information
leaks can occur. Furthermore, Zhang et al. (2019) suggest that trust does not
necessarily mean security in the supply chain and that security does not necessarily
mean trust.
Regarding the process of transforming a traditional supply chain that involves the
transition to sustainable supply chain management, we should be aware that the latter
requires high initial investments for companies and also requires a strategic vision,
so long-term in terms of sustainability and less of a short-term vision, which
presupposes rather economic objectives (Hasanova, Romanovs, 2020). This causes
some problems, especially when the organization's strategy is one that focuses on
the idea of cost leadership. Some studies (Pereseina et al., 2014) have shown that
focusing on reducing production costs creates the main problems in the
implementation of expensive technologies. However, we believe that the low-cost
strategy is not a cheap strategy, and as long as the implementation of some
technologies increases the operational efficiency of the organization, it can assume
higher costs in the short term, and companies will benefit from these investments in
the long run without changing the strategic positioning. For example, the
implementation of an environmental management system involves a significant
initial cost, but the long-term benefits will outweigh the installation costs (Hasanova,
Romanovs, 2020).
Furthermore, some studies (Sajjad et al., 2015) indicate that the level of openness
of managers about the adoption of sustainable technologies is an influencing factor
in terms of commitment to their implementation. From this point of view, the level
of openness of the organization's management regarding the digitization of supply
chains and adherence to the principles of the circular economy is, in fact, the trigger
for such an effort, especially at the strategic level.
Therefore, the premise from which we started this study is that previous studies
have shown how the digital supply chain positively influences the sustainability of
the organization and facilitates the transition to the circular economy, but the
approach is not without challenges. Therefore, we chose to contribute to the literature
by studying the main challenges of Romanian companies in this regard.
3. Methodology
The purpose of this research is to identify the major obstacles Romanian
businesses face in developing a digitally sustainable supply chain. This problem is
viewed through the prism of the necessity to engage in the principles of the circular
economy. In this regard, the article investigates whether managers are aware of the
circular economy's concepts and whether the organization is attempting to develop
strategies to make the transition from a linear to a circular economy.
To achieve our goal, we used the survey as a research method and the
questionnaire as a research tool. The population for the survey was based only on
734
large companies from Romania. According to the European Commission (2015), a

large company is defined as having more than 50 million EUR as annual turnover
and also more than 250 employees. We opted to study only large companies because
we considered that their stage of development and available resources will allow
those companies to engage in the implementation of sustainable digital supply chain
procedures while considering the idea of circular economy. The questionnaire was
distributed to managers of organizations operating in Romania via email addresses
as part of a larger research approach. In this way we managed to obtain 85 valid
answers, which was the sample of this research with a response rate of 18,24% which
is to be considered acceptable due to COVID-19 pandemic restrictions and because
the companies were part of various fields of activity.
To get an idea of the composition of the research sample, we can say that most of
the managers surveyed had the function of production manager, financial manager,
respectively, sales manager. Also, the main fields of activity of the organizations
they are part of were: (i) retail sale of parts and accessories for motor vehicles; (ii)
furniture production; (iii) fabrication of other plastic products; (iv) fabrication of
milling products.
The variables used for this research, whose results are presented in this article,
are shown in Table 1.
Table 1. Description of variables with references

Variable Content References
Jabbour et al., 2020; Kumar
Technical Lack of Internet; Information storage
et al., 2021; Vrchota et al.,
Challenges capacity; Technical expertise.
2019.
Jabbour et al., 2020; Zhang
Security Confidentiality of sensitive business data;
et al., 2019; Niemann et al.,
Challenges Exposure to cyber-attacks.
2019.
Economic Cost of investment; Long payback time; Jabbour et al., 2020;
Challenges Government law and regulation. Hasanova, Romanovs, 2020.
The extent to which managers are aware
of the principles of the circular economy;
Circular Sajjad et al., 2015; Ștefănică
The extent to which the organization
Economy et al., 2020;
aims to identify ways to make
Openness Elia et al. (2017).
the transition from a "linear economy"
to a "circular economy"
Source: Authors based on research.
4. Results and Discussion

The results obtained from the application of the questionnaire indicated that, at
the level of the entire research sample, the main challenges in implementing a
sustainable and digitized supply chain, which involves the ability to access, analyse
and manage large volumes of data through a robust information architecture, are
technical challenges, security challenges, and economic challenges.
735
In terms of technical challenges, the results of the investigation indicated that

the lack of the Internet is not a problem, as all the organizations surveyed have
stable and fast internet connections. Also, the storage capacity of the information
was not a problem. All respondents indicated that lack of technical expertise is the
main technical barrier to implementing a sustainable digital supply chain, which
should consider the principles of the circular economy. These results are similar to
those of the study by Vrchota et al. (2019), whose results suggested that the
implementation of these technologies, specific to Industry 4.0, requires a skilled
workforce with experience.
Regarding security challenges, 40% of the respondents believe that an important
barrier is the confidentiality of sensitive business data. Managers are afraid to share
valuable internal information with other members of the supply chain, especially
with third parties. These results support the study by Niemann et al. (2019), which
identified that another issue of supply chain digitization may be related to trust issues
between supply chain partners, but especially between these partners and other third
parties. In a proportion of more than 60%, the managers surveyed consider that
exposure to cyber-attacks is a danger, as the internet connection significantly
increases the exposure of supply chains to such attacks. This result reinforces the
argument of Zhang et al. (2019), namely that certain security barriers specific to
traditional supply chains are reduced or even removed with their internet connection,
thus becoming more vulnerable to cyberattacks.
When it comes to economic challenges, 20% of the respondents consider the costs
of implementing and supporting such a supply chain to be too high, while 80% of
the managers surveyed consider the return on investment to be too long for the
financial possibilities of the organization. This result reinforces the argument of the
study by Hasanova, Romanovs (2020), which suggests that in terms of the process
of transforming a traditional supply chain involving the transition to sustainable
supply chain management, we should be aware that the latter requires a high initial
investment for companies.
Regarding the level of openness of managers in terms of the circular economy,
we analysed the extent to which managers are aware of the principles of the circular
economy and the extent to which the organization aims to identify ways to make the
transition from "linear economy" to” circular economy ". The results indicated that
the managers surveyed are aware of the principles of the circular economy and to
some extent want to make the transition from the linear to the circular economy,
as indicated by the Likert scale used with values from 1 to 5, where 1 – to a very
small extent and 5 – to a very large extent, the results obtained being 3.2 and
2.8 respectively. Sajjad et al. (2015) indicated that the level of openness of managers
regarding the adoption of sustainable technologies is a factor of influence in terms
of commitment to their implementation.
Going by this premise through the answers of our respondents, we can see that
managers show a rather high level of openness towards sustainable circular economy
principles and have a fairly high commitment to their implementation. However,
technical, security, and economic barriers seem to be the ones that still stand in the
736
way of this transition, and that is why our efforts should focus on identifying
ways to overcome them. Kirchherr et al. (2018), however, identified other barriers
regarding circular economy at the level of the European Union, such as cultural
barriers and lack of interest and awareness on the customer side. Therefore, future
studies should also embrace these perspectives besides technical, security, and
economic challenges.
Figure 1 illustrates the results of the extent to which managers are aware of the
principles of the circular economy and the extent to which the organization aims to
identify ways to make the transition from a "linear economy" to a "circular economy"
by position. Thus, we can observe that, in terms of the level of awareness in terms
of the principles of the circular economy, both the financial manager, production
manager and sales manager recorded similar scores, with the mention that sales
managers recorded a slightly higher score.
When it comes to their perception of the organization's goals and desire to move
from the classic to the circular business model, there are significant differences. The
highest score is recorded by production managers, followed by financial managers,
and then sales managers with the lowest score. Perhaps production managers are the
ones who better understand and perceive the benefits of this type of transition, while
financial and sales managers may face pressure from shareholders to keep costs low,
respectively, from customers who demand lower prices and flexible offers.
Figure 1. Circular economy knowledge and openness depending on position
Financial Manager Production Manager Sales Manager
The extent to which managers are aware of the The extent to which the organization aims to
principles of the circular economy identify ways to make the transition from
"linear economy" to "circular economy"
Source: Authors based on research results.
In this way, our work contributes to the enrichment of the existing literature by
making available for comparison results from Romania. We believe that these results
are particularly valuable in terms of a future aggregate analysis of the European
737
Union member states in terms of the barriers and challenges facing organizations in
the transition to digital sustainable supply chains and the circular economy.
5. Conclusions
The objective of the paper was to distinguish the main challenges Romanian
companies face in implementing a sustainable digital supply chain in the era of
circular economy. We believe that this has been achieved by identifying the main
barriers that were of a technical, security, and economic nature, namely: lack
of technical expertise, confidentiality of sensitive commercial data, exposure to
cyber-attacks, costs of implementing and supporting such a supply chain that are
perceived as too high, as well as the duration of the return on investment. Thus,
by identifying these challenges, we will formulate in the following paragraphs
a series of recommendations for managers, and we will mention a series of policy
implications that can support such a transition.
In terms of recommendations with managerial implications, we believe that
training programs are needed to gain the technical expertise needed to digitize the
supply chain. Managers can also use partnerships with other members of the
supply chain to acquire this know-how, based on a relational attitude and not just a
simple transactional relationship. This involves integrating processes and fostering
a culture of mutual trust, which would reduce the lack of trust in the risk of leaking
information that is considered confidential and create closed-loop systems to protect
from cyber-attacks. Furthermore, we believe that the costs of implementing and
supporting the digitization of supply chains in a sustainable economic context should
be seen as short-term effects with long-term benefits through a coherent strategic
vision of these benefits of a sustainable economy. The investment effort is also
significant, so supply chain partners could support each other, as the digitalization
of the supply chain and its sustainability will benefit all members in the sense of
better communication, better management, and more efficient stocks, which will
bring long-term cost and waste reductions.
In terms of policy implications, we recommend that governments design
programs to support corporate finance to converge with national and global
environmental objectives, whether we are talking about national funds or, for
example, EU-funded grants. Governments could also help reduce the risk of
cyberattack by creating structures to identify and sanction such behaviour.
Therefore, this article opens the way for researchers to analyse in detail ways to
overcome identified challenges on the five levels resulting from this research: lack
of technical expertise, confidentiality of sensitive commercial data, exposure to
cyber-attacks, costs of implementing and supporting such supply chain perceived as
too high, and the long payback time. Moreover, another future research idea resulting
from this paper is to analyse in an aggregated way the main barriers and challenges
facing organizations in the member states of the European Union regarding the
sustainable digital supply chain in the context of the circular economy. In this way,
we can identify the contributions that each member state can make to achieve the
common sustainability goals.
738
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June 16-17, 2022
Building a Model of a "Living Organization" as a Response

to the Challenges of the Industrial Revolution 4.0
Irina DOROGAIA1
DOI: 10.24789788367405072-070
Abstract
Today's entrepreneurs face several significant provocations related to the speed and
depth of change and with it, the complexity of developing a business model that meets new
realities. The changes taking place in the modern business environment are called the Fourth
Industrial Revolution. The author of the term, Klaus Schwab, names several components of
this phenomenon: the digitalization of business, the growing role of artificial intelligence,
the widespread use of Big Date, the merger of cloud computing. An obvious question arises
about building a fundamentally new business model that can adapt to a constantly changing
environment. In this context, he considers it appropriate to use the concept of "living
organization", formulated by many scientists (Tom Peters, Peter Senge, Norman Wolfe, etc.),
which, like a living organism, adapts to changes and organically perceives new elements
of the system. Clarification of the elements of a "living organization" and what are the
prospects for its construction in the enterprises of the Republic of Moldova is the main goal
of this study.
The main methods of this study are: comparative analysis and synthesis of scientific
literature in the field of the presented topics, analysis of statistical data presented in
international and national publications, as well as empirical analysis of the research object,
namely, conducting a survey of personnel of small and medium-sized enterprises
in the Republic of Moldova. The main contribution of the article is to develop
recommendations in the field of organizational change management for the sector of small
and medium enterprises of the Republic of Moldova in order to adapt to the challenges
caused by the trends of the Fourth Industrial Revolution.
Keywords: the Fourth Industrial Revolution, change management, change model,

living organization.
JEL Classification: M19, O30, O14.
1 Academy of Economic Studies of Moldova, Chisinau, Moldova, [email protected].
© 2022 I. Dorogaia, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
1. Introduction
Today, much attention is paid to changing the management paradigm, moving to
a new stage in the development of society and business. Significant changes in the
environment include involved participants and change the internal environment of
the organization: the behavior of managers, planning systems, organizational
structure, and fundamental changes in motivational mechanisms, processes, and
types of orderly control. They should not obey those functions that successfully
operated many years ago. They are being replaced by other, more appropriate, and
more relevant approaches and models which, like the modern environment, are
significantly different from the previous ones.
Given the complexity of functioning in the current conditions, many companies
are in a difficult position, on the one hand, the influence of the external environment
inevitably forces changes in management, on the other hand, limited resources and
a specific understanding of the direction of change, the model of change, slows down
the transition process, and thereby and all business activities.
Successful companies are constantly undergoing processes of organizational
change. These are changes in technology, organizational structure, changes in
business processes, culture, products, business reorientation, etc. Small and medium-
sized enterprises (SMEs) in this sense have fewer opportunities, on the one hand,
they have fewer financial resources, staff do not always have the appropriate level
of knowledge, a lack of staff affects the implementation of various additional
functions that are not related to the main activity, which complicates the work and
leads to great dependence on some members of the team. However, these are more
flexible companies, not so constrained by the formal organizational structure and
bureaucratic principles, which are quicker to carry out organizational changes or
reorientation to a new type of activity. Therefore, the problem of transition is quite
difficult for this category of organizations.

Thus, the purpose of this study is to substantiate the conceptual vision of a new
type of organization, given the prevailing conditions, namely, in the context of the
Industrial Revolution 4.0. To achieve this goal, we developed the following tasks,
which were implemented in the areas of research:
• Justification of the factors associated with the modern business environment,
called the Industrial Revolution 4.0;
• Analysis of global trends related to Industrialization 4.0;
• Synthesis of scientific literature in the field of organizational change
management;
• Analysis of the problems of SMEs in the Republic of Moldova in the context of
the modern business environment;
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• Conducting research aimed at developing a model for the functioning of SMEs

in the Republic of Moldova.
4. Research Methods
This study is carried out with the aim of implementing a post-doctoral
research on the topic: “Creating the organizational change management
model for small and medium enterprises through the challenges of
Industrialization 4.0”, within the framework of the project numbered
22.00208.0807.10/PD I. This project includes research on the main features of
Industrialization 4.0, the impact on the SME sector of the Republic of Moldova, and
the development of Change management models for this type of enterprise. This
study represents the results of the first and second parts of the project exactly:
• theoretical research of the fundamental concepts, related to the challenges of
Industrialization 4.0, change management, innovation management;
• the specifics of the functioning of SMEs , carrying out a synthesis of concepts, a
comparative analysis of approaches, and justifying one's own vision on the
processes of organizational change;
• the first stage of empirical research (questioning SME staff).
Thus, the research methods are:
• In the initial stage of the research, the “Work Break-down Structure” (WBS)
method is used, which involves decomposition of work, grouping of project
elements, activity-oriented and task-oriented, which organizes and defines the
overall goal of the project.
Thus, this study aims to substantiate the conclusions for building a model of a
"living organization" as a response to the challenges of the modern environment.
Work decomposition will contribute to this goal. Namely, a review of the existing
conceptual models of change management, substantiation of the characteristics
of the external environment, conducting a survey of the personnel of enterprises
involved in the pilot project, and formulating conclusions.
• The next stage - theoretical research, specifically we refer to research in the field
of organizational change management, Industrialization 4.0, innovations,
specifics of the functioning of the SME sector. The methods of analysis and
synthesis are used due to their successful combination; we propose the systemic
vision of the selected subject.
• In the empirical research part, we use the following methods: observation,
experiment, and modelling. To identify the processes to which SMEs in the
Republic of Moldova are subjected, a statistical study was performed using the
method of graphical analysis. A sociological study will be used to identify the
problems and draw conclusions, using the respondents' questioning. The study
was conducted in the period January-February 2022. 46 representatives of various
enterprises operating on the territory of the Republic of Moldova were
interviewed. Of these, 30 enterprises belong to the SME sector, or 65.2% and 16
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belong to large enterprises. Representatives from various levels of government

participated in the survey.
Limitations of the study: the subject of the study is a promising model of business
organization, the possibility of its implementation in the analyzed enterprises. The
object of the study is the 46 enterprises included in the pilot project, namely,
employees of these enterprises. The respondents are employees of various levels:
32.6% of managers and 67.4% of subordinates. Of the total number of managers -
26.3% - representatives of the highest level and 73.7% - the average. Only the
answers to which the respondents agreed were taken into account. The survey was
conducted according to an individual methodology developed by the author of
the work.
5. Findings
5.1 Modern Environment Challenges
The concept of the Fourth Industrial Revolution was born in 2016. Its author,
Klaus Schwab, founder and chairman of the World Economic Forum, under this term
combines a very multifaceted concept that characterizes trends that have emerged
around the world, and are not only related to the world of business, or industrial
enterprises, as it might seem at first glance. The concept itself is much broader and
deeper.
The term Fourth Industrial Revolution is a collective description of the changes
that occur in all systems and is associated with the massive spread of a number of
new technologies. Like the previous three, it "opens a new chapter in the
development of mankind." Despite the fact that these technologies originate from the
digital systems laid down during the Third Industrial Revolution, they differ
significantly from the previous wave of innovations; in addition, technologies and
ideas that are not yet known to us will play a huge role in the near future.
These technologies include artificial intelligence, robotics, additive
manufacturing (3D printing), biotechnology and neurotechnology, virtual and
augmented reality, and advanced materials. An important note that Schwab makes:
new technologies are not just a continuation of the digital revolution, their
fundamental difference is that they are able to destroy even today's digital systems
and create completely new sources of value (Schwab, 2019).
The next important aspect of modern changes is the speed of their spread; many
researchers talk about its exponentiality (Schwab, 2018; Siebel, 2019; Blommaert,
Broek, 2017). Consequently, the faster they spread and reproduce themselves, the
faster companies will need to adapt to these changes and look for an adequate
business model (Blommaert, Broek, 2017).
One of the latest books in this series, Factories of the Future: Manager's Guide to
Industry 4.0, sets out to change existing business models and the benefits that come
with future models: speed, accuracy, long-term predictability, and consideration of
a wide variety of scenarios (Can Baran Ünal, 2022).
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Significant changes in the entire global system of functioning of business and

society are described by the study of Enis Yakut, who draws attention to the
multilateral influence of Industrialization 4.0. At the micro level: changing
approaches in management, marketing, supply, and technology. In the macro-
environment: business globalization processes, socio-cultural changes, sustainable
development, etc. (Yakut, 2022).
According to K. Schwab, “technologies become part of us” (Schwab, 2018).
According to Statista, more than 130 million homes today have more than one smart
device. Researchers expect that number to nearly triple in five years to reach 335
million. Additionally, it is assumed that by 2023 global spending on IoT products
will reach $1.1 trillion a year (Armstrong, 2022). Figure 1 presents data on the
availability of various smart devices for 2022 and forecast values for 2027.
Figure 1. Actual and projected number of smart home devices in the world
(in millions of units)
400
350 335,3
2022
300
2027
250
200 180,7 177,6 172,1
150 131,4
116,2
100 77,5 73,1 72,2
48,4 55,2
39,3
50
0
Smart speaker Smart security Smart big Smart small Smart smoke Hub/gateway
camera appliances appliance detector
Source: Adapted from Statista, 2022.
The assumption of the possibility of implanting virtual reality devices into the
human body and even the brain leads the author to a serious problem of our time:
where is the line between man and machine? What does it mean to be human? We,
in turn, ask ourselves: how to manage such organizations in which, perhaps,
the main processes will be carried out with the help of artificial intelligence? And,
in general, what should be the management of the new era? In addition, given
the object of study, the issue of a model for carrying out organizational changes
in the current conditions is acute.
Obviously, the main issue facing society arises from concerns about the alleged
connection with the introduction of new technologies and the replacement of manual
labour by machines. At the same time, it must be taken into account that all areas of
activity are serviceable, and secondly, with the advent of technology, among
employees, more free time is released for creative work, learning new things, doing
what they love. Therefore, using data from Gartner's statistical research, we arrive at
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outliers in which two-thirds of the respondents tend to believe that some of their
work was done with the help of artificial intelligence (Figure 2).
Although the survey was conducted among US workers, we tend to share the
view that more and more employees are striving to replace routine processes with
the work of artificial intelligence. This diagram shows the growing awareness among
employees of the importance and effectiveness of using modern technologies. This
should serve as a favourable factor in their perception. Considering that one of the
most important problems in the implementation of organizational changes is the
resistance of personnel, this factor is of paramount importance in carrying out major
transformations associated with the Fourth Industrial Revolution.
Figure 2. Share of US workers that would want AI to completely take

over the following tasks
Problem-solving 24%
Automate physical taks 26%
Safety-monitoring for physical work 26%
Process simplification
28%
Mistake reduction
28%
Information discovery
29%
Automate digital tascs
32%
Data processing
36%
0%
10%
20%
30%
40%
Source: Adapted from Statista, 2022.
The next sharply worthwhile initiative of the Fourth Industrial Revolution is the
increase in inequality associated with the monopolization of the power of some
companies (according to experts, today Google controls almost 90% of the global
contextual advertising market, Facebook – 77% of mobile social network traffic)
(Schwab, 2019). Such a superiority will further distinguish large global companies
from the general mass. Of course, similar inequalities, according to Schwab, can
undermine social cohesion, which can have an extremely negative impact on public
sentiment. These opportunities may adversely affect the SME sector, which is
already adopting modern technologies, and in particular the Internet of things, 6
times less than large companies today. A recent study by a group of authors in the
application of technologies of the Fourth Industrial Revolution once again shows the
challenges that SMEs face on the path of transformation. The authors clearly show
how much the enterprises of this sector lag behind large enterprises, taking into
account a large number of reasons. At the same time, researchers are considering in
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detail the mechanisms for introducing Industrialization 4.0 technologies, taking into
account the specifics of objects (Matt Dominik, Modrak, 2021).
In this context, it may be a favourable moment that many technologies are
becoming more accessible, and even people with modest incomes use the Internet,
smartphones and other means of communication, 3D printing, and some
biotechnologies are also gaining accessibility.
Figure 3. Changing interest of SME owners in processes related to technologies

of the Fourth Industrial Revolution (comparison of 2019 and 2021)
Process optimisation
Human safety, security
Quality management
Employee training
2021
Data accessibility
2019
Employee health assurance
Asset management and tracking
Inventory planning
Fleet management
Predictive malntenance
Product design
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Source: Adapted from World Economic Forum, 2021.
At the same time, data from various studies testify to the growing interest in
modern technologies. For example, studies conducted and presented within the
framework of the World Economic Forum in order to establish trends in the
development of SMEs under the influence of the COVID-19 pandemic indicate an
increase in interest among SME owners in modern technologies (Merritt et al., 2021).
It is obvious that the pandemic has accelerated the processes of digitalization and
changed the attitude toward advanced technologies (Figure 3).
Understanding that the digitization of many processes is inevitable, without it the
future of most companies is impossible, freeing up funds for business reorientation
will help save time, which is so necessary in today's rapidly changing environment
and gain a competitive advantage. In addition, SMEs need to develop a model for
making much-needed changes, taking into account the specifics of the internal and
external environment.
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5.2 Directions of Organizational Change Management

The challenges provoked by the processes of Industrialization 4.0 and described
in the previous part of the work clearly suggest that it is pointless to act according to
the management model that was effective in previous eras. But, at the same time,
many companies are trying to stay afloat today, using the old management model.
One of the most significant features of the Fourth Industrial Revolution is the growth
of processes at an exponential rate, which is fraught with a complete blocking of the
management model if it is not changed in time.
The conceptual model of the organization as a Machine is no longer valid
in principle. It assumes the clarity of procedures and the certainty of the
environment; these characteristics, today, have outlived their usefulness. Therefore,
companies planning to operate in complex and unpredictable conditions need
to radically revise their way of operating, and, above all, change the “organizational
metaphor”.
Given the high likelihood that technology dominates most organizational
processes, companies should focus on exceptional human qualities and the social
component of organizations. Quoting Andrew McAfee and Erik Brynjolfson "the
ability to work effectively with the emotional states and social motives of people will
remain an exclusively human skill for a long time", while they give credit to the
machine, believing that "when making decisions, forecasting, diagnosing, the
computer will decide the leading role" (McAfee and Erik Brynjolfson, 2017).
Agreeing with this understanding, we add that any organization is a socio-
technical system, that is, it is a combination of social, technical, and technological
processes. Both systems are interdependent; changes in one system are necessarily
reflected by changes in the other subsystem. Thus, the technologies of
Industrialization 4.0 naturally affect social processes: culture, relationships,
responsibilities, the essence of the activity of each performer, the management style,
and the qualifications of employees are changing. Of course, given the complexity
of many processes and the digitization of routine activities, the requirements for
personnel will increase; this will concern qualifications and competence, as well as
emotional intelligence, teamwork, creativity, etc.
In addition, in modern economic conditions, a huge role is given to the value-
oriented approach. The limitations of the previous model, or metaphor, based on the
activity of the organization as a machine, were due to the lack of consideration of
this factor. Today, all scientists who study change (Peter Senge, Klaus Schwab,
Andrew McAfee and Erik Brynjolfson, Norman Wolf and others), talk about taking
into account the value factor.
Most of them lead us to a metaphor that characterizes an organization as a living
organism. In such an organization, everything happens as in the human body.
Scientists often compare organizational subsystems with human organs: individual
employees with the cells of the body, teams that implement certain functions are
comparable to the organs of the human body, the human skeleton is an organizational
structure, etc. (Norman Wolfe, 2011).
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As an organism, the company is influenced by energy fields, the primary of which

will be the energy of the deep purpose (Soulful Purpose). Soulful Purpose is a
powerful force that attracts the necessary energy structures to fulfil the mission. The
main source of energy within the framework of this concept is people who, while
expanding their capabilities, also increase organizational energy. Of course, any
modern organization tries to direct its efforts in such a way that they lead to a synergy
effect. In the context of the Living Organization concept, a synergistic effect can be
achieved through teamwork. This intersects with Peter Senge's concept of a "learning
organization", that is, a company in which employees constantly improve their level
of education, there is a common goal and joint actions, a non-trivial way of thinking
is encouraged, and the leader is an inspirer and motivator (Senge, 1990).
More recent research suggests the need to combine soft and hard skills in building
the business model of the future. So, N. Accialini confirms this in the 4th part of
his study: “Requirements and skills in demand”, where he pays great attention to
"soft" skills, such as change management, creativity, risk management skills, etc.
(Accialini, 2022).
Other researchers, J. Nicholson and R. Murrey, are also calling on company
managers to rethink conventional management and leadership practices towards a
social concept called Human Operating Systems. In such a system, the greatest
emphasis is on team leadership and cross-functional teams, which are the key to
success. This system, in its essence, also resembles the "living" or "learning"
organization, which is discussed below (Nicholson, Murrey, 2021).
Therefore, representing this concept figuratively, we note that everything starts
with people and is transformed into goods and services provided to society. In
addition, processes, the financial system and management, as well as direct and
feedback between all elements, are integral parts of the model. Of great importance
in such a model is the level of interest, involvement, and participation of all
employees, who, like the organs of any organism, are of paramount importance. It is
logical to imagine that the transition to management focused on the perception of the
organization as a living organism will provide companies with adaptability and
success in the long term.
5.3 Readiness to Accept the Concept of a Living Organization
by the Enterprises of the Republic of Moldova
The complexity of taking into account all factors of the external and internal
environment implies the use of such a behaviour model that can self-organize and
adequately respond to the challenges of the external environment, as well as pay
attention to the value component, which can only be realized when applying the
concept of a Living Organization.
We emphasize that in the course of this study, we focused on the SME sector due
to the extreme importance of this segment: at the beginning of 2021, the number of
SMEs amounted to 57,247 units, which is 98.6% of the total number of enterprises.
Of which micro-enterprises 85.4% (or 44547 units), small – 10.9% (5780 units),
medium – 2.3% (1299 units). Enterprises in this sector create about 60.1% of jobs,
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as well as their contribution to the formation of the GNP of Moldova is about 48%
(according to the data of the National Bureau of Statistics at the end of 2020).
In the context of studying the scientific literature on this topic, we come to the
conclusion that the concept of the Living Organization is closely related to the
Learning Organization, according to the terminology of Peter Senge (which is
confirmed, in particular, by Norman Wolfe). Therefore, in this context, consider the
fundamental elements of both theories.
Table 1. Correspondence of concepts in the concepts of the Living Organization and

the Learning Organization (developed by the author based on the results of the study)
Living Organization Learning Organization
Main component
(by Norman Wolfe) (by Peter Senge)
Emphasis on personal improvement
Key characteristics in
(the difference between what is and
organizational interaction:
a personal vision of the future).
1. People personal skills,
Learning the art of creating
interpersonal skills
"creative tension" between dream
technical skills
and reality
Relate to the field of
relationships, a key property
Through team interaction, learning -
2. Teams, group of leaders is the ability to
opening access to collective
interaction form teams and stimulate
thinking, synergistic effect
interaction between
individuals and groups
Leaders perform the vital Leaders are key figures in all
functions of stimulating, organizational processes. An
directing, and coordinating "ecological" approach to leadership
3. Leadership
the flow of energy within is used as the interaction of various
the company, motivate and actions of leaders and
inspire organizational forces.
Everything starts with

people and transforms into Any model is built on system
goods and services offered thinking. It is based on the
4. Business
to society. Integral parts of dynamics of complex systems. An
models
the model - organizational organization is a product of the
structure, information flow, thinking and actions of its members.
culture, norms and rules
Increasing the level of It is necessary to enable people to

interest, involvement, and take part in new activities, thus they
participation of employees, will develop a sustainable ability to
5. Organizational
creating an additional change; this will be reflected in the
development
source of energy in the results of the enterprise in the form
company as a whole, leads of increased diversity, enthusiasm,
to "magic" results. innovation, and talent.
Source: Elaborated by author.
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Considering the main components of the Learning Organization, in the course of

the study, we will highlight some of its components, which, in our opinion, are key
in understanding the possibility of the transition of SMEs to a new functioning
model. So, one of the most important factors of the model are people, with their
needs, abilities, and experiences. Their behaviour is influenced by a huge number of
factors, in particular, the management style that prevails in the organization.
The researchers come down to the fact that it should be systematic, with the use
of coaching, the staff should have the opportunity to express themselves; in this
sense, creativity and initiative should be supported by the absence of fear of
criticism. Let us present for comparison the leadership models used today in the
organizations under study.
Figure 4. The values of the current and preferred leadership style

noted by the employees of the enterprises under study
60,00%
56,50%
50,00%
40,00% 41,30%
32,60%
30,00% 28,30%
23,90% current
20,00% 19,60%
preferred
13%
10,00% 8,70%
4,30% 4,30%
0,00% 2,20%
0
-10,00%
The graph shows discrepancies in the preferred and real management style; at the
same time, the majority of respondents lean towards the democratic style and
consider it the most used in enterprises, which, in our opinion, is a favourable factor.
At the same time, we note a relatively small percentage of respondents who noted
the style of management with the use of coaching – in reality, the current one – only
4.3% of cases, and preferably 13%. It should be noted that the main component in
building a Living or Learning Organization is the leadership style, which includes
such characteristics as coaching, training, and teamwork orientation. As can be seen
from the diagram, the authoritarian style is used, 19.6% of enterprises adhere to it,
and for 4.3% of respondents it is preferable. This indicates the existence of a
traditional approach to managing an organization, which slows down the processes
of building a Living Organization.
When characterizing team interaction, the majority of employees believe that
team interaction is necessary – 87% of respondents give preference to team work,
noting at the same time that their activities are mainly aimed at individual work –
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67%, about what percentage of working time is spent in commands are shown in the
following diagram:
Figure 5. Percentage of time spent in team work (according to respondents)
13 4
35 01-20%
21-40%
20
41-60%
61-80%
28
81-100%
As the figure shows, only a small percentage of employees spend in team

interaction: only 4% of employees note that they devote 80-100% of their time to
teamwork, and the majority of employees note that less than 50% of the total working
time is involved. This is contrary to the concept of learning, or living organization,
in which all participants in the activity are an integral system, and the key to
successful activity is the power of interaction, thereby obtaining a synergy effect
and, as a result, increasing the efficiency of the organization.
When exploring the features of building business models, it is necessary to pay
tribute to all elements of the business system (processes, technologies, people,
structures, and corporate culture). As part of this study, we asked the respondents if
there were organizational changes in their companies and what elements of the
system they were associated with. We believe that this question logically represents
the concept of a living organization in the context of its organic adaptation to ongoing
changes. The responses of the respondents were distributed as follows (Figure 6).
Figure 6. Types of changes carried out by the studied companies
over the past 3-5 years
made no changes; changes in
21,70% technology; 2,20%
other changes;
10,90% changes in the
organizational
changes in
structure; 15,20%
organizational
processes
(improvement of changes in
business processes, organizational
updating stages, IT… culture; 0
changes in the changes in the
scope of the personnel structure;
organization; 4,30% 28,30%
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The diagram shows that in 21.7% of the companies no organizational changes

were carried out at all, which, in our opinion, is unacceptable, taking into account
the peculiarities of the functioning environment. In addition, of those enterprises
that carried out transformations, not a single company carried out changes in
organizational culture, which indicates a lack of understanding of the importance
of this element of the business model. Most of the changes, namely 28.3%, were
made in the composition and structure of the staff, which, in our opinion, is
associated with a partial reduction in staff during the quarantine period associated
with the COVID-19 pandemic.
On the issue of emphasis in organizational development, the majority of
respondents tend to believe that employees should be involved in the decision-
making process, regarding the strategy of change: 73.9% of the staff believe that a
mixed approach should be used in relation to the initiation of changes, that is, the
right to initiation can come both from the bottom-up and from the top-down.
In addition, 69.5% of the respondents share the need to involve employees in
decision-making processes. Note that, for a learning organization, this percentage is
small since in organizations of this type, all personnel, without exception, participate
in the decision-making process, are free to express themselves, and are not afraid of
criticism.
6. Conclusions
Realizing the main goal and objectives of this study, we will justify the logical
conclusions.
Based on the results of the study, it can be said with confidence that modern
organizations are faced with a number of challenges that have gained maximum
scope and extraordinary speed.
The concept of the Fourth Industrial Revolution is much deeper than it might
seem at first glance. The emergence of technologies that revolutionize the entire
human existence naturally affects management processes. The features of
management during this period are associated with unpredictability, so building any
static model that assumes the usual interconnection of elements does not seem
logical. In this context, it seems most relevant to use the concept of a Living or
Learning Organization, which will naturally respond to all the challenges and
provocations of the environment.
Artificial intelligence and digitalization technologies are already gaining a
leading position in many areas. This is due to their incomparable advantage in the
field of efficiency, speed, and error-free. But, at the same time, technologies should
develop and act for the benefit of human society, facilitate work, reduce costs, free
up time for creative processes, and spiritual development.
Thus, in a Living Organization, the technical and social components should be
organically combined. Since for the Republic of Moldova the dominant number of
enterprises belongs to the SME sector, this study is devoted to identifying the
directions for the development of enterprises in this sector in a complex environment
that is emerging under the influence of Revolution 4.0 technologies.
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The study shows that in many cases, enterprises have not yet developed a clear
understanding of the need for changes (in 21.7% of cases, organizational changes
have not been carried out in any direction for 3-5 years), many organizations still use
an authoritarian leadership style (19.6%), team interaction is not always seen as a
factor in successful organizational activity (only 17% of employees spend 61-100%
of their working time through team interaction). These and other features of the
activities of SMEs testify to the predominance of the traditional, bureaucratic
approach to management, which for the most part is not appropriate when it comes
to changes of this kind.
Of course, the difficulties in transformations of this kind are also associated with
objective factors: financial difficulties that have worsened during the pandemic and,
at the moment, political instability; inflationary processes that affect the performance
of organizations, increased competition, etc. At the same time, the correct
organization of many processes, the introduction of modern technologies that
significantly increase the efficiency of business processes, as well as the formation
of a new type of organization, are integral success factors for SMEs in a complex
and undefined environment.
Acknowledgment
This article was elaborated within the post-doctoral project “Creating the
organizational change management model for small and medium enterprises through
the challenges of Industrialization 4.0”, nr. 22.00208.0807.10/PD I., financed from
the state budget of the Republic of Moldova.
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755

June 16-17, 2022
The Perception of Use of Social Media and Online

Pharmacies by Lebanese Pharmacists: A Quantitative Study
Layal HAMADE1*
DOI: 10.24789788367405072-071
Abstract
As the use of online platforms and digitalization is increasing, the use of social media by
pharmacists and the adoption of online pharmacy has been a trend worldwide. To date,
limited data is available on Lebanese pharmacists and their use of social media and
online pharmacies as platforms to improve engagement with patients. This research aims
to study the Lebanese pharmacists’ perception of the use of social media platforms and
online pharmacies. A quantitative study was conducted by distributing a survey to
250 pharmacists. The results showed that pharmacists are willing to use social media more
than owning an online pharmacy, although both have a financial advantage and improve
patients’ satisfaction, where pharmacists questioned the misuse of online medications, the
risk of marketing prescription-only products, and the existence of illegal pharmacies.
Moreover, social media was perceived to improve the communication with patients and
provide the necessary medical knowledge.
Keywords: Online pharmacies, pharmacist, social media, patients, marketing.
1. Introduction
An expected 2.4 billion people overall used the Internet in 2011. This expanding
utilization of the Internet and its connected advances has empowered the ascent of
web-based media stages, counting Facebook, Twitter, MySpace, and Google+. All
things considered, these kinds of intuitive frameworks are also known as Web 2.0
(Mackely, Liang, 2013). Digital marketing demands the use of Internet portals to
market products and services, yet, in addition including ads, cell phones, and other
computerized media (Nikolov et al., 2021).
The pharmacy area is not resistant to inescapable digitalization. Developments,
like robots, have disturbed the drug store practice (Peltoniemi et al., 2021).
Pharmacies are utilizing leaflets and posters to showcase a specific medication or
© 2022 L. Hamade, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
health topic. They likewise include the drug specialist or an individual from the drug
store group giving of their time and aptitude to help patients. Social media marketing
offers pharmacists imaginative chances to associate with patients and further
upgrade their wellbeing (Kayyali, Crilly, 2016). Social media marketing is
considered one of the techniques utilized by businesses to familiarize their customers
with their products and build a customer pool with which they can engage and
interact (Nikolov et al., 2021).
Another significant component influencing the pharmacy sector is the online
pharmacy. An online drug store is an organization that sells drugs, prescription-only
and non-prescription medications, by means of web-based requesting and mail
delivery (Orizio et al., 2011). Online drug stores are using various types of
innovation to expand and upgrade their webpage usefulness, for example, video real
time on wellbeing subjects and portable applications and text updates for requesting
rehash solutions (Gray, 2011).
The purpose of this paper is to study the Lebanese pharmacists’ perception of the
use of online marketing, mainly social media and online pharmacies, to market
medication and health information to patients. The research will highlight the
importance of social media marketing and online pharmacies in engaging with
patients, servicing them, and building relationships with various customers to
overcome intensive competition.
As limited research is available to point out the importance of use of online
pharmacies and social media by Lebanese pharmacies and pharmacists’ perception
of the use of online marketing, this paper will help researchers and pharmacist build
an idea about the integrating of online channels, improve their marketing strategies,
and initiate their business growth.
2.1 Social Media Use by Pharmacies
As social media is becoming a popular tool, pharmacists and patients are adopting
it for the purpose of education, where pharmacists will observe social media as a
speedy and advantageous tool to monitor patients’ wellbeing and support the
extensive public with medical advice (Kayyali, Crilly, 2016).
According to Ibrahim et al. (2020), a survey in the UAE on 267 respondents;
150 patients and 117 pharmacists; showed that 61.5% of the pharmacists use social
media as a communication tool and 52.1% of these pharmacists use it to answer
patients’ questions. Among the most tools used to communicate with patients, 74.4%
used WhatsApp followed by Email (41%), Facebook (37.60%), and Instagram
(18.80%). Moreover, 51.3% believe that social media should be regularly adopted
by pharmacies and 65% stated that social media enhances patients’ health
information. Furthermore, 77.3% of the patients revealed that they use social media
to explore medical data related to their diseases and medications, 52% stated that
getting to wellbeing related data ought to be allowed yet with close checking, while
44.7% said that it ought to continuously be allowed. Additionally, 60.7% of patients
757
prefer to use Instagram as a communication tool followed by WhatsApp (26.70%),

Twitter (24%), and Facebook (22%).
A survey distributed to 273 pharmacists in Alberta by Barry & Pearson (2015)
showed that of 226 pharmacists who use social media, 61.1% use it for professional
purposes. Barriers to social media use was perceived to be professional
accountability (47.6%), no benefit of using social media (35.5%), and lack of
time (30%). Furthermore, 25.1% stated that they will use social networks
professionally in the future.
According to a study conducted on a total of 1000 pharmacies in the Republic
of North Macedonia, 18 of the pharmacies have an active website, 535 of the
pharmacies use a personal website to provide information to patients, 670 use
Facebook, 236 use Instagram, 520 have a Facebook account and a website, and
330 pharmacies use none of the digital tools (Nikolov et al., 2021).
According to Lombardo et al. (2019), a questionnaire on 668 community
pharmacists conveyed that 41.8% of the pharmacist use social media, 82.4% use
Facebook and 6% use Google⁺.
2.2 Online Pharmacies
Online pharmacies have many advantages, from selling medications and other
healthcare products to providing medical data (Gray, 2011).
According to a literature review on 193 articles focusing on online pharmacies
marketing proscription-only products, Orizio et al. (2011) revealed that the main
concern with online pharmacies is the misuse of medications and the negative effect
it will have on the patient-physician relationship as patients will be able to get their
drugs online without appropriate consultation. On the other hand, not posting drug
information for patients will minimize awareness and the patients will not be aware
of the side effects or contraindication of a certain drug. Thus, pharmacists are
responsible for posting information regarding the risks or adverse events of using a
certain brand.
According to Ndem et al. (2019), a survey on 60 community pharmacists in
Nigeria showed that 92% consider online pharmacies as a way to promote
pharmaceutical care, 73% are willing to offer the service, 68% believe that
online pharmacies are convenient to patients, and 80% are concerned with
counterfeit medications.
A questionnaire targeting 338 community pharmacies in Europe indicated that
50.6% have a website and of these 39.3% use their website as an online pharmacy
(2.3% use it for prescription-only and OTC products, 54.9% for other products, and
38.3% for all kinds of products) (Lombardo et al., 2019). Table 1 represents some of
the studies done on social media use by pharmacies and the use of online pharmacies.
Table 1. Previous Studies on Social Media and Online Pharmacies
Author (year) Topic
Fittler et al. (2018), Abanmy et al. (2017), Yang et al. (2001), Gurău (2005),
Online pharmacies
Roblek et al. (2018), Büttner et al. (2005)
Antheunis et al. (2013), Cutts et al. (2014), Benetoli et al. (2017), Moorhead Social media use by
et al. (2013) pharmacies
Source: Extracted from Literature.
758
Studies supporting the perception of use of digital tools by pharmacies in
Lebanon are still not appropriately researched. To support the market with more data,
this paper will answer the below research questions:
Q1: What is the pharmacist perception of the use of social media as a marketing tool
for their pharmacies?
Q2: What is the pharmacist perception of the use of online pharmacies?
4. Research Methods
Primary and secondary data was collected to measure the pharmacist perception
of the use of social media and online pharmacies to boost their business growth.
Secondary data was collected from scientific articles through accessing different
databases and resources, while the primary data was collected through distributing a
questionnaire to 250 pharmacists in Lebanon between December 15, 2021 and
January 31, 2022. The survey was established through Google forms and distributed
through email and WhatsApp. As respondents voluntarily chose to participate in
filling the questionnaire, the sampling technique is considered a non-probability
sampling. After collecting the data, a descriptive statistical analysis was conducted.
The questionnaire included 15 questions covering demographic information and
questions regarding the pharmacists’ perception of the use of social media and online
pharmacies for professional purposes.
5. Findings
From the 250 pharmacists who participated in the survey, 110 respondents were
males and 140 were females. In addition, most of the respondents were between the
age of 35-54 years old (Table 2).
Table 2. Gender, Age, and Experience
Male 44%
Gender
Female 56%
25-34 years 16%
35-44 years 36%
Age
45-54 years 30%
Above 55 years 18%
0-9 years 30%
10-19 years 16%
Experience
20-29 years 34%
30 and above 20%
Source: Author’s development.
According to Figure 1, for professional purposes, 39.2% of the pharmacists use

WhatsApp, 9.2% use Instagram, 14.4% use Facebook, 3.2% have a TikTok account,
less than 1% have an online pharmacy and 33.2% do not use any of the online
platforms.
759
Figure 1. Online platforms used professionally by pharmacists
No Online Platforms
Online Pharmacy
Website
TikTok
YouTube
WhatsApp
Instagram
Facebook
0 20 40 60 80 100 120
According to Figure 2, 40% of the pharmacists strongly agree that patients’ use
of social media will help them gain medical knowledge, 55% agree, and 5% were
neutral. On the other hand, 33% of the pharmacists strongly agree that social media
enhances communication between the pharmacist and the patient, 51% agree, and
16% were neutral.
Figure 2. Advantage of social media
Strongly disagree
Disagree
Neutral
Agree
Strongly agree
0 20 40 60 80 100 120 140 160
Gain medical knowledge Enhance communication
As shown in Figure 3, 40% strongly agree to use social media in the future,
55% agree, and only 5% were neutral.
Figure 3. Pharmacists’ perception of the use of social media in the future
Strongly agree
5%
Agree
40%
Neutral
55%
Disagree
760
According to Figure 4, 31% of the pharmacists strongly agree that online

pharmacies affect positively the financial status of the pharmacy, 63% agree and 6%
were neutral. However, 21% of the pharmacists strongly agree that social media
affects positively the financial status of the pharmacy, 42% agree, 28% were neutral,
while 9% disagree.
Figure 4. Financial effect of online pharmacies and social media
Strongly disagree
Disagree
Neutral
Agree
Strongly agree
0 20 40 60 80 100 120 140 160 180
Online pharmacies Social media
According to Figure 5, 31% of the pharmacists strongly agree with marketing

OTC products online, 63% agree, and 6% were neutral. Regarding marketing
prescription-only products online, 6% of the pharmacists agree, 22% were neutral,
55% disagree and 17% strongly disagree.
Figure 5. Pharmacists’ perception of marketing OTC and prescription-only
Strongly disagree
Disagree
Neutral
Agree
Strongly agree
0 20 40 60 80 100 120 140 160 180
Only-prescription products OTC products
71% of the Lebanese pharmacists strongly agree that they are concerned with
illegal online pharmacies and 29% agree (Figure 6).
761
Figure 6. Pharmacists concern with illegal online pharmacies
Strongly agree
29% Agree
Neutral
71% Disagree
Strongly disagree
According to Figure 7, 7% of the pharmacists agree that online pharmacies are

difficult to apply, 29% were neutral while 52% disagree and 12% strongly disagree.
In addition, 28% agree that they are concerned with the misuse of online
medications, 66% agree, and 6% were neutral.
Figure 7. Pharmacists’ perception of the disadvantages of online pharmacies
Strongly disagree
Disagree
Neutral
Agree
Strongly agree
0 20 40 60 80 100 120 140 160 180
Misuse of medications Difficult to apply
Referring to figure 8, 14% agree to own an online pharmacy, 32% were neutral,
45% disagree, and 9% strongly disagree.
Figure 8. Pharmacists’ future consideration of owning an online pharmacy
Strongly agree
9% 14%
Agree
Neutral
45% 32%
Disagree
Strongly disagree
762
According to Figure 9, 16% of the pharmacists strongly agree that online tools
are satisfactory to patients, 69% agree, and 15% were neutral.
Figure 9. Online tool perceived to be satisfactory to patients
Strongly agree
15% 16%
Agree
Neutral
Disagree
69%
Strongly disagree
6. Conclusions
When investigating the Lebanese pharmacists’ perception of the use of social
media as a marketing tool, it was shown that WhatsApp was the major tool used
followed by Facebook and Instagram. Moreover, answering the first research
question, most of the pharmacists are intending to use social media more
frequently as they consider it an effective tool in supporting the pharmacy financially
and in communicating and educating patients as shown by Nikolov et al. (2021).
Although 33.2% of the pharmacists still did not use any online platform; however,
most of the people use at least one of the social media platforms and they usually
search for any information they need to know. Therefore, patients will gain more
medical knowledge if pharmacists post health-related data to educate patients
about medications.
Online pharmacies are still not a trend in Lebanon, where of the
250 pharmacists, only 1% owned an online pharmacy although most of them agree
that it will improve the financial status of the pharmacy. Despite that pharmacists
perceive that online pharmacies are easy to apply; however, they were concerned
with the existence of illegal pharmacies and the misuse of the drugs where most
pharmacists did not support the marketing of prescription-only products and
supported more the marketing of OTC products. This result was approved by
Lombardo et al. (2019). These concerns and whilst pharmacists agree that online
platforms increase patient satisfaction; on the other hand, pharmacists prefer not to
own an online pharmacy in an attempt to control drug prescriptions and dispensing
of medications and to use social media as an awareness tool to educate patients, and
this answers the second research question.
Oppositely, the limitations of the study lie in Lebanon’s economic situation that
can impose an unfair competition and affects pharmacists’ opinion in owning an
online pharmacy or paying for social media marketing. In addition, most of the
participants were above 35 years and, usually, younger people tend to use more
763
online platforms than older people, keeping in mind that pharmacists possess more
medical knowledge than technological knowledge.
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social media in health care: Motives, barriers and expectations. Patient Educ Couns.
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[3] Barry, A., Pearson, G. (2015). Professional Use of Social Media by Pharmacists. The
Canadian Journal of hospital Pharmacy, 68(1), pp. 22-27.
[4] Benetoli, A., Chen, T., Schaefer, M., Chaar, B., Aslani, P. (2017). Do pharmacists use
social media for patient care? Int J Clin Pharm. Vol. 39, pp. 364-72.
[5] Büttner, O., Schulz, S., Silberer, G. (2005). Perceived risk and deliberation in retailer
choice: Consumer behavior towards online pharmacies. Advances In Consumer Research.
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[6] Cutts, C., Douglas, J., Bell, M. (2014). How pharmacy’s adoption of social media can
enhance patient outcomes. Integr Pharm Res Pract. Vol. 39.
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patients purchasing medications online. Journal of Medical internet research, 20(8).
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Health, 2(3), pp. 76-86.
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customer profile. Journal of Consumer Marketing. Vol. 22, pp. 421-428.
[10] Ibrahim, O., Ibrahim, R., Al-Tameemi, N., Riley, K. (2020). The Use of Social Media for
Pharmacists’ Professional Activities in United Arab Emirates: A Descriptive Study. Asian
Journal of Pharmaceutical and Clinical Research, 13(7), pp. 182-186.
[11] Kayyali, R., Crilly, P. (2016). Digital Media in Pharmacy Public Health. Pharmacy &
Pharmacology International Journal, 4(2).
[12] Lombardo, S., Marino, F., Cosentino, M. (2019). A nationwide web-based survey of a
sample of Italian community pharmacists' perceptions and opinions about online sales of
medicines and falsified drugs. Pharmacy Practice, 17(4), p. 1593.
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765

June 16-17, 2022
Quality Management in Health Services –

Theoretical Perspectives
Yasmin A MOBASHER1
DOI: 10.24789788367405072-072
Abstract
Improving the health of the population is the primary goal of medical activity. Health
services include all categories of personnel, financial capital, equipment, medical
instruments, medical supplies, and computer systems, which are used to provide health care
that aims to improve, maintain, or restore the health of the population. The quality of health
services is a complex of factors, and at the level of the health unit may include specific
objectives: ensuring patient satisfaction, involvement of a competent human resource,
ensuring the economic and financial balance of the unit, using the quality system in health
activities. The management of public and private hospitals must be concerned with the
continuous evaluation of the quality of the services provided, and the optimization of the
quality should be the result of a feedback from the service users. This paper aims to
investigate the quality management in health services from a theoretical perspective and to
evaluate the results of previous studies on this topic. The results can help health care decision
makers and it can contribute to future applied research that follows this direction.
Keywords: health care, medical services, quality management, quality attributes,

patient satisfaction.
JEL Classification: I12, I14, M12.
1. Introduction
The quality of medical services is an activity of great importance for managers,
patients, and the bodies that ensure the payment of medical services, to the same
extent. The health sector has a high consumption of financial resources that lead to
high costs for the whole society and whose causes can be: obsolete medical
equipment, considerable differences in the performance of practice between
hospitals, unequal access to health services, patient dissatisfaction with services
received, long waiting time for access to health services (Berman, 1995; Correia,
Dussault, Pontes, 2015).
© 2022 Y.A. Mobasher, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
It is important for the patient to have quality and safe medical services. The
hospital wants to provide quality services that build trust for patients and the
community (Berry, 2019), although it can be challenging for managers to put
innovation into practice and turn an abstract idea into tangible, significant activities
(Dima, 2020). Medical staff want the opportunity to demonstrate their experience in
a supportive work environment, and insurers and authorities want quality medical
services to be provided, standards to be introduced, and procedures and protocols to
be followed, favouring increased patient satisfaction.
According to the World Health Organization, the quality of the services received
by the patient in the healthcare process represents the totality of the diagnostic and
therapeutic processes provided for the best result, at the lowest cost and with the
lowest risk, which would favour the patient's satisfaction regarding the procedures
received and the contacts with the medical staff of the respective health unit (Syed
et al., 2018).
In the chain of quality of health services, there are key points of managerial
control that allow systematic active and passive feedback in the systemic thinking
and are the basis for continuous quality improvement. Active feedback can be
obtained through activities to periodically assess the satisfaction of inpatients,
regarding the quality of services provided by the health unit and which can initiate a
new cycle of change in managerial activities, in favour of the patient.
An important indicator of the quality of health services is patient satisfaction, and
from a management point of view, effectiveness is highlighted in the achievement
of objectives, and efficiency is represented by the lowest volume of resources used
to achieve objectives. According to the WHO, the performance of health units can
also be represented by the following: meeting the needs of the population, the
qualification of medical staff, placing the patient at the centre of the medical system,
and patient safety (Carayon, Wood, 2009; Classen et al., 2021). Healthcare facilities
are helped to use best practices in hospitals through a theoretical model of hospital
performance developed by the World Health Organization (WHO) – Performance
Assessment Tool for Quality Improvement in Hospitals (PATH) (WHO, 2007).
At the European level, since 1997 the Council of Europe has made
recommendations for the implementation of quality improvement models in
healthcare, and in 1999 good practice guidelines were published to ensure efficient
and effective healthcare. The essential elements of the performance of the health
units consist in: the use of standardization, of the statistical indicators of the
managerial performance, as well as the accommodation conditions, the level of the
infections associated with the medical act, and the available technologies.
The performance of a hospital, the user's expectations are defined with the help
of hospital standards, and to these are added the structure and processes that take
place in the health unit and must ensure quality care, treatment and services, safe
services, and adequate to patient expectations. The standard is, in fact, the expected
value of the service in question or the level to which it is intended, in relation to the
767
elements of analysis of the health unit. The development of standards applied in

health facilities is done in accordance with the international principles enunciated by
ISQua (International Society for Quality in Health Care). The application of
standards allows hospitals to improve the quality and performance of their services,
which is also necessary for their reporting to the whole healthcare system.
For a health system to be effective, it is necessary for the people involved in the
management of the health units to evaluate the performance and to draw up strategies
that will favour better results (Campos, Reich, 2019). The concept of performance
in the idea of the WHO is built on three fundamental pillars (WHO, 2007):
1. improving health - is the most important principle of the health system and
translates into improving health and reducing inequalities in the population, in
terms of access to health services.
2. increasing the capacity to provide medical services, correlated with the wishes of
the population, which includes respect for the person (respect for human dignity,
confidentiality) and patient orientation (providing the necessary care as soon as
possible, the possibility to choose the service provider);
3. ensuring the fairness of the financial contribution.
Gakidou, Murray, and Frenck proposed a general framework for understanding
the performance of health systems (Gakidou, Murray, Frenk, 2001). Since 2000,
there has been a report recording data on how to provide healthcare in those
countries, which are in the annexes to the World Health Report. The evaluation
of the performance of the health systems is made by the ratio between the
achievement of the three basic goals and the endowment and capital of the health
unit, and the performance materializes in the examination of the way in which
the medical assistance was provided and the patient's satisfaction depending on the
resources used.
Improving the health of the population is the primary goal of medical activity
(Lee, Porter, 2013) and must be correlated with both the average level of health and
the distribution of health inequalities in the population. The increase of the response
capacity, of the health system to the expectations of the population, is the second
objective; in this sense, people must also take into account the inequalities in
distribution and the differences related to social, economic, and demographic factors.
The provision of health care must be done independently of the financial
contribution of the individual (Cohen, Flood, 2022), the contribution should
reflect the difference between rich and poor, in terms of disposable income
after meeting basic needs. According to Gakidou, Murray, and Frenck (2001), the
way in which healthcare is provided in each country is a political decision, and
the level of capital invested in health can lead to a quantification of the performance
of the whole system.
The main objective of the present empirical research is to investigate the quality
management in health services from a theoretical perspective and to evaluate the
results of previous studies on this topic. Therefore, qualitative research was selected
768
and in this direction. Various case studies and textual analysis of journal articles,
books, and reports that address the issue were analysed. Thus, the secondary
objectives of this paper are the following:
- (O1) investigating the main aspects of the healthcare system performance from a
theoretical point of view;
- (O2) analysing the quality management and highlighting the main attributes of
quality;
- (O3) presenting the relationship between users and health care providers from the
quality and performance achievement perspective.
The results of this research may be the foundation of future actions for health care
decision makers, or it can contribute to future applied research that follows this
direction.
4. Quality Management
Schneider and Palmer (2002) describe quality as: "providing accessible and fair
services, at an optimal professional level, taking into account the available resources
and obtaining user adherence and satisfaction." A study by Donabedian (2005)
concluded that "the need to assess quality with a focus on understanding the
healthcare process itself" should be replaced.
In a more modern sense, quality has been considered to be the degree to which
the health service increases the probability of the expected outcome of health (Fallon,
2002). The definition given to quality by the ISO 8402/1995 standard is: the totality
of the characteristics of an entity, which gives it the ability to meet the known and
potential needs of the user. Or, quality is the satisfaction of users' needs through
solutions of an optimal technical level and at an affordable price. Quality is
considered a fundamental condition that helps public and private organizations to
remain competitive (Dobrin et al., 2015).
The graphic representation of quality can be done using a triangle whose
components are: management (leadership), work team, or quality team and problem-
solving tools. The quality team and the tools are at the base of the triangle because
they are the components in the daily relationship with the user, and the management
is at the top of the triangle because without his contribution quality assurance would
not be possible, according to Figure 1.
Figure 1. The quality triangle

Management
Users
Quality
Team
instruments
Source: Author, based on literature review.
769
5. Attributes of Quality
The attributes of quality in the health system are (Bowers, Swan, Koehler, 1994;
Venkateswaran, 2019):
1. Professional competence: which in medical staff is reflected in their technical,
administrative and interpersonal communication skills; in carrying out their
activity, the medical staff offers both technical support, involving clinical,
diagnostic, and curative services, as well as the maintenance of the relationship
with the patient.
2. The accessibility of the service is highlighted by the absence of barriers of any
kind (geographical, economic, social, linguistic, and cultural) to health services.
Accessibility is described by three elements: economic costs, degree of access to
the service (geographical, access to information), acceptability: cultural,
linguistic, and racial. Accessibility is correlated with the number of health units,
with their structure that is in line with the needs of the population, with the
presence of qualified staff and the existence of appropriate equipment.
3. The effectiveness of a rule or procedure is also very important for the service or
rule to be applied correctly and to produce positive results, for its realization it is
necessary to have adequate training and thorough knowledge that must be taken
into account.
4. User satisfaction is given by the way in which health services meet the needs of
the population, patient satisfaction depends on solving his problem, the treatment
received and the degree of empathy with which the service is provided, and the
care received.
5. The efficient use of available resources is important so that the patient and the
community receive the necessary care. Efficiency is demonstrated when
professionals use time, materials, funds, and information in order to produce as
many services and quality as possible. Efficiency means reducing the number of
low-quality treatments, which result from incorrect diagnoses or the application
of poor standards, as they are a waste of resources.
It is also important for each employee to know the processes in which he or she
participates, to have the correct data collection and the transmission of information
so as to participate in the change processes initiated. Addressability to health services
has several implications, it depends on several factors (Dumitrache et al., 2016), the
most important being the quality of services provided to the population; then there
are the costs of these services, correlated with the legislation governing the provision
of healthcare. Other factors that influence addressability are: the level of culture,
schooling, and level of health education of the population.
The patient has the right to free address in terms of healthcare. Patients have
certain preferences, when they go to the health units, they can be in accordance with
certain aspects: they choose a health unit where they have been treated and received
the best care, it is the unit closest to home, and it is the unit where was guided.
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6. The Relationship between Users and Health Care Providers

The needs of the user are met by correlating the quality tools with the
management and work team of the respective organization. The literature describes
the following types of needs of users (Kaufman, Rojas, Mayer, 1993): existing needs,
felt needs, needs that produce demand, needs that stimulate the use of health services.
They are not necessarily curative. Through its requests, the user produces demand,
which must be satisfied even if they have variable chances of success, it is correlated
with the offer of services and their quality, ability to pay, access from a geographical
point of view.
There is always a part of the needs that is not met, despite the large number of
services. This may be due to the fact that the supply does not meet the demand
(misdiagnosis or poor quality of services). In this situation, there is also the system
of alternative health services: certain healers, family or self-medication, they will
respond to those needs that are not met by the formal system.
It is found that not all health services are used, although there are expressed needs
of users, this may be due to the low quality of a service which will lead to the
perception of the low quality of those services and which is increasing among users.
According to Voorhees, Brady and Horowitz (2006), "every dissatisfied user will tell
about his experience to 11 more people, while one satisfied, only 3 people".
As an example, in the literature (Lee et al., 2010) it has been found that patient
dissatisfaction comes from: increased waiting time, for a percentage of 19.3% of
cases, staff is not always present at the scheduled time, in 15% of cases, the absence
doctor, in 13.4% of cases, the application of incorrect treatment, in 9.4% of cases
and a high cost of medical services for 3.1% of cases.
In order to increase the quality of the services, the user's problems and needs must
be closely known, using fast and efficient techniques, so that the services provided
can respond exactly to the user's problems. These indirect techniques used as quality
tools to determine needs are correlated with the source of the information. Another
category can be direct observation techniques with which to analyse the health
problems of the population and analyse the use of services by it. Another option is
consensus techniques, which select important issues for both users and health
services. Elements for quality assurance in a health unit will be found in the mission
and vision of the health unit, in a solid quality improvement program, in the existence
of professional standards that apply in the health unit, and an external evaluation of
the unit that ensures medical services.
For the evaluation of the quality and performance of health systems, for the
verification of the performance of the activity to achieve a specific objective,
indicators are used which are tools associated with the operational procedures (Kruk,
Freedman, 2008). The indicators are: structure (assess the extent to which patients
can receive appropriate and timely health care), process (represent the totality of
events that occurred during the care), and outcome (are the clinical results, the final
effects of medical services).
771
Examples of structural indicators:

- availability of equipment (endoscopes) for investigations provided in the protocol
/ number of patients, for which the protocol is required / month, year;
- availability of the drug X, according to the protocol / inpatients / month, year.
Examples of process indicators:
- number of interclinical consultations / number of patients with the same main
diagnosis;
- number of specific tests / hospitalized patient;
- number of adverse reactions, incidents / in X patients treated.
Examples of result indicators:
- improved number of outpatients / total number of outpatients;
- number of deaths / total number of hospitalized patients.
For each operational procedure developed, in order to monitor it, the indicators
associated with the activity performed will be identified, indicators that measure the
degree of compliance with the procedure. Improving the individual performance of
the members of the organization leads to an increase in the performance of the
organization, all this is achieved through a good management of human resources
and personnel management (Papa et al., 2018). It is important for the success of the
organization to hire adequately trained staff, in sufficient numbers in the right place
and at the right time, and also the existence of a human resources planning process
(Potcovaru, Girneata, 2015).
Staff performance evaluation is a very important aspect of human resources, and
in order to be effective, it must be tailored to each position, be practical, have clear
evaluation criteria, and contain valid, reliable measures, and be managed by
competent persons.
7. Patient Satisfaction
Patient satisfaction is an important measure of the performance of the
organization in which the care process takes place and is combined with the
conditions in the health unit, with the experience and professionalism of the medical
staff, and with the material endowment (Al-Abri, Al-Balushi, 2014). Patient
satisfaction can be interpreted as a level of patient satisfaction with the care provided.
According to expectations theory, satisfaction is the correlation between what the
patient wants and the extent to which his desire has been satisfied, but it is necessary
to know the needs of patients (Verbeek et al., 2004).
Patients' expectations are different, they can be correlated with: age, pathology,
socio-cultural, demographic, and professional characteristics. There are the
following categories of patients' expectations: those related to the endowment of the
health unit, psychosocial needs due to hospitalization (the patient is anxious because
he was disconnected from his family environment), material and intellectual needs.
Elements of performance most often cited by patients are: the effectiveness of
care, the adequacy of care, the availability of care, the timeliness of care, the quality
of care, the continuity of care, the safety of care, the effectiveness of care, respect,
and goodwill on the part of the provider. From the patient's point of view, there are
772
aspects of satisfaction that must be taken into account, such as: medical care and
communication; food and accommodation facilities; the atmosphere in the health
unit, the care provided by nurses, and the organization of visits. In the literature,
components of the aspects of satisfaction are described as the following: humanism,
information, quality of care, competence, patient satisfaction, treatment
administration, etc. (Hermann, Long, Trotta, 2019; Hu et al., 2019).
It was also found that there is a direct proportional relationship between
providing respect for the patient, providing more information, and the patient's
participation in the treatment process and increasing his satisfaction. Patient
satisfaction is also influenced by technical equipment, so hospital managers must
ensure a high standard of technical equipment. Accessibility refers to the physical
location and facilities provided, the availability of equipment, scheduling, and access
to healthcare (Ng, Luk, 2019).
In order to improve patient satisfaction, it is necessary to maintain high
standards of hygiene and cleanliness, to develop the skills and abilities of the staff.
The attitude of the medical staff and especially of the doctor is very important to the
patient. This has been demonstrated in a study by whose results led to the conclusion
that patients consider their primary care physician the one who cares
most about them, respectively, the resident physician, and the satisfaction with
the physician was 90% (Dalia, Schiffman, 2010). Similar studies were conducted
in Greece (Matis, Birbilis, Chrysou, 2009) which assessed the satisfaction of
hospitalized patients and their questioning of medical services, accommodation
conditions, nutrition, and staff attitudes. A comparative study was conducted
between hospitalized patients in Poland and Greece and found that men were more
satisfied with the quality of care provided by doctors compared to women
participating in the study. Elderly patients were the most satisfied with the care of
nurses, and the period of hospital stay is negatively correlated with the overall
satisfaction of the patient (Raftopoulos, Theodosopoulou, Nikolaos, 2007).
The patient is an important part of the care process; he must understand what a
certain procedure or intervention consists of, for the acceptance of which he must
give his consent.
Analysing the health ranking of countries according to the Statista Research
Department report published in 2022 based on data available in 2021 (Figure 2), it
can be seen that the first three countries are: Japan, Singapore, and South Korea. This
ranking shows the degree to which people are healthy and have access to the
resources required to maintain good health, including mortality rates, sickness and
risk factors, health outcomes, and healthcare systems. Therefore, the three countries
have the best healthcare systems in the world, pay great attention to the health of
their citizens, and have the most satisfied patients.
773
Figure 2. Health and health systems ranking of countries (2021)
Source: https://www.statista.com/statistics/1290168/health-index-of-countries-worldwide-
by-health-index-score/.
8. Conclusions
Previous studies in the literature have shown that the patient is more satisfied
when the healthcare provider provides more information, gives him respect, when
ensuring the patient's participation in the treatment process. Patient satisfaction is
also influenced by the technical equipment, accessibility to services, and availability
of equipment, hygiene, comfort, and infrastructure of the health unit.
Another issue, which affects patient satisfaction and has been observed in some
studies, is the waiting time for access to healthcare. Longer waiting times were
associated with lower patient satisfaction, however, the actual time spent by the
physician with the patient was the strongest predictor of patient satisfaction. The
decrease in satisfaction associated with long waiting times is substantially reduced
with the increase in time spent with the doctor. Another study correlated the waiting
time with patient satisfaction and the recommendation for other patients of the
respective unit, and the results were that minimizing waiting times in the clinic may
improve patient satisfaction but may not affect their likelihood of recommending the
clinic to other patients as well.
774
The endowment of the health units is a reflection of the managerial activity, and
the perception of the patients about this can be easily influenced if there is a constant
preoccupation for the implementation of the quality standards in the hospital.
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June 16-17, 2022
Particularities of Leadership
and Motivation in Healthcare Organizations
Yasmin A MOBASHER1
DOI: 10.24789788367405072-073
Abstract
Health care systems are designed to provide citizens with adequate services to protect
their health, according to their regularly assessed needs. Hospital-level leadership is a
challenge in any country and health system, especially in an economic crisis and in the
context of recent developments and health care reforms. Leadership in the hospital has
special features, which are related to the specifics of the medical activity carried out and the
evolution of models and styles that prove their effectiveness, playing a major role in the
success of these organizations in today's competitive environment. Motivation is essential in
any public or private organization but a difficult condition to manage to achieve performance
in the workplace. The motivation of medical staff is related to the specifics of a country and
region, with important socio-cultural differences. Good hospital managers are able to
anticipate important staffing needs to motivate people accordingly. The current empirical
research aims to investigate the peculiarities of leadership and motivation in healthcare
organizations. The conclusions of this article could help health care decision makers channel
their actions towards attracting the best specialists, equipment, and resources to the hospital
and achieving motivation and professional satisfaction of the medical staff which is vital to
any performant hospital.
Keywords: leadership, motivation, healthcare, job satisfaction, motivational factors.
JEL Classification: I12, J24.
1. Introduction
The motivating factor is essential in any organization and institution, regardless
of field, level, or size. In order to motivate people, managers need to know what their
main values and needs are, and then to understand what motivates employees to
adopt a certain attitude and develop behaviours that will achieve the desired result
or achieve the pursued goal in different contexts (Breaugh, Ritz, Alfes, 2018). The
literature in the field has developed accordingly, especially theories and studies on
© 2022 Y. A Mobasher, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
staff motivation (De Simone, 2015; Rahbi, Khalid, Khan, 2017; Lohmann et al.,
2018) despite the difficulty of measurement, and the concept of motivation in and
for work has changed over time. People's motivations are diverse and different, but
regarding work motivation, there are: financial and non-financial, each with its
own importance.
Leadership in the field of health care services has been little approached in
research that deals with the subject in terms of the complexity of hospital-type
organizations (Hartley, Benington, 2010; Hahn, Gil Lapetra, 2019). There are certain
trends in the global approach of health leaders and professionals, especially in terms
of their motivations and leadership styles. Researchers in the field emphasize the
overwhelming importance of the human health factor (Potcovaru, Girneata, 2015),
especially physicians, in the quality of services provided and the effects of these
services on patients. This influence involves the specificity of the health services
market, respectively, of the main phenomena that shape it so differently: the strategic
importance of human health and implicitly of the health sector, the very personal
character of health care, high specialization of providers, information asymmetry,
demand-induced supply, agency relationship, clinical risk associated with services
(especially hospital services), moral hazard, adverse selection, presence of merits
and externalities, market failure.
Leadership enjoys a growing interest in politics, business, the press, online, and
academia. The value that the great leaders of the world attach to the image, attitude,
way of presenting and addressing the public, the messages they convey, the
charisma, the way they exercise their power and, implicitly, the advice they receive
for to enjoy popularity, recognition, influence, achievement of goals, and even
domination cannot be ignored. Therefore, the number of theories, research, and
publications and events on leadership topics is relevant. The vision of the concept of
leadership can differ significantly by addressing its personal characteristics –
charisma, intelligence (including emotional), determination, extraversion, fluency,
integrity, and more, or through the process of direct interaction between the leader
and his followers, increasing and availability (Northouse, 2013).
Relevant research on scientific publications on this topic from 1900-2020
identified more than 200 different definitions of leadership. From the multitude of
definitions of the concept, it can be concluded that genuine leadership is the ability,
desire, and strength to mobilize, influence, and coordinate a group of people around
achieving a common goal, project, including personal example.
The management literature signals performance issues at the level of
organizations due to the fact that they adopt a certain frame of reference that can
make them inflexible to consider other approaches and other solutions. The much
faster pace at which new medical services are being developed requires the
integration of patients' needs and the participation of some of them from design to
implementation and validation of results. The importance of consultative processes
is critical to success, and from this perspective a solution can be the development of
779
new services, with the support of interdisciplinary teams involving medical experts,
various stakeholders, and patients. Solutions whose design and implementation have
been made with the participation of stakeholders are more likely to be accepted and
effective as they already integrate their needs.
A wide range of researchers believe that the motivation of individuals, including
the motivation to work, involves a considerable degree of subjectivism and
variability, even for the same person at different stages of life and personal and
professional development, and is therefore difficult to measure, to be compared, and
evaluated. Many authors have considered three defining elements of motivation,
according to which they analyse this concept and related theories, and namely:
direction, effort, and persistence (Armstrong, 2009; Robbins, Judge, 2013).
Musringudin, Akbar and Karnati (2017) considered motivation to be an essential
but difficult condition to manage in order to achieve performance in the workplace,
along with other aspects - individual skills and environmental factors. The human
resources approach supports the idea that people naturally like to participate, work,
and make their own contribution to the workplace, one that matters, which has led
many contemporary employers to invest, e.g., in a better and more appropriate
organization of the work environment, to value their own human capital, and to take
more into account the needs of people both as employees and as individuals. These
authors also emphasized the complexity of the structure of motivation, as in
Herzberg's theory: motivational factors that fuel and determine job satisfaction –
recognition, fulfilment through professional activity itself, self-definition by
profession – especially in the medical field, responsibility, promotion , growth and
development; and the “hygienic factors” that affect job satisfaction fuel
dissatisfaction with it – job stability, payroll, supervision or control, working
conditions and environment, labour relations, company policies (Musringudin,
Akbar, Karnati, 2017).
Robbins and Judge stressed the importance of elements such as job description
and proper design, job design, which positively influences job satisfaction and thus
the performance of each person, as well as the appropriate rewards to stimulate
motivation and job satisfaction (Robbins, Judge, 2012). According to the Job
Characteristics Model, developed by Hackman and Oldham, in order to achieve the
expected results at work with a high level of professional satisfaction, the job
description and organization must take into account the characteristics and
combination of the following elements: range of skills, competencies, and abilities
of the employee; the identity of the traced task, the significance of the task or activity;
work autonomy; providing feedback (Taylor, 2015). Consequently, job redesign can
be successful through professional recognition, diversification, rotation,
participation in decision-making - participatory management, and flexible work
arrangements. Examples in this direction could be: agreeing on a flexible work
schedule for employees; job-sharing, respectively, sharing a job with full-time in two
part-time positions held by two people, ensuring the best possible communication
between the parties, teleworking, working remotely from the headquarters of the
organization, including at home for certain tasks, activities or at certain times, etc.
780
Financial rewards should take into account both individual and organizational results
and performance, as well as the use of applicable incentives, such as bonuses,
bonuses, benefits, and merits (Robbins et al., 2013).
As motivation and job satisfaction are fundamental, logical, collaborative, and
behavioural, they should be best understood, considered, and evaluated over time by
managers, in order to ensure a win-win relationship for both stakeholders: by
improving the motivation of employees, the organization achieves better
performance, and individuals reach a better coverage and satisfaction of their
personal needs, having the satisfaction of doing a good, useful, and appreciated job.
Motivation is seen as a process of allocating efforts and resources to maximize the
satisfaction of organizational and individual needs, based on five interconnected
components: actions, results, effects, evaluations, and satisfaction. Consequently,
improving motivation requires ability, anticipation, adequate resources available,
adequate authority or autonomy given to employees, specific work strategies,
measurement, monitoring, and evaluation (Pritchard, Ashwood, 2008).
The current empirical research aims to investigate the peculiarities of leadership
and motivation in healthcare organizations. In order to reach this objective,
qualitative research was employed and a great variety of case studies and journal
articles, books and reports in this field were carefully analysed, and the main results
were summarised and presented in the following sections of the paper. The main
objectives of the research are:
- To investigate the research findings in the field of leadership and motivation in
any type of organizations;
- To analyse the main peculiarities of motivation in the healthcare system;
- To highlight the peculiarities of leadership in the healthcare system;
The conclusions of this article could help health care decision makers channel
their actions towards attracting the best specialists, equipment, and resources to the
hospital and achieving motivation and professional satisfaction of the medical staff
which is vital to any performant hospital.
4. Particularities of Motivation in the Healthcare System

The motivation of medical staff is related to the specifics of a country and region,
with important socio-cultural differences. Proper motivation of hospital medical staff
is a prerequisite for: avoiding fluctuations and shortages of doctors and nurses,
providing good quality medical services, achieving high levels of patient satisfaction
with the care received, improving performance, and image organization - valuable
advantages in a competitive market, where the patient usually follows the doctor,
and the money follows the patient.
In the case of clinical or university hospitals, which are very special, elite
organizations, certain specific measures facilitate both professional motivation and
good leadership, namely: encouraging interdisciplinary medical collaboration,
781
stimulating teaching and clinical research activities while providing health and care
services taking full advantage of specialization, sharing knowledge and skills to
achieve outstanding performance and excellence, contributing to staff self-updating
including by acquiring essential leadership skills, staff participation in decision
making, transition from organization to model a modern, flexible, and adaptable
model (Brand, Walker, 2021).
Good hospital managers are able to anticipate important staffing needs to
motivate people accordingly (DiPietro, Condly, 2007). It is necessary that the
financial and non-financial rewards be addressed and cover the needs of the people,
because otherwise their motivation is not realized. The quantitative performance
indicators of the hospital, and the degree of patient satisfaction are influenced by the
motivation of the staff (Johansen, Sowa, 2019), motivation that must be measured
periodically by appropriate specific means. Job satisfaction and motivation are
reflected in the relationships between employees, employees and management, and
employees and hospital patients, respectively. In the personal-patient relationship, it
will be reflected in the time and attention dedicated to the patient and his needs,
communication and information, collaboration, treatment compliance and treatment
conditions for a prompt, good and lasting success, follow-up and supervision,
feedback, respect, politeness, understanding and empathy.
5. Particularities of Leadership in the Healthcare System

Hospital-level leadership is a challenge in any country and health system,
especially in the current post-economic crisis and in the context of recent
developments and health care reforms. But the tools and models of leadership in the
hospital field involve a great diversity. Although the literature provides relevant
information in describing and analysing the typology of leaders, especially in the
political and industrial area, given the particularities of the hospital services market,
for this research it is necessary to study and apply specific models and tools or with
applicability in health.
Some authors emphasize changing the role of hospitals and their governance
accordingly, considering that hospital leaders, through their knowledge,
specific experience, and effective action, are the main cause of the success of
these organizations, despite various funding mechanisms and market difficulties,
in the context of frequent market changes and globalization (Saltman, Durán,
Dubois, 2011).
Decision-making by highly effective health care leaders involves, in principle,
several key features and elements: evaluating the best approach, analysing the
decision, the quality of good judgment, keeping track of time, acting with integrity
and consistency, personal development. At the same time, there are challenges at the
level of these leaders, especially related to: the fear of making wrong decisions and,
especially, of recognizing when this still happens, the unavailability to take too many
risks, the lack or difficulty the use of good, sound decision-making methods, over-
analysis and deliberation in decision-making, overconfidence (Wolff et al., 2020).
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Mitchell and Boak propose five interesting qualities that would shape a dynamic
leadership considered for the future in the health field, in which the promising leader:
a) is an interested independent thinker who understands the emerging market of
medical services; b) is passionate about knowing and covering the needs and
expectations of the patient-client; 3) is able to represent an agent of change in the
respective health organization; 4) has the ability and skills to motivate and inspire
people; 5) leads a flexible, progress-oriented, high-quality organization (Mitchell,
Boak, 2009).
According to Cragg and Spurgeon (2018), an exceptional leader in the clinical
field has certain characteristics: he/she is a visionary who lives according to his/her
own beliefs; cultivates self-awareness; he/she is defined by high emotional
intelligence; he/she does not communicate at random even under the rule of
emotions, but has a vision of communication, being at the same time a good listener
who provides feedback and guides others; he/she does very well in dealing with
people; he/she energizes people, creating and developing teams; he/she gains the
loyalty and trust of others by generating informal power, building consensus, making
decisions, determining results, mastering duties and responsibilities, stimulating
creativity and cultivating adaptability.
The elements that make an exceptional leader can be defined as competencies
because:
• Many good healthcare leaders want to be truly authentic for a very good reason:
to make a difference for patients, their families, and the community they serve as
a result of the medical services they receive;
• Most health leaders do not have many mentors, except in medicine (not as
leaders), do not participate in leadership courses or training programs, and
therefore do not have the opportunity to develop the necessary skills and abilities,
even if they are native;
• Physicians are, by definition, leaders in teams where they work and especially
for their patients, and in a time of “talent war”, leaders need to know how to
evaluate other leaders in terms of skills, abilities, and competencies, especially
those they hire.
The leader who lives according to his own values and beliefs, proves that he can
always take a stand according to them, even if his popularity or recognition will be
affected, he remains comfortable in difficult situations and will face difficult
challenges with self-confidence, which is very inspiring for those around him.
Usually, the leader does not live according to his own stated beliefs when: he has
ambiguities and internal conflicts; professionally, he disconnects from his own
beliefs; obsessively pursues his own goals and interests, using his hierarchical
position for personal fulfilment; considers his own perspectives and beliefs to be the
only good and right ones, ignoring or even forbidding others; he ends up preferring
the obedient, he cannot stand criticism; he becomes too moralistic.
Gunderman warns that health care leaders must have a deep understanding of
physicians' financial and non-financial motivation, and promote their professional
development accordingly (Gunderman, 2009). Otherwise, the performance of
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doctors will be far from potential; thus, patients and, indirectly, their relatives,
will suffer.
An edifying argument is the visible effects of the demotivation of medical staff
in the European countries of the former socialist bloc - Semasko-type health systems,
which have transitioned with great difficulty to other forms of organization and
financing, with still poor results compared to developed and characterized nations.
From this point of view, the latest data indicate Romania as the first place in the
world in the migration of doctors, estimating that, after the revolution and until now,
about a third of Romanian doctors have gone abroad.
In an attempt to promote the development of leadership in the field of health,
West and his collaborators started from its specificity, considering that the leaders to
be appreciated prioritize the following: safety; high quality and care with respect
and compassion for the patient, whose needs and feelings matter; motivating,
appreciating, supporting and empowering staff; encouraging teamwork, responsible
professional collaboration; transparency in solving problems, learning from
mistakes; prevention of errors and serious incidents; promoting innovation and
progress (West et al., 2015).
6. Conclusions
The performance of the medical system is influenced by elements of the social
context such as: patients – individuals, groups, communities, institutional
framework, processes, etc. Human health is a major, vital component of individual
well-being, happiness, and individual, community, and social progress. Without
being healthy, people cannot even cope with ordinary everyday activities or roles,
while the current significant information, economic, and global challenges are
becoming insurmountable. Health systems, and in particular health care systems, are
designed to provide citizens with adequate resources, services, products, and
programs to protect, promote, maintain, monitor, improve, restore, or rehabilitate
their health, according to their regularly assessed needs.
Leadership in the hospital has special features, which are related to the specifics
of the medical activity carried out and the evolution of models and styles that prove
their effectiveness, playing a major role in the success of these organizations in
today's competitive environment, marked by a series of challenges. A good leader
will create the premises for attracting the best specialists, equipment, and resources
to the hospital, but he will also create the right atmosphere and ensure the support of
the team so that people want to work together, day by day, in this organization
despite adversity.
Financial motivation is necessary but not sufficient for doctors and nurses in
hospitals, and the motivation and professional satisfaction of medical teams can be
positively influenced by: ensuring a modern medical equipment as efficient as
possible; improving working conditions and environment, safety, and psychological
comfort; completing the hospital's medical teams for the highest possible level of
occupancy, so that patients are as well served as possible and staff are not
overloaded, stressed, tired, and exposed to errors; encouraging and supporting staff
784
to regularly attend specific continuing education courses and activities provided by

the best experts in the field, at national, European or international level; giving up
authoritarianism and adopting a modern, flexible, participatory leadership style
appropriate to the organization, specific activities and team; knowing the needs of
the staff, valuing each individual employee, his professional and human recognition;
ensuring an atmosphere of trust, understanding, mutual respect (not unilateral),
collaboration and support in the hospital; regular evaluation of staff professional
satisfaction and improvement of the situation according to the identified problems
and causes, respectively to the staff proposals; constant participation in studies,
research and development projects carried out.
Adequate regular study of the motivation and satisfaction of hospital staff allows
one to know the opinion and suggestions of employees about: working conditions,
problems and shortcomings, perception of interactions and inter-relationships in the
organization, internal and external changes that affected their hospital activity,
various other issues that employees do not always have the opportunity or intention
to pass on to the hospital management. It is very useful that the reasons for
dissatisfaction and the proposals mentioned by employees are always analysed and
taken into account to improve the situation. On the other hand, it is necessary that
the information obtained from the staff be correlated with the results of the study of
the opinion of the patients on the services received in the hospital during the same
period. If the motivation and professional satisfaction of the hospital staff do not
become a permanent and real, tangible concern of the management, people will feel
ignored, unsupported, undervalued, and consequently will not perform to the fullest
and will even tend to leave the organization. Asking for feedback and consulting
with the hospital team in making important decisions costs nothing but is an
advantage for good leaders.
The motivation and professional satisfaction of the medical staff is vital to
the hospital and is supported by: ensuring very good medical equipment, good
working conditions, safety and comfort environment; sufficient medical staff,
sustained, remunerated to the maximum, continuous professional development;
modern leadership style, participatory, flexible, rewarding; atmospheres of
trust, collaboration, understanding, respect; participation in research and
development projects.
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786

June 16-17, 2022
Sustainable and Blended Solutions for NGOs to Face

COVID’s Challenges and Interconnected Crisis
Marta-Christina SUCIU1, Ana-Maria BOCĂNEALĂ2,
Gheorghe-Alexandru STATIVĂ3, Mircea Ovidiu MITUCĂ4*
DOI: 10.24789788367405072-074
Abstract
The COVID-19 pandemic has triggered an existential set of complex interconnected
crises that affect companies, communities, organizations, and institutions all over the world.
This crisis highlighted the importance of innovation, collaboration, and partnerships.
Collective wisdom and knowledge are key factors for communities that are expressing their
high willingness to collaborate in order to find the best solutions together. The main goal of
this paper is to analyse the NGOs’ possible solutions to face the COVID-19 crisis challenges
in the context of a turbulent international environment. The research methodology follows a
step-by-step approach including: Literature review (step 1); a brief analysis of case studies
illustrating the COVID's influence on NGOs on the international level (step 2); Qualitative
research based on telephone interviews with NGO leaders that shared the problems they had
to face during COVID (step 3); Mapping the solutions adopted during the COVID crisis
(step 4). As a main result, our research offers a map of possible solutions that might be used
by NGOs to face crisis, but also other similar situations. One of the most interesting results
is the importance of mobilizing NGOs to work together, to collaborate, and to realize that
together they can better overcome certain obstacles. Our paper has a potential original value
providing a relatively new and fresh perspective on solutions that might be applied by NGOs
in order to face COVID challenges and complex set of interconnected crises. As a main
conclusion, our paper illustrates that a valid solution to manage to face crises is to join hands
for collaborations and sustainable partnerships.
Keywords: NGOs, collaboration, collective wisdom and solidarity, COVID crisis.
JEL Classification: A12, L31.
1 Bucharest University of Economic Studies; Romanian Academy; Academy of Romanian Scientists,

Bucharest, Romania, [email protected].
© 2022 M.-C. Suciu, A.-M. Bocăneală, Gh.-A. Stativă, M.O. Mitucă, published by Sciendo. This work is licensed
1. Introduction
The COVID-19 crisis pandemic and the measures taken to stop it generated one
of the largest and deepest downturns in economic activity in the European Union.
This paper analyses the NGO’s response to COVID-19 in the context of a
dramatically changing international environment, which is characterized as a VUCA
world (volatility, uncertainty, complexity, and ambiguity). The main research
questions (RQ) refer to how the crisis has affected the Romanian NGOs (RQ1) and,
correspondingly, to what would be the future possible solutions (RQ2). The impact
of the pandemic has varied dramatically across different sectors. It has at the same
time a complex social, economic and multidimensional impact as it refers not only
to a health crisis but also to a complex human values crisis. During the COVID-19
crisis, the NGOs have to change their strategies and re-establishing their priorities.
Our paper analyses the main aspects that influenced the activities of NGOs.
The research methodology involved a step-by-step approach. The first step is to
analyses the global aspects of the influence of the COVID-19 crisis within NGOs.
The second step is about a comparative analysis between some word surveys
regarding the impact of pandemic for the NGOs. The third step consists of
identifying the impact within the Romanian NGOs based on a qualitative analysis
applying interviews and discussions with leaders from various NGOs, who
expressed their points of view on issues that have positively or negatively influenced
the environment during the COVID crisis. Finally, in the fourth step, we provide an
outline including a possible set of sustainable solutions that might be applied by
NGOs in the future. Our research highlighted that solidarity, transparency, trust, and
cooperation are crucial in order to better face complex crisis and challenges.
The COVID crisis has pushed the world economy into a depression with
potentially profound consequences and historic levels of unemployment and
inequalities. At the same time, the United Nations Strategic Development Goal 8
indicated that every country has to apply multiple ways to support public, private,
and civic sectors collaborations (United Nations, 2020). More than ever before, we
need solidarity, hope, and cooperation to see this crisis through together. This ability
to find quick, effective, and efficient answers to face the complex problems can be
seen as their common denominator. (Le Got, 2022) The COVID-19 crisis risks
overturning decades of progress in the fight against poverty and further increasing
already high levels of inequality within and between countries.
One of the most affected economic sectors is the NGOs sector. This sector is
particularly subject to a lack of financial reserves to pay for fixed costs (especially
wages, salaries, etc.) and office rents, but, at the same time, faces a number of
difficulties in terms of the nature of the activities/services they produce. The
COVID pandemic has forced NGOs to develop more flexible workplace models
and to accelerate digital transformation. The NGOs are the links between civil
society and institutions.
788
They are one of the most important actors in our society. The NGOs provide
numerous examples of positive actions providing concrete solutions for the most
disadvantaged ones. The COVID-19 crisis has also affected the young people mostly
in terms of online education that has disrupted learning methods. Education is not
only a fundamental human right; it is a right that directly affects all other rights.
When education systems do not work properly, peace, prosperity, and the whole
society is no longer functioning well. (Le Got, 2022). Recent innovations have
shown promising prospects, but these changes can only be sustainable if no one is
left behind. The crisis pushed NGOs to innovate, adapt, and modernize in order to
implement tools and methods to scale the COVID-19 effects.
The diversity of NGOs activities is a great advantage, especially for their leaders
who have to adapt and find better solutions for each problem. We believe that NGO
leaders can find more innovative solutions to the problems they face, and these
solutions can become practical guides for corporate leaders.
3. Research Questions and Main Goal of the Paper

The research questions (RQ) of this study are: how NGOs' activities have been
affected by the COVID crisis (RQ1) and what solutions they have found to overcome
this crisis (RQ2). This paper analyses the NGO’s response to the COVID-19 crisis
against the backdrop of a dramatically changing international environment. We
focus on the identification of a viable set of possible solutions and drawing a map,
which will help the NGO leaders to act in difficult/complex situations. The research's
main goal is to identify the solutions that NGOs have found in response to the crisis
in COVID. The specific objectives are designed on the basis of a step-by-step
approach. On the first step, we had analysed some case studies of international NGOs
influenced by COVID crisis. On the second step, we focus on the identification of
the problems faced by NGOs during the COVID-19 crisis. The third step concerns
the process of finding solutions that might be adopted by NGOs in order to overcome
the COVID-19 crisis.
4. Research Methods
The research methodology is based on a step by step approach including four
steps. Step 1: Literature review; Step 2. Case studies analysis of COVID-19's impact
on international NGOs; Step 3: Romanian NGO research based on a qualitative
analysis consisting of telephone interviews (made in the first part of 2022, the end
of month January) with several NGO leaders from Romania who shared the
problems they faced during the COVID-19 crisis and what solutions they found to
manage; Step 4: Mapping the solutions found by NGOs in managing problems
during the COVID-19 crisis.
789
5. Case Studies
5.1 Impact of COVID-19 on African Civil Society Organizations, 2020
This research report is the first of its kind to look exclusively at the impact of the
COVID-19 on Africa. It is based on a survey conducted by the African NGOs and
EPIC-Africa between 29 April and 15 May 2020. These results are based on
feedback received from 1.015 CSOs in 44 African countries that participated in the
survey. Despite the enormous impact of COVID-19 on their operations, African
CSOs are actively contributing to the fight against the pandemic at national and
continental levels. The type of organization that was included in this research is
illustrated in the figure below, Figure 1.
Figure 1. Type of organisations
1% 2% 4% Social Movement
7%
Social purpose
32% organisation
23%
Social enterprise
31%
Community
organization
Civil society
organisation
Source: Designed by authors based on the information from the study

“Impact of COVID-19 on African civil society organizations (CSOs)”.
In the figure above, we can see that the largest number of respondents is
represented by NGOs. This study shows that the impact of the COVID-19 crisis has
been felt in financing, operations, and activities. The general impact is reflected in
Figure 2.
Figure 2. The impact of the COVID-19
COVID-19 had
84% impacted and
98%
disrupted their
operations
79% 56%
have already
experienced a loss
74% 84% of funding
69%

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The future impact is represented in the Figure 3.
Figure 3. The future impact of the COVID-19
have already
implemented measures
50% to reduce the costs
78% associated with the loss
of funding
believe that this

55% situation continue over
the next 3-6 month
66%

Other immediate effects noted by the participants include: the reduction of the
staff numbers, increased workload, uncertainty about the future, and managing the
consequences, such as increased domestic violence. Survey participants identified
several specific challenges related to remote working: not everyone has a computer
or an Internet connection, or the nature of our work does not lend itself to working
from home. The results of the study suggest also some solutions on cost reduction,
for example: cut or cancel of activities, reduced or cancelled travel, staff dismissal,
employment freeze, reducing wages and working hours, increased use of volunteers,
contract renegotiation (rent and insurance). Another important aspect is that
partnerships were formed during the pandemic, as shown in Figure 4.
Figure 4. The main partnerships

80%
67%
70%
60% 55%
50%
38% 35%
40%
30%
20% 12%
10%
0%
Sharing Provide services to Capacity Data collection Coordination of
information communities in building,online mutual funds
need training

791
The local civil society organizations (CSOs) have played a key role in the fight
against the COVID-19 at the national level (77.22% of the participants felt that). In
terms of government involvement, 71.58% of participants felt that governments
failed to recognize or use CSO skills, expertise, and networks in the fight against
COVID-19. The 83.95% of participants collaborate with other CSOs at national level
in several areas, sharing information and providing services to those most in need.
In fact, 45.06% of the participants felt that the pandemic will strengthen the strength
and agility of the sector. Only time will tell whether this optimism will lead to
tangible change, but this trend demonstrates the resilience and adaptability found in
many African CSOs.
5.2 The Impact of the Crisis COVID-19 on the 2020 Budgets

of International Solidarity NGOs – Summary Survey
During December-February 2020, Coordination SUD by France implemented a
summary survey among its member NGOs. The objective of which was to assess the
impact of the COVID-19 crisis on NGO resources and budgets in 2020. The overall
survey analysis was structured in four stages: generic information about NGOs,
information on their resources since 2020, information on other types of difficulties
they may have faced (cash flow, hiring suspension), and information on the use of
public support (Coordination SUD, 2021). The overall impact of the COVID-19
crisis was variable depending on the respondent NGOs. Regarding the impact of the
COVID-19's 2020 NGO budget, we can see the data in Figure 5.
Figure 5. The COVID-19’s impact of the NGO budget

70%
58%
60%
50%
42%
40%
30%
20%
10%
0%
anticipate a budget that is less than a decrease of over 20%.
10% of the initial budget forecast
Source: Designed by authors based on the information from the study “The impact of the
crisis COVID-19 on the 2020 budgets of international solidarity NGOs”.
One of the important questions is whether the NGOs most affected by the
COVID-19 crisis are those considered small, medium, and large NGOs. Indeed,
between 40% and 45% of responding organizations in these categories anticipate a
10-40% decrease in overall resources. In comparison, none of the very large NGO
respondents anticipate a decrease in overall resources.
792
In the case of small and very small NGOs, there is a significant decrease in private
institutional resources or resources from income-generating activities. The impact
on other resources of medium and large NGOs depends mainly on the types of
activities they carry out. The analysis shows that very large NGOs are targeted in
2020 and most of them have seen a small decrease in resources. The impact of the
COVID-19 crisis on the human resources of respondent organisations was different.
Only 12% of the responding organisations had to fire staff. The study shows that of
all the resources available to NGOs, public resources were the most affected by the
decreases, especially among small and medium-sized NGOs. Overall, the measures
implemented by the state have worked well, especially the working-time reduction
programmers, which have been in high demand. The survey shows that the impact
of the crisis is expected to be long-lasting and that some "compensation" effect is to
be expected in the coming months and years.
5.3 Impact of COVID-19 on Geneva – Based NGOs

Non-governmental organisations (NGOs) are a key component of Geneva
International, alongside international organisations (IOs) and Member States'
diplomatic representations. This study is interesting to analyse because it presents
dates one year after the start of the pandemic. The survey was conducted in March
2021 and included 470 Geneva-based international NGOs. Most NGOs are small and
medium-sized entities (SMEs), compared to very large United Nations (UN)
agencies and related organizations. The activity of NGOs is varied. Half of the
respondents are active in human rights and humanitarian affairs. The others are
active in health, peace, labour, environment, and security.
Figure 6. Main sector of activities
Source: Survey Impact of COVID-19 on Geneva –based NGOs.
One year after the start of the pandemic crisis, 97% of NGOs continue to be
affected by the COVID-19 crisis. 38% of the respondents report that the impact of
793
COVID-19 on their operations has been severe. In response to the crisis, almost 70%
of NGOs had to significantly adapt their programs, including the online environment,
and 45% have implemented new programs, especially COVID-19. The figure below
shows the impact of the pandemic on the organization’s operations.
Figure. 7 The impact pandemic on the organization’s operations
Source: Survey Impact of COVID-19 on Geneva – based NGOs.
In terms of the impact on the functioning of NGO activities, there has been a
movement of activities online. Online meetings have been organized with limited
possibilities for interaction. A number of respondents indicated that these aspects of
working online made it difficult to build relationships and trust and were concerned
that this could, in turn, affect their ability to make an impact.
5.4 Voice of the Romanian NGOs – React to the COVID-19 Crisis

In our research to see the influence of the COVID-19 crisis on NGOs, we did not
apply a specific type of questionnaire but chose a free discussion in which the NGO
manager explained the specific situation of his NGO. In Romania, the response
of the NGOs to the COVID-19 crisis was very different, depending on the specifics
of each NGO. We held discussions with NGO managers working in the fields of
history, culture, theatre, education, and teaching. An important aspect of our research
is the discussion with the manager who developed a support and collaboration
platform that brings together over 100 NGOs (medical, social, educational, etc.),
volunteers, companies, and individual donors. The telephone interviews took place
in early 2022.
The first discussion was with the manager of a history NGO. In the field of
historical research, the pandemic period was a difficult time. The nature of this work
does not lend itself to remote work. The NGO's projects are more like educational
projects, but occasionally implemented, depending on funding found. Their NGO's
activities have decreased a lot in the last 3 years. As for future solutions, the manager
told us that they see no realistic solution other than for the pandemic to pass.
The next discussion was with the manager of an NGO working in the field of
theatres. The COVID-19 crisis has had a major impact on the sector. In particular, it
has affected artists financially.
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The manager told us that many of the freelance actors have left the profession.
Regarding the shows, they were impossible to stage during the pandemic period.
The NGO theatre manager told us that at the same time the COVID-19 crisis had
psychological effects: sadness, depression intervened.
The most important discussion we had was with the manager who has developed
a platform of support and collaboration that brings together over a hundred NGOs.
The impact of the COVID-19 crisis has been different for each NGO. The results of
the online collaboration platform were amazing; in times of crisis, each NGO posted
what they needed, what they had extra, creating strong and useful links for all.
Collaboration and solidarity have been the key to the survival of NGOs. During this
period, therapy activities have stopped being face-to-face; some have moved online
and others have stopped entirely.
The main conclusion is that only cooperation and collaboration are the keys to
success in NGOs. Online is an opportunity for some NGOs, but there are activities
that require face-to-face interaction, activities without which NGOs cannot exist. In
terms of the benefits of online activities, during this period, online promotion has
facilitated the identification of more potential beneficiaries of their NGOs.
5.5 Finding: “Sustainable and Blended Solution”

Our research has identified a list of possible solutions to overcome the effects of
the crisis. These solutions can be the sharing of know-how from NGOs.
Table 1. Crisis solutions
Nr.
Solutions
crt.
1. integrate the lessons learned from this crisis into NGO project management;
rebalancing operations – gives NGOs the opportunity to review and benchmark their
2. cost structures and operational requirements, which could lead to significant savings,
efficiencies, and stimulate innovation;
3. digital transformation – adopting new technological solutions;
4. staff have acquired new skills and gained experience with new tools and applications;
5. office closures that are not absolutely necessary;
6. work from home in situations where NGO activity allows it;
social media/online presence – through the use of social media and participatory
7. funding platforms, NGOs have exploited their online presence to increase their
visibility, reach new audiences and garner new support;
increase of income, correlated with cost optimization – NGOs must diversify their
8.
sources of income and developing income-generating activities;
building relevance and credibility; NGOs have often responded to the needs of the
9. most vulnerable communities through their own resources and without external
support;
cooperation – The NGOs demonstrated their capacity to respond and have
10.
strengthened legitimacy and relationships with local communities;
solidarity – COVID-19 provides them with the opportunity to support each other and
11.
collaborate on the needs of the local community.
Source: Designed by authors.
795
6. Conclusion
The impact of COVID has been global and variable depending on the specific
NGO. For example, in Romania, the field of art has suffered a lot because of
the restrictions due to Covid. On the other hand, NGOs were identified that
despite the context, quickly identified the risks and adapted, they found innovative
and creative s solutions. In this case, the success in finding solutions is attributed
to the new model of the leader, the human-centred leader, who is both creative
and innovative. As a result of this research, we observed that NGO leaders may
have a broader view of crisis situations, as they have faced many difficult situations
over time.
References
[1] Coordination SUD. (2021, April). Enquête sommaire sur l’impact de la crise COVID-19
sur les budgets 2020 des ONG de solidarité internationale, retrieved from:
https://www.inter-reseaux.org/en/ressource/enquete-sommaire-sur-limpact-de-la-crise-
covid19-sur-les-budgets-2020-des-ong-de-solidarite-internationale/.
[2] Impact of COVID-19 on international NGOs in Geneva: 2020-2021. (2021, april),
retrieved on feb 08, 2022, from https://www.cagi.ch/en/ngo/NGO-COVID19-
SURVEY.php.
[3] Le Got, C.V. (2022). Council Of Europe, The impact of COVID: the opinion of NGOs,
retrieved on february 05, 2022, from https://www.coe.int/en/web/education/the-impact-
of-covid-the-opinion-of-ngos#1.
[4] L’impact du COVID-19 sur les organisations de la société civile africaines. (2020, Juin),
retrieved on feb 7, 2022, from https://www.societecivilemedias.com/wp-content/
uploads/2020/07/L%E2%80%99impactduCOVID-19surlesorganisationsdelasoci%C3
%A9t%C3%A9civileafricaines.pdf.
[5] United Nations (2020, March). Shared responsability, global solidarity: Responding to
the socio-economic impacts of COVID-19, retrieved from UN Sustainable
Development Group: https://unsdg.un.org/sites/default/files/2020-03/SG-Report-Socio
-Economic-Impact-of-Covid19.pdf.
796

June 16-17, 2022
Cryptocurrencies in the Digital Era. Composite Index-Based

Analysis for the Top Ten Virtual Currencies Traded
Denisa Elena BĂLĂ1*, Stelian STANCU2
DOI: 10.24789788367405072-075
Abstract
Virtual currencies represent a new alternative to payment that ensure secure financial
transactions within a decentralized system. The basis of cryptocurrencies is represented by
the innovative and revolutionary Blockchain technology or the DLT (Distributed Ledger
Technology), which in recent years has captured the attention of researchers and
practitioners. This paper aims to conduct a relevant analysis of the cryptocurrency market,
considering the top ten digital currencies in terms of market capitalization. At the same time,
we took into account the launching year of the selected virtual currencies, having as a
benchmark the year 2017 in order to ensure a data set as comprehensive as possible. The
authors' contribution is brought about by the construction of a composite index to synthesize
the performance of the studied cryptocurrencies, the index being designed using the returns
and traded volumes associated with each cryptocurrency. The correlations between the
indicators will be studied, along with the exploration of the Granger causality between the
variables. The paper is structured as follows: In the first part, there is a brief introduction in
the sphere of the studied problem, later being presented the current state of knowledge in the
field. The study continues with the statement of the purpose and hypotheses of the research,
with the presentation of the research methods used, and with the illustration of the main
results of the research. The study is completed by the main conclusions drawn and the
bibliographical references.
Keywords: cryptocurrency market, Blockchain, composite index, Granger

causality, correlation analysis.
JEL Classification: C22, C87, E59, G29.
1. Introduction
Digital currencies are a new type of currency, their foundation being represented
by Blockchain technology. Both cryptocurrencies and Blockchain technology are an
extremely interesting and attractive topic for both investors and the scientific and

© 2022 D.E. Bălă, S. Stancu, published by Sciendo. This work is licensed under the Creative Commons Attribution
4.0 License.
academic communities. The first virtual currency launched is the famous Bitcoin,
which benefits from the Blockchain infrastructure and design. At the same time,
Bitcoin is the most popular digital currency and is considered the leader of the
cryptocurrency market. The inventor of Bitcoin is considered to be a certain Satoshi
Nakamoto (2008), seen either as an individual or as a group of people who
collaborated in order to lay the foundations of this digital currency. Although its
popularity has grown exponentially in recent years, and its applications in various
fields have multiplied rapidly, Blockchain technology is still a novelty for most
people. Many researchers already believe that Blockchain technology could soon
become part of our daily routine, comparing it to paradigms and technological
innovations that have changed our lives: the Internet, computers, the emergence of
cars and aircrafts, and so on (Gupta, 2017; Richards, 2019). Thus, Blockchain
technology is perceived as a radical innovation with high beneficial potential for
many industries and ensures the efficiency of the security, costs, or processing speed
of various transactions. Areas in which this technology has already been successfully
implemented include management, supply chains, health, insurance, or even
government projects and public institutions.
The emergence of Blockchain technology has brought together the focus and
research of groups working in distinct but interdependent fields, referring here to
mathematicians, computer scientists or cryptographers. Obtaining cryptocurrencies
is ensured by performing a process known as mining. Initially, this procedure could
be performed using simple desktops or computer processing units (Connolly, Kick,
2015), but later, more powerful tools were needed to produce virtual currencies, such
as Application Specific Integrated Circuit (ASIC).
Interest in the cryptocurrency market has intensified in recent years with the
expansion of this sector. The market capitalization of the traded currencies reached
in April 2022 approximately 1.8 trillion USD dollars. A large number of scientific
papers are focusing on research and development methods to ensure a better
understanding over the dynamics of the digital currency market.
Bitcoin is the most popular electronic payment alternative that does not require
the involvement of a third party in conducting transactions. Using specific
cryptographic tools, the fully decentralized payment system associated with
Bitcoin ensures that the problem of double spending is avoided. The operability
of cryptocurrencies is based on the innovative Blockchain technology. This
technology is actually a distributed ledger, and within it all transactions are recorded
in chronological order and ensure the execution of transactions without the
involvement of financial intermediaries (Aalborg et al., 2019).
Regarding Bitcoin, there are distinct visions. On the one hand, it is seen as an
extremely safe and profitable asset, with some researchers even calling it "digital
gold". On the other hand, Bitcoin is seen as a speculative bubble or even a Ponzi
scheme. Many research papers are focused on forecasting the prices of digital
currencies using time series analysis (Phillips, Gorse, 2018; Bartolucci et al., 2019;).
798
Modern machine learning algorithms (Jing-Zhi, William, 2018) and artificial neural
networks (Lahmiri, 2019) represent other innovative techniques used to explore the
prices of virtual currencies.
Cryptocurrencies are characterized by extremely high volatility, which has been
investigated with great interest by academics, who have repeatedly tried to identify
the causes and determinants of this pronounced volatility (Katsiampa, 2017;
Lahmiri, Bekiros, Salvi, 2018). There is strong evidence that issues such as global
economic activity and trading volume significantly impact the evolution of
cryptocurrency prices (Walther, Klein, Bouri, 2019; Bouri et al., 2019).
Uras and Ortu (2021) study Bitcoin price movements using machine
learning techniques such as SVM, XGBoost or artificial neural networks such
as CNN or LSTM. They also analyze whether the inclusion of technical indicators
in the models, other than the classic macroeconomic variables, contributes
to the improvement of the Bitcoin price prediction. Other aspects studied
regarding cryptocurrencies include their fractal pattern (Stosic et al., 2019;
Ferreira et al., 2020), but also the correlation between them (Drozdz et al., 2018;
Watorek et al., 2020).
The study of the cryptocurrency market in the context of the COVID-19
pandemic has been a topic of great interest to the academic community, along with
the financial contagion and the stability of financial markets (Zhang, Hu, Ji, 2020;
Zaremba et al. 2020; Okorie, Lin, 2020; Lahmiri, Bekiros, 2020).
Bălă and Stancu (2021) study the evolution of the top five cryptocurrencies
according to the market capitalization over the period 2017-2021. They analyze the
existence of cointegration of digital asset prices and note that this is not present in
the data set. The methodology used is that of the VECM and Granger causality
testing. Their evidence indicates significant two-way influences between Bitcoin and
Binance, Dogecoin and Binance, but also Bitcoin and Ethereum, and the fact that
cryptocurrencies such as Ethereum or Dogecoin are more likely to be significantly
affected by possible shocks to the cryptocurrency market. Another area explored
with interest by researchers is that of the link between public opinion and the
evolution of the cryptocurrency market. More specifically, a technique often used in
this direction is the sentiment analysis.
The relationship between digital asset price dynamics and investor sentiment is
studied by Smales (2022). The more pronounced the interest in certain digital assets,
the higher the returns recorded by them. On the other hand, uncertainty regarding the
crypto market negatively impacts the evolution of digital currencies. Shahzad, Anas
and Bouri (2022) examine the correlation between Bitcoin and Dogecoin prices and
the public sentiment expressed by Elon Musk on the Twitter platform regarding the
cryptocurrency market. Their research reveals that the opinion of some public figures
determines the appearance of bubbles in the price of digital assets.

This paper aims to conduct an analysis of the cryptocurrency market, considering
the ten most important digital currencies from the perspective of market
799
capitalization. On the one hand, a composite index was designed. The index has been
obtained from the combination of two indicators regarded as relevant in the context
of digital assets: the calculated returns of cryptocurrencies and, respectively, the
traded volumes. For this purpose, we intended to observe how the evolution of
cryptocurrencies would change, by simulating different values for the weights
associated with the variables composing the proposed index. On the other hand, we
proposed to evaluate the existence of causal relationships between the indices
calculated for the considered cryptocurrencies.
4. Research Methods
In order to accomplish the research objectives presented in the previous section,
this paper uses data on the top ten most significant digital currencies as of April
2022. The selection of these cryptocurrencies was based on two key elements,
namely the market capitalization associated with each digital asset, but also the
launching date of each cryptocurrency. In order to ensure a comprehensive data set,
we decided to select and consider in this analysis data on cryptocurrencies launched
after 2017. Data was collected using the Yahoo Finance database. The analysis was
performed using EViews and RStudio and some processings were realised using the
Python programming language. The considered cryptocurrencies are: Bitcoin (BTC),
Ripple (XRP), Binance Coin (BNB), Ethereum (ETH), Cardano (ADA), Dogecoing
(DOGE), Tether (USDT), Litecoin (LTC), Dash (DASH) and Monero (XMR). For
each of these, we calculated the daily returns using the formula:
𝑃 −𝑃
𝑟𝑖 = 𝑡+1 𝑡 ∗ 100 (1)
𝑃𝑡
where:
𝑟𝑖 – represents the return of the cryptocurrency i;
𝑃𝑡+1 – represents the price of cryptocurrency i at the t+1 moment;
𝑃𝑡 – represents the price of cryptocurrency i at the t moment;
Another indicator on which we collected data within this analysis is the traded
volume. This indicator has been processed to summarize the growth rates of the
traded volume.
Once these two indicators were pre-processed, we proposed designing an index
to summarize the evolution of the ten most popular digital currencies. We thus
continued with the construction of a composite index, its form being represented
below:
𝐶𝑟𝑦𝑝𝑡𝑜_𝐼𝑛𝑑𝑒𝑥𝑖,𝑡 = 𝛼𝑖 ∗ 𝑟𝑖,𝑡 + 𝛽𝑖 ∗ 𝑉𝑖,𝑡 (2)
where:
𝐶𝑟𝑦𝑝𝑡𝑜_𝐼𝑛𝑑𝑒𝑥𝑖,𝑡 – represents the index associated with the cryptocurrency i at the
time (time period) t;
𝛼𝑖 – represents the weight associated with 𝑟𝑖,𝑡 in constructing the composite index;
𝛽𝑖 – represents the weight associated with 𝑉𝑖,𝑡 in constructing the composite index;
𝑟𝑖,𝑡 – represents the return of the cryptocurrency i at the time t;
𝑉𝑖,𝑡 – represents the traded volume, expressed as growth rate, associated with the
cryptocurrency i, at the time t.
800
The values representing the weights 𝛼𝑖 and 𝛽𝑖 can be established both using the
observed data series but also using specific simulation techniques.
Furthermore, the correlation between the ten cryptocurrencies will be evaluated
using the Pearson correlation coefficient. The intensity and direction of the linear
relationship between two quantitative indicators are assessed using the correlation
coefficient. The value of the correlation coefficient is situated in the [-1,1] range
where values close to -1 indicate strong, negative correlations, while values close to
1 correspond to strong, positive correlations between variables. The absence of
correlation is highlighted by values close to 0 of the correlation coefficient.
The Pearson correlation coefficient used to assess the relationship between
variables is further highlighted:
∑𝑛 ̅)
𝑖=1(𝑥𝑖 −𝑥̅ )(𝑦𝑖 −𝑦
𝑐𝑜𝑟𝑟 = 2 2
(3)
√[∑𝑛 𝑛 ̅) ]
𝑖=1(𝑥𝑖 −𝑥̅ ) ][∑𝑖=1(𝑦𝑖 −𝑦
where:
𝑥𝑖 – represents the i-th value of variable x;
𝑥̅ – represents the mean of variable x;
𝑦𝑖 – represents the i-th value of variable y;
𝑦̅ – represents the mean of variable y.
The test proposed by Granger (1969) will also be used to assess the causality
between the analyzed variables, in this case, the composite indices associated with
the selected digital currencies. Given the two variables X and Y, it will be determined
whether X is a Granger cause of Y if the values of the variable Y can be explained
based on the past values of Y and whether lagged values of the variable X can
improve the prediction of the variable Y.
The associated mathematical model uses bivariate regressions of the form:
𝑦𝑡 = 𝛼0 + 𝛼1 𝑦𝑡−1 + ⋯ + 𝛼𝑙 𝑦𝑡−1 + 𝛽1 𝑥𝑡−1 + ⋯ + 𝛽𝑙 𝑥−1 + 𝜀𝑡 (4)
𝑥𝑡 = 𝛼0 + 𝛼1 𝑥𝑡−1 + ⋯ + 𝛼𝑙 𝑥𝑡−1 + 𝛽1 𝑦𝑡−1 + ⋯ + 𝛽𝑙 𝑦−1 + 𝑢𝑡 (5)
considering all possible pairs (𝑥, 𝑦).
Given the following hypothesis:
𝐻0 : 𝛽1 = 𝛽2 = ⋯ = 𝛽𝑙 = 0 (6)
the F-statistical indicator is calculated for each equation. The null hypothesis is that
x is not a Granger cause of the variable y in the first regression model, while y is not
a Granger cause of the variable x.
5. Findings
The following figure describes the evolution of the top ten cryptocurrencies,
according to the constructed composite index. The two graphs show a comparison
between the movement of the composite index, considering distinct weights for the
two components of the index. Over the analysed time period, there have been
significant fluctuations in the evolution of the ten cryptocurrencies considered, in
terms of returns and trading volumes. Significant increases are associated with
Binance (BNB_Index), Dash (DASH_Index), Dogecoin (DOGE_Index), and
Monero (XMR_Index) in the fourth quarter of 2020. However, the four
801
cryptocurrencies subsequently declined, both in terms of returns and traded volumes.

The most popular cryptocurrencies, Bitcoin and Ethereum, also had an oscillating
evolution, but according to the charts below, we did not notice significant shocks in
terms of the value of the constructed composite index.
Figure 1. Index comparison for the ten selected cryptocurrencies

ADA_INDEX BNB_INDEX BTC_INDEX DASH_INDEX ADA_INDEX BNB_INDEX BTC_INDEX DASH_INDEX
140 200 100 250 400 500 200 600
120 400 160 500
80 200 300
100 150
400
60 150 300 120
80
100 200 300
60 40 100 200 80
200
40
50 100
20 50 100 40 100
20
0 0 0 0 0 0 0 0
2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
DOGE_INDEX ETH_INDEX LTC_INDEX USDT_INDEX DOGE_INDEX ETH_INDEX LTC_INDEX USDT_INDEX

600 80 160 100 1,600 200 400 200
80 160 160
400 60 120 1,200 300
60 120 120
200 40 80 800 200
40 80 80
0 20 40 400 100
20 40 40
-200 0 0 0 0 0 0 0
2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
XMR_INDEX XRP_INDEX XMR_INDEX XRP_INDEX

1,000 200 2,000 500
800 150 1,500 400

600 1,000 300
100
400
50 500 200
200
0 0 100
0
-200 -50 -500 0

2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
Source: Authors’ processing using EViews and RStudio.
Comparing the two graphs, it is noticeable that if we take into account the weights
associated with the components of the index, the differences regarding the index
oscillation are almost insignificant, except for a few situations, namely:
ETH_INDEX, LTC_INDEX, and USDT_INDEX. The difference between the index
of these cryptocurrencies and the index associated with other digital currencies is
that for Ethereum, Litecoin, and Tether, positive and significant correlations have
been identified between traded volumes and their associated returns.
Through the simulations performed, on the whole spectrum of the analysis, the
shift of proportion between the two indicators used in the construction of the
composite index from 0.7 versus 0.3 (and vice versa) does not significantly change
the value of the composite index.
At the same time, the correlation between the indices associated with the ten
cryptocurrencies was analyzed. Charts built using correlation matrices indicate
strong correlations between digital currencies, regardless of the weights associated
with calculated returns and traded volumes in defining the composite index. The
index associated with Bitcoin is strongly correlated with most indices, except
Monero (XMR_Index). Weak correlations correspond to the calculated indices for
Monero (XMR) and Ripple (XRP). One can note that the computed index for
Monero is not significantly associated with the evolution of other cryptocurrencies.
802
Figure 2. Correlation between the ten computed indices
Source: Authors’ processings using EViews and RStudio.

Stationarity was analyzed for the variables considered in the study. The use of the
Augmented Dickey-Fuller stationarity test indicates the non-stationarity of the level
time series, but all indicators become stationary after applying the first order
differentiation procedure.
Table 1. ADF Stationarity test results
Variable Prob. Conclusion
ADA_INDEX 0.843 Non-stationarity
BNB_INDEX 0.273 Non-stationarity
BTC_INDEX 0.188 Non-stationarity
DASH_INDEX 0.973 Non-stationarity
DOGE_INDEX 0.472 Non-stationarity
ETH_INDEX 0.725 Non-stationarity
LTC_INDEX 0.678 Non-stationarity
USDT_INDEX 0.375 Non-stationarity
XMR_INDEX 0.524 Non-stationarity
XRP_INDEX 0.341 Non-stationarity
The Johansen cointegration procedure was applied in order to test the
cointegration of the studied variables. The notion of cointegration refers to the
existence of a long-term relationship between the considered indicators. According
to the results presented in the table below, it is noted that there is a long-term
association between the variables studied, as indicated by the existence of a
cointegration equation.
Table 2. Johansen cointegration test results
Unrestricted Cointegration
Rank Test (Trace)
Hypothesized No. of CE(s) Eigenvalue Prob.
None 0.881 0.000
At most 1 0.728 0.000
At most 2 0.612 0.109
At most 3 0.523 0.218
803
To investigate the association between the variables in more detail manner, we

used the Granger causality test. Based on this, one can note whether a variable is
considered significant in predicting the evolution of other variables. In this case, we
intend to observe which are the cryptocurrencies that influence the evolution of other
digital assets, having as benchmark the calculated dynamics index.
Table 3. Results of Granger causality test
Null Hypothesis Prob.
BTC_INDEX does not Granger cause BNB_Index 0.000
BNB_Index does not Granger cause BTC_INDEX 0.009
BTC_INDEX does not Granger cause DOGE_INDEX 0.000
DOGE_INDEX does not Granger cause BTC_INDEX 0.002
BTC_INDEX does not Granger cause ETH_Index 0.001
ETH_Index does not Granger cause BTC_INDEX 0.000
DASH_Index does not Granger cause XMR_Index 0.001
XMR_Index does not Granger cause DASH_Index 0.010
XRP_Index does not Granger cause LTC_Index 0.003
LTC_Index does not Granger cause XRP_Index 0.000
In the previous table, only the causal relationships identified as significant, or in

other words, the situation of those cryptocurrencies that can explain the evolution of
other digital assets, were exposed. We found the existence of bidirectional causal
relationships between Bitcoin and Binance, Bitcoin and Dogecoin, Bitcoin and
Ethereum, Dash and Monero, but also between Ripple and Litecoin. For example,
the BTC_Index can be used to predict the BNB_Index.
6. Conclusions
Many companies, organizations and even industries, if we focus on a large scale,
are impacted by the technological innovations represented by Blockchain and
cryptocurrencies. Attracting the attention of both researchers and practitioners,
these elements are intensively studied, the interest being focused on identifying
how they will succeed in revolutionizing other products and services.
Cryptocurrencies and underlying technology have already infiltrated many
industries, including cloud services, real estate, healthcare, management, logistics,
and retail. Given the growing popularity of these elements, this paper considered
a study of the cryptocurrency market in terms of correlations between the main
virtual currencies traded and the study of causality between them. Prior to the
analysis, we proposed the construction of an index that summarizes the evolution of
the main cryptocurrencies, through two measures, namely the calculated returns of
the selected virtual currencies and their traded volume. The index was established
using importance coefficients or weights associated with the two previously
mentioned indicators, weights simulated or given based on the observed data. Giving
distinct weights to the two indicators that compose the proposed index, we noticed
that the evolution of the main digital assets does not change significantly, and any
changes correspond only to cryptocurrencies for which there are correlations
804
between returns and traded volumes. In addition, using the Pearson correlation
coefficient, we noticed that the connections between the ten currencies considered
are predominantly statistically significant and denote strong, positive correlations
between the studied variables. Subsequently, evaluating Granger causality, we
identified bidirectional causal relationships between Bitcoin and Binance
cryptocurrencies, Bitcoin and Dogecoin, Bitcoin and Ethereum, Dash and Monero,
and Ripple and Litecoin. This translates into the fact that past values regarding the
price of these cryptocurrencies may prove useful in predicting the price of other
cryptocurrencies. These records can be considered useful for investors interested in
acquiring digital assets, as well as for the academic community focused on
discovering mechanisms and tools that will better serve the understanding of the
fundamentals of the cryptocurrency market. As a future research guideline, the
inclusion of a volatility measure in the construction of the proposed composite index
may be considered.
Acknowledgment
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June 16-17, 2022
Do Governance Indicators Impact the Shadow Economy?

Evidence from CEE Countries
Adriana Ana Maria DAVIDESCU1, Eduard Mihai MANTA2*
DOI: 10.24789788367405072-076
Abstract
In this article, shadow economy and governance indices in Central and Eastern European
countries are examined. For the year 2019, we looked at cross-sectional data for 17 countries
and found that the most significant governance factors affecting economic activity that occurs
outside of the official sector, such as the shadow or underground economy, were control of
corruption, rule of law, political stability, voice accountability, government effectiveness,
and regulatory quality. Ridge, Lasso, and Elastic Net Regression are all employed in this
study. The findings are used to compare the strengths and weaknesses of the three chosen
models and to determine the relative importance of each governance metric in the final
model. The results suggested that all three methods have similar results. In terms of R-
squared the method with highest value is Lasso, while in terms of the RMSE indicator elastic
net regression shows the lowest value.
Keywords: governance indicators, shadow economy, shrinkage, ridge regression,

lasso regression, elastic net regression.
JEL Classification: O17, J46, E26, E27, C59.
1. Introduction
In the past decade, substantial progress has been made in characterizing the size
and composition of the informal economy in Central and Eastern Europe
(Kapelyushnikov et al., 2010, Williams et al., 2013; Likić‐Brborić et al., 2013; Kukk,
Staehr, 2014; Davies, Polese, 2015). However, until recently, this has been done by
examining the reasons individuals labor in the shadow economy, resulting in intense
theoretical discussions over whether undeclared employees do so out of need or
choice (Maloney, 2004, Williams, 2015).
1 Bucharest University of Economic Studies, Bucharest, Romania; National Scientific Research Institute
for Labour and Social Protection, Bucharest, Romania, [email protected]
© 2022 A.A.M. Davidescu, E.M. Manta, published by Sciendo. This work is licensed under the Creative Commons
Most countries are concerned about corruption, since it has an impact on

economic growth (D'Agostino et al., 2016). Because of this phenomenon, there is a
lack of trust in institutions, and so corruption does not serve as a force that fosters
economic progress (Rodriguez-Pose, 2013).
The shadow economy comprises both legal and economic repercussions that have
a considerable impact on a country's economic and financial policies (Dell'Anno et
al., 2007; Schneider, Enste, 2000). A significant informal economy may force a
country's leaders to make choices based on false indications, which may have fiscal
ramifications and effect on taxes and distribution policies in that country.
As a result, it is critical to lower levels of corruption and other related phenomena,
such as the shadow economy, in order to entice foreign money to come onshore,
raise investment, and ultimately foster innovation. Following this logic, the goal of
this study is to examine the influence of governance indicators on the shadow
economy in Central and Eastern European countries using the latest available data
for informal economy estimation provided by the International Monetary Fund
(Kelmanson et al., 2019). Using shrinking methodology that minimizes the
possibility of overfitting or underfitting the data by adding a penalty term, the results
indicate that control of corruption has the most impact in shadow economy.
Such an endeavor, to the best of the authors’ knowledge, has not yet been made.
There are several studies that treat the issue of corruption and shadow economy
or governance quality and informal economy, but there has not yet been developed
a model that is trying to point out what and how governance indicators impact
the shadow economy. The research is focused on Central and Eastern European
countries, considering that other authors highlighted that shadow economy and
corruption are alternatives in wealthy nations but complements in unwealthy
countries.
The following research questions will be addressed in this study: RQ1. What
governance indicator has the most impact in the shadow economy? RQ2. What
shrinkage method performs the best in terms of accuracy? RQ3. Does the three
methods highlight highly different results? RQ4. What variables have shrinked
almost to zero in shadow economy impact?
There are five main parts to this study. The purpose of this introduction is to
briefly explain the importance of the subject. Theories and studies pertinent to the
topic will be discussed in the section following this one. The third section presents
data and technique, while the next section demonstrates empirical outcomes. The
end of the paper is a summary of the important points.
2. Review of the Scientific Literature

This research seeks to examine the influence of governance factors on the
shadow economy in Central and Eastern European nations. Theoretically, corruption
(a governance indicator) and the shadow economy can be substitutes or complements
(Dreher, Schneider, 2010). This section presents a literature review to better
comprehend these phenomena (the shadow economy and governance indicators)
and their relationship.
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In the early 1970s, a series of studies investigating the social and economic
factors of underdevelopment sparked the first wave of study on the informal
sector (Hart, 1973). For more than four decades, the shadow economy has been
documented as a phenomenon, sometimes known as the unofficial, hidden,
subterranean, or black market. Economists around the world are attempting to define
it, assess its scope, and advocate for control or elimination. Nevertheless, it is
understood that once developed, the underground economy is famously hard to
ignore (Schneider, 2000).
In recent years, it has become generally accepted that every national economy
consists of a formal and an informal sector (Schneider, Enste, 2013). The domestic
sector (self-sufficient economy) and the shadow economy make up the latter
category (products and services are traded through markets as usual). Most
publications eliminate acceptable self-sufficient activities from their concerns since
they are quasi-economic activities (Eilat, Zinnes, 2002; Zaman, Goschin, 2015). The
shadow economy consists of illegal activities like illegal workers and the illegal
sector (Schneider, 2000).
Eilat and Zinnes (2002), Mikulic and Nagyszombaty (2013), and Schneider and
Hametner (2014) all highlight regulatory perception density as a crucial predictor of
the shadow economy in transitional nations. Individuals and businesses are said to
be able to operate without monitoring if governance and the rule of law are weak.
Bribes and corruption are unfavorable outcomes of the officials’ lack of control.
In recent years, there has been a significant surge in interest in discovering the
roots of the shadow economy and other criminal activities. However, identifying the
causes remains a developing field of study. One of the primary reasons for the
interest in governance quality was the emergence of institutional flaws and
corruption as key impediments to market reforms (Abed, Gupta, 2002). The informal
sector, on the other hand, is essential not only in transition nations, but also in
developing countries. For many people, employment in the informal sector appears
to be a viable source of income.
The political system, as well as the economic system, has an impact on both
official and informal economic activity. Many countries’ outcomes may be explained
by underlying political factors. In terms of the size and shape of their fiscal systems,
countries may tend to find a middle ground that reflects the balance of political forces
and institutions and remain there until "shocked" to a new middle ground (Bird et
al., 2008). It is interesting to study if existing contemporary political research on the
relevance of governance and institutions allows us to comprehend the scope and
evolution of the shadow economy. Citizen’s identification with the state grows, as
does their desire to pay, when they believe their interests are effectively reflected in
institutions of government and they get an appropriate quantity of common goods.
In an inefficient state, on the other hand, citizens will have little faith in government,
and consequently no motivation to collaborate. Citizens are more eager to contribute
when the state is more comprehensive and genuine. Corruption is exacerbated when
the government and administration have extensive control over resource distribution.
Schneider et al. (2000) demonstrate that nations with higher levels of corruption have
809
a higher percentage of the shadow economy. According to Dreher and Schneider

(2006), the informal economy and corruption are alternatives in wealthy nations, but
complements in unwealthy countries.
In countries where corruption is pervasive and the government budget is opaque,
it is impossible to assume that the obligation to pay taxes is an accepted social norm.
Citizens are reluctant to participate in the formal sector due to institutional insecurity,
a lack of honesty, and lack of rule of law. Furthermore, when there are a significant
number of corrupt colleagues, morality between tax administrators may be crowded
out. Furthermore, legislative limitations and bureaucratic processes not only hinder
competitiveness and market operation, but also provide as a better foundation for
corrupt actions. Individuals and enterprises are likely to engage in the informal
economy if they assume that neither contracts nor constructive activities will be
enforced (Torgler, Schneider, 2007).
3. Data and Methodology

Using the most recent available data from 2019, this section analyses the data
and methodology used in empirical research to examine how governance issues
affect the shadow economy in Central and Eastern European countries. There are
approximately 300 carefully selected indicators from several official sources,
including the International Monetary Fund, United Nations, the World Bank, and
the World Economic Forum in The Global Economy, which is the primary source
of data.
Beyond that, a description of the variables considered in the analysis is provided.
Starting with the key variable of interest: the shadow economy, we outline the
variables used: shadow economy (percent of GDP) – the dependent variable
expressed as a percentage of total yearly GDP along with the following independent
governance variables control of corruption, regulatory quality, political stability, and
absence of violence/terrorism, rule of law, government effectiveness, voice and
accountability, political rights, competitiveness, corruption perception, and cost of
starting a business.
Regarding the main objective of the paper, the following variables are included
to analyse the effect of governance indicators on informal economy e in the Central
and Eastern European countries. Table 1 summarizes the descriptive statistics for all
the variables included in the investigation.
The descriptive statistics show a mean value of 23.55 for the informal economy
in case of Central and Eastern European nations. The minimum value for shadow
economy of 10.47 is represented by Czechia, while the maximum value of 37.6 is
attributed to North Macedonia. Skewness and kurtosis values between -2 and 2 are
adequate to show a normal univariate distribution. All the current distributions are
perfectly normal.
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Table 1. Summary statistics of the variables included in the analysis
Source: Author’s work.
This section provides an overview of the processing approach, variable building,

and model estimation strategies used in this paper. Our approaches are based on
linear regression, which is outlined in this section. Following a group of independent
variables x1,x2,…,xn and a dependent features y of interest that it is wanted to
highlight the impact, seeked parameters β0, β1,…, βn so that β0 + 𝛴𝑖=1𝑛
𝛽𝑖 𝑥𝑖 represents
a fine approximation of y. When given a collection of m instances of each xi, termed
xi,j, and the associated instances yi, it was chosen the values βi to minimize the
𝑚 𝑛
residuals sum of squares RSS = 𝛴𝑗=1 (𝛽𝑜 + 𝛴𝑖=1 𝛽𝑖 𝑥𝑖,𝑗 − 𝑦𝑗 )2 .
As shown by Hastie et al., forward stepwise selection (Bendel and Afifi, 1977)
first sets βo to 𝑦̅ and every other β =0. Then it picks i and a β value repeatedly to
construct a model that minimizes the error function as much as feasible. Once a βi
value is selected, it cannot be changed. As a result, each subsequent model differs
only by one coefficient from the prior model. As a result, n+1 distinct models are
generated, each with a smaller error than the previous one in the series.
The impacts of multicollinearity in regression when highly correlated variables
are included have an influence on the model. To check the multicollinearity
hypothesis of the regression model, the first approach is to compute the correlation
coefficients between variables using Pearson coefficient𝜌𝑥𝑦 = 𝜎𝑥𝑦 /𝜎𝑥 𝜎𝑦 , where σx
and σy represents the population standard deviation and σxy as the population
covariance. The variance inflation factor (VIF) can be used to describe the impacts
of multicollinearity in a regression model. The VIF has been proposed as a second
diagnostic for multicollinearity in this paper. If two or more independent variables
have an exact linear connection, there is perfect multicollinearity. The first
811
estimation of the regression model has considered shadow economy as a dependent

variable and all other governance indicators as independent variables. The
VIF of 𝛽̂𝑖 is defined as VIF (𝛽̂𝑖 )=𝜎 2 /(1 − 𝑅𝑗2 ), where 𝑅𝑗2 is the coefficient of
determination of the initial model. The presence of severe multicollinearity is
considered when VIF (𝛽̂𝑖 ) > 10.
Ridge regression is predicated on first normalizing the predictor variables. When
calculating the standard deviation, subtract the predictor's estimated mean from all
of the data before dividing it by the predicted standard deviation. A single standard
deviation means that all values are on the same scale and have the same standard
error of one. Ridge regression penalizes the overall magnitude of the coefficients, so
models with smaller coefficients tend to perform better. Predictors with higher
statistical significance should have greater coefficient values, so that the penalty does
𝑚
not increase the values of less significant predictors. To a minimum RSS + λ 𝛴𝑗=1 𝛽𝑗2 ,
the ridge models as a tuning parameter, with λ>0, can be used to balance between
the importance of a small coefficient and low error. Each λ value is represented by a
separate model.
Lasso regression (least absolute shrinkage and selection operator) reduces RSS +
𝑚
λ 𝛴𝑗=1 |𝛽𝑗 | while being otherwise identical to ridge regression. Because it zeroes out
some coefficients when is large, lasso regression produces smaller models than ridge
regression. Ridge regression does not do this.
The elastic net approach is a further extension of both the ridge and lasso
regression methods. The elastic net regression approach is a convex mixture of the
ridge regression penalty and the lasso penalty. Elastic net regression arose in
response to criticism of the lasso, whose variable selection might be too dependent
𝑚
on data and hence unstable. Elastic net regression reduces RSS + λ 𝛴𝑗=1 𝛽𝑗2 +
𝑚
λ 𝛴𝑗=1 |𝛽𝑗 |. For all the three approached methods, the R library glmnet was used
(Friedman et al., 2009).
The data needed to build a model is randomly divided into two sets: those used
for training the model and those used for testing it. In order to develop a model,
training data is used, and the model's accuracy is measured using test data. A model's
accuracy in simulating real-world data is what the results are after. When a model's
error on the training data is low, but its error on the test data is large, this is called
overfitting. Because of the belief that "a model with too many settable parameters is
unlikely to have all of them adequately set," these models often perform poorly. The
least significant criterion for picking a model is to minimize the model's error on test
data samples. The model's error on the test data must be reduced. Each iteration of
resolution, ridge, lasso, and elastic net refines a hyperparameter (λ) that guides the
algorithm. Decisions are made based on the hyperparameter value.
4. Results and Discussion

The OLS estimator has the required attribute of objectivity. It can, however, vary
greatly. This occurs when the predictor variables are significantly associated with
each other or when there are many predictors. The usual answer is to minimize the
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variation at the expense of adding bias. This method is known as regularization, and
it is virtually always helpful to the model’s prediction performance.
A first glance of multicollinearity issue in a regression model can be tested using
Pearson correlation. Figure 1 represents a visualization method of the correlation
matrix called a correlogram. As decided to test the impact of governance indicators
on shadow economy, it can be spotted that our dependent variable shadow economy
is medium to highly negative correlated (ranging from -0.59 to -0.84) with all the
variables included in the model except starting a new business which is positive low
correlated (0.3). This is the first signal of multicollinearity.
Figure 1. Correlation plot of the data set
To double confirm the presence of multicollinearity in the data a simple OLS

estimation is tested using a multiple regression with shadow economy being the de
dependent variable and the governance indicators being the dependent variables.
From Table 2 it can be concluded that the data for the regression model contains
multicollinearity effects in case of rule of law, control of corruption, corruption,
voice accountability, and civil liberties because VIF exceeded 10.
Based on the discussions, it has determined that it would like to reduce the model
complexity, as an example, the number of predictors. It can be used the forward or
backward selection for this, but it would not be able to capture anything about the
influence of the eliminated variables on the response. Removing predictors from the
model is equivalent to zeroing out their coefficients. Instead of ordering them to be
exactly zero, the approach is to punish them if they are too far from zero, causing
them to be little indefinitely. It can reduce model complexity while retaining all
variables in the model.
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Table 2. Multicollinearity Test
Source: Author’s work
Regression was developed as a second complimentary strategy to favour the

inclusion of simple, sparse model predictors. Cross-validation is used to construct
the best-fitting parsimonious model, which forecasts hazard ratios that are shrunk
closer to the null. Models with a high degree of multicollinearity or where
specific components of model selection, such as variable selection/parameter
removal, need to be automated, benefit greatly from this type of regression. The
L1 regularization approach used by Lasso Regression involves a penalty
proportionate to the magnitude of the coefficient. Sparse models with minimal
coefficients can be produced using this regularization technique. It is possible that
some coefficients will fall below a certain threshold, and so be deleted from the
model. The higher the penalty, the lower the coefficient value becomes (ideal for
producing simpler models).
Elastic net linear regression uses penalties from the lasso and ridge
methodologies to regularize regression models. Combining the LASSO and ridge
regression approaches, the strategy improves statistical model regularization by
learning from their weaknesses. LASSO's drawbacks, such as the fact that lasso only
requires a few samples for high-dimensional data, are overcome by the elastic net
technique. As many variables as needed can be incorporated into the model using
the elastic net approach. LASSO often selects one variable from each group and
ignores the others if the variables are tightly clustered. A two-step strategy is
employed to determine the elastic net method's estimate using the LASSO and ridge
approaches. As soon as the ridge regression coefficients have been discovered, a
LASSO can be used to reduce the original coefficients.
The optimal minimum value found for λ in the cross-validation process is 0.049,
while α remained 0 in case of ridge penalty. The optimal minimum value found for
λ in the cross-validation process is 0.002, while α is 1 in case of the LASSO penalty.
The optimal minimum value found for λ in the cross-validation process is 0.014,
while α is 0.1 in the case of elastic net penalty. The minimised value found for Ridge
MSE is 5.33, for LASSO MSE is 5.15 and for Elastic Net MSE is 5.61.
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To find fitted ridge regression model based on the minimum value of MSE, thus
it is considered to selected Alpha (α) = 0. In Table 3 it is denoted that the most
appropriate fitted ridge regression model represents ŷ = 101.85 + 5.68 x 1 – 4.91 x2 –
10.69 x3 – 5.73 x4 – 7.01 x5 – 6.15 x6 – 0.1 x7 + 0.72 x8 – 3.31 x9 – 0.95 x10 +
0.09 x11. To find fitted LASSO regression model based on the minimum value of
MSE, thus it was considered to selected Alpha (α) = 1. It is denoted that the most
appropriate fitted LASSO regression model represents ŷ = 99.47 + 4.97 x 1 – 5.10 x2
– 10.67 x3 – 5.50 x4 – 6.16 x5 – 5.53 x6 – 0.09 x7 + 0.61 x8 – 2.82 x9 – 0.94 x10 +
0.06 x11. To find fitted elastic net regression model based on the minimum value of
MSE, thus it was considered to selected Alpha (α) = 0.1. It is denoted that the most
appropriate fitted elastic net regression model represents ŷ = 108.1 + 6.33 x 1 –
5.17 x2 – 12.01 x3 – 5.75 x4 – 8.52 x5 – 6.31 x6 – 0.14 x7 + 0.73 x8 – 3.78 x9 –
0.99 x10 + 0.1 x11.
Table 3. Ridge, LASSO and Elastic net regression coefficients
The ridge, LASSO, and Elastic Net methods were used to build three regression
models with the given features. There were eleven characteristics in the regression
models based on LASSO, ridge, and Elastic Net. All models exhibited similar root
mean squared error metrics and explained almost 70% of the variability in
governance indicators, demonstrating that the models were good at forecasting
shadow economy based on governance variables. According to the parsimony
principle, elastic net regression has the lowest prediction error. The root mean square
error (i.e., prediction error) was also offered as a performance metric for our models
based on the estimates gained during cross-validation. Predictive error is an
important consideration when selecting a model. Here again, the elastic net model
(RMSE = 1.499, SD = 0.528) performed relatively better than the Ridge (RMSE
=1.774, SD = 0.523) and LASSO (RMSE = 1.505, SD = 0.544) models (Table 4),
supporting the choice of the elastic net model. Elastic net models were used to
analyse these data.
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Table 4. Explained variance results for Ridge, LASSO and Elastic Net
Model R-squared RMSE (95% CI) SD
Ridge 0.6934 1.774 (1.251, 2.297) 0.523
LASSO 0.7002 1.505 (0.961, 2.049) 0.544
Elastic Net 0.6920 1.499 (0.971, 2.027) 0.528
5. Conclusions
This paper examined the relationship between governance indicators and shadow
economy estimates for CEE nations. The empirical findings indicate that the three
shrinkage techniques yield comparable results. The paper extends previous empirical
models of the impact of governance indicators on the shadow economy by
employing an approach that considers all the model's features without omitting any
but penalizes the coefficients.
The multicollinearity hypothesis was tested before shrinkage methods such as
ridge regression, lasso regression, and elastic net regression were applied. Shadow
economies in Central and Eastern Europe (CEE) are positively impacted by the rule
of law, political rights, and the cost of launching a new firm. When it comes to
control of corruption, government effectiveness and quality of regulation and the
voice of the people's accountability in the legislative process, these factors have a
negative influence.
Corruption control, voice accountability, political stability, the rule of law,
regulatory quality, and government efficiency are the most significant factors
influencing the shadow economy. The relevance of the other coefficients has been
reduced by a modest coefficient.
The model with the highest variability explained by the features is the LASSO
regression, while the elastic net regression has the slightest prediction error. The
accuracy between the three models is similar, with small differences.
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June 16-17, 2022
Exploring the Relationship between Exchange Rates, Gold

Price and Inflation. An Multivariate Empirical Approach
Răzvan Gabriel HĂPĂU1
DOI: 10.24789788367405072-077
Abstract
Financial markets have calendar effects, also known as calendar anomalies. These refer
to abnormal returns on traded assets with a specific frequency of occurrence at intervals of
less than one year. Exchange rates formed in the financial markets are the main subjects
of such calendar effects. Capital markets are studied much more frequently from this point
of view. In comparison, it has been observed that those in foreign exchange markets can also
have a consistent speculative dimension, which favors the appearance of calendar anomalies.
That is why we will further study the evolution of the euro-ron and dollar-ron
exchange rates.
The study aims to explore the main dynamics between exchange rates, gold price, and
inflation rate from a multivariate perspective covering the period 2009-2022 based on the
Granger causality approach and the impulse response function testing empirically the
existence of the long-run relationship using Johansen multivariate approach and the
estimation of VAR/VECM model.
The gold market is a signal of crisis. When the prices of many financial assets collapse,
the intrinsic value of the precious metal becomes very tempting to many investors. The
pandemic has affected the Romanian foreign exchange market through various mechanisms.
Fears about the prospects of the national economy, which existed even before COVID-19,
have aroused distrust in the national currency. Furthermore, there are significant
interdependencies between emerging and foreign capital markets, especially during periods
of instability. The massive withdrawal of foreign investors from a capital market with a large
share will cause stock prices to decline. Thus, it generates a substantial increase in demand
in the foreign exchange market (investors will need currency to repatriate their capital).
The empirical results pointed out a long-run relationship between exchange rates, gold
price, and inflation and denied any short-term relationship, while the Granger causality test
highlighted a long-run causality between all four variables in the model.
Keywords: exchange rates, gold price, inflation, economic crisis, Romania.
JEL Classification: G01, G17, O24, D53, C32.
1 West University of Timișoara, Timișoara, Romania, [email protected].
© 2022 R.G. Hăpău, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
1. Introduction
Financial markets have calendar effects, also known as calendar anomalies. These
refer to abnormal returns on traded assets with a specific frequency of occurrence at
intervals of less than one year. In some articles, they are considered seasonal
variations in evolution. Courses formed in the financial markets are the main subjects
of such calendar effects; thus, the necessity of studying the evolution of such
exchange rates Euro-RON and Dollar-RON.
Capital markets are much more frequently studied from this point of view, but, by
comparison, it has been observed that those in foreign exchange markets can also
have a consistent speculative dimension, which favors the appearance of calendar
anomalies. On the other hand, fluctuations in foreign exchange markets, as opposed
to capital markets, can be decisively influenced by the prompt interventions of the
Central Bank. From this perspective, the Central Bank has efficient means of buying
or selling the national currency at its disposal, aiming to bring exchange rates to a
desirable level (Ștefănescu, Dumitriu, 2020). Consequently, such regulatory actions
mitigate or even eliminate seasonal variations.
It is worth mentioning that the National Bank of Romania opts for applying a
controlled flotation regime, referring to consistent interventions on the foreign
exchange market that will fade certain seasonal variations. The NBR focuses on
maintaining the stability of the euro and US dollar exchange rates, the two most
important currencies for the Romanian economy.
In order to determine precisely how the RON / EUR exchange rate fluctuates,
three periods have been analyzed: 2 months from the financial crisis (January-
February 2009), March 2009 - June 2017 post-crisis period, and the crisis caused by
COVID March 2020 - May 2022.
According to the philosophy that guided the NBR's policy on foreign exchange
interventions, high exchange rate volatility is detrimental to both the inflation target
and the financial health of the fundamental and financial sectors. This is because
high exchange rate volatility makes it more difficult to achieve inflation targets. The
NBR adhered to this ideology and advocated for a floating exchange rate as a means
to take advantage of the valences offered by the free market, deter speculative
activity, and prevent an undue appreciation of the currency.
The NBR was necessary to make quite significant purchases of foreign currency
on the market in order to maintain a consistent application of this ideology. The
National Bank of Rwanda (NBR) came under fire for not allowing the exchange rate
to increase in accordance with the needs of the market when it bought the currency.
As of today, it has become clear that the policy in question was correct. The ongoing
global financial crisis has resulted in a dramatic reversal of the trend of RON
appreciation, which has been accompanied by substantial periods of volatility.
Similarly to how foreign exchange inflows led to an overestimation of the local
currency that was significantly higher than the level indicated by the fundamentals
of the exchange rate, the reduction in external financing and uncertainty tend to lead
to an unjustified depreciation of the leu as indicated by the fundamentals of the
exchange rate. In times of overestimation, the reserves that are purchased on the
819
foreign exchange market act as interventions to calm the depreciation of the national
currency (RON).
In this light, the study aims to explore the main dynamics between exchange rates,
gold price, and inflation rate from a multivariate perspective covering the period
2009-2022 based on a VAR/VECM approach together with Granger causality and
impulse response function.
The paper is organized as follows. The section of the problem statement
introduces the reader to the topic of the financial crisis. It explores the main
implications between exchange rates and gold price focusing on the most relevant
research publications.
A brief description of the data and the fundamental elements of the multivariate
approach is included in the methodology section. The empirical findings section
highlighted the main findings between all the model variables. The research
continues with remarks and findings pointing out the dynamics between exchange
rates, inflation, and the gold price.
The findings of numerous different forms of study have provided evidence for
the occurrence of a variety of calendar anomalies, which runs counter to the
recognized assumptions that are the foundation of asset–pricing models. Some
examples of these include the monthly effect, also known as the January effect (Kim,
Park, 1994; Haug, Hirschey, 2006; Rendon, Ziemba, 2007; Agnani, Aray, 2011;
Kumar, 2016a,b), the holiday effect, also known as the Liano and White effect
(Vergin, McGinnis, 1999), and the week–end effect (Lakonishok, Levi, 1982; Jaffe,
Westerfield, 1985; Kohli, Kohers, 1992; Levy, Yagil, 2012).
Among them, the January effect, the Day-of-the-week effect (also known as
DOW), and the Turn-of-the-month effect (also known as TOM) are the most
well-known and have attracted a significant amount of interest from academicians
as well as practitioners (Alt, Fortin, Weinberger, 2011). Previous research has made
an effort to investigate the root of these aberrations, but thus far, no satisfactory
explanation has been uncovered.
The influence of the Dow Jones Industrial Average makes Monday the worst day
of the week for investors when compared to the other days of the week (Condoyanni,
et al., 1987). The January effect is a peculiarity of the calendar that occurs only in
the context of the financial markets. This impact causes returns in January to be much
higher than those in any other month of the year (Floros, 2008; Moller, Zilca, 2008;
Dbouk, Jamali, Kryzanowski, 2013; Lynch, Puckett, Yan, 2014). Many experts in
the field of academia are of the opinion that the performance of stocks during the
first month of the year is an accurate predictor of how those stocks will perform
throughout the rest of the year. When a security is carried over from one month to
the next, an unusual price anomaly known as the "TOM effect" might appear in the
equity markets. This impact is common knowledge among market participants.
According to Moller and Zilca (2008), the last few days of December and the first
few days of January are times when stock returns are particularly strong. According
820
to Kumar, the returns on TOM trading days were much lower than the returns on
non-TOM trading days (2015).
Mondays in Central and Eastern Europe (CEE) experienced negative returns from
1997 to 2000, according to Patev (2003). Despite providing contradictory evidence
for the presence of the impact in Eastern European emerging markets between 1990
and 2002, Ajayi et al. (2004) provided support for the weekday effect. Tonchev and
Kim 2004 discovered that there was essentially little evidence of calendar impacts
in the markets of the Czech Republic, Slovakia, and Slovenia. The research
conducted by Chukwuogor-Ndu in 2006 looked at fifteen European financial
markets and discovered that several countries, such as the Czech Republic, Slovakia,
and Turkey, have had negative returns on Monday. After entering the EU, the nations
of Central and Eastern Europe reportedly saw a decline in the occurrence of these
anomalies, as stated by Heinineni and Puttonen (2008). Mondays are the days of the
week when Turkey, Cyprus, and Greece have the least amount of impact, according
to Hourvouliades and Kourkoumelis (2009). While Francesco and Rakesh (2010)
observed a day-of-the-week effect in the Slovenian stock market following EU
accession of European equity markets from 1999 to 2009, Borges (2009) found
anomalies in seventeen European equities markets between the years of 1994 and
2007. Borges' research focused on the period between 1994 and 2007.
2.1 The Impact of the Day of the Week

Cross was one of the first people to look at data from the United States (US) while
evaluating daily fluctuations in stock prices by the day of the week (1973).
According to the available research, the prices of stocks tend to be higher on Fridays
than they are on any other day of the week, whereas the opposite is true on Mondays:
they tend to be lower than they are on any other day of the week. According to
research on the influence of the day of the week, Mondays often have lower daily
returns than the other weekdays (French, 1980). The weekdays are expected to have
varying effects on the average returns (Cross, 1973; Gibbons, Hess, 1981; Cai, Li,
Qi, 2006).
According to Zhang, when it comes to portfolio selection, profit management,
and overall investing strategy, the day of the week influence may influence investors
(2017). Furthermore, Zhang et al. (2017) point out that finance theory cannot
adequately explain this type of phenomenon. They also note that, even though
calendar impacts have been documented in the literature, there is no uniform
consensus among the researchers because of differences in sample data and
methodologies. The oddity regarding the days of the week was also found by Sias
and Starks (1995). Because investors tend to trade fewer securities on Mondays than
they do on other days of the week, Mondays tend to have lower returns than on the
other days of the week. According to Golder and Macy (2011), a distinctive weekly
pattern of better mood could be able to explain why Monday returns are lower than
those seen on other days of the week.
821
2.2 The Influence of the First of the Month

The time-of-the-month effect (also known as the TOM effect) is a well-studied
price anomaly that occurs in the stock markets and takes place at a certain period of
the month or when an asset is carried over from one month to the next. Ariel (1987)
referred to an empirical irregularity in stock returns as the "monthly effect," and he
used that word to define the phenomenon. After analyzing the stock index returns
from 1963 to 1981, he finds that stock returns are statistically distinguishable from
zero on days immediately before and throughout the first half of each calendar
month. His research covers the period from 1963 to 1981. Expanding on the research
done by Ariel (1987) for four additional nations, Jaffe and Westerfield (1989) offer
a flimsy case for the validity of his findings.
However, they uncover compelling data suggesting that the last day of the month
has an impact.
The time value of the money impact is created when an asset is carried over from
one month to the next. This phenomenon is well-known in the equity markets, and it
has received a significant amount of research attention. An empirical irregularity in
equity returns was given the name "monthly effect" by Ariel (1987), who coined the
phrase. It has been discovered that the average return on stocks is profitable in the
days immediately preceding and during the first half of calendar months, but that
such returns are statistically negligible in the days that fall in the second half of the
month. The findings of Ariel's (1987) research were extended to four other nations
by Jaffe and Westerfield's (1989) investigation. Despite this, the conclusions formed
by Ariel do not hold water in their eyes. On the other hand, they uncover compelling
data suggesting that the last day of the month has an impact.
2.3 The Influence of the New Year (January Effect)

The January impact wasn't documented for the first time until Rozeff and Kinney
(1976) did their study on the New York Stock Exchange. According to research
conducted by Gultekin and Gultekin (1983), the best months for returns in the United
Kingdom are January and April. In Japan, however, only one month is among the
best. According to Mill and Coutts' research, there is evidence that January had an
effect on the FTSE100, Mid 250, and 350 indexes from 1986 to 1992. [Citation
needed] (1995).
The monthly CRSP statistics from 1926 to 2005 include evidence of the impact
that January had on the market. Agnani and Aray (2011) utilize monthly data from
the United States from 1940 to 2006 to investigate whether or not a time-varying
January impact is both positive and strong in high volatility regimes, and low
volatility regimes respectively. Jacobsen and Zhang (2013) looked at more than 300
years of stock returns in the UK and discovered that the January effect first appeared
around the year 1830. However, between 1951 and 2009, the January influence
gradually disappeared. This finding was based on the fact that Christmas became a
public holiday in the UK in 1830.
822
When analyzing the relationship between currency pairings and the US dollar,
Kumar (2016) focused on the influence that January had between 1995 and 2014.
Statistics collected from 1995 to 2004 show that the returns on all currencies are
greater in January and that they fall during the remainder of the year, which confirms
the January impact. He argues that the January impact has mostly disappeared for
virtually all currencies from 2005 to 2014, which is evidence that markets have
become more efficient throughout this time.
Due to its long history of usage as a medium of trade and a store of value, gold is
considered to be both a commodity and a kind of money. When it was initially
extracted from the ground, gold was one of the first metals discovered by humankind.
The Bretton Woods system, which was put into place after World War II, established
a price for gold of $35 per troy ounce. In 1971, the United States switched to a
currency system based on fiat, which meant that dollars could no longer be directly
exchanged for gold. Decoupling from gold was finally accomplished with the Swiss
Franc in the year 2000.
Gold investment may be utilized as a risk management strategy to reduce the
impact of adverse macroeconomic and financial conditions (Agyei-Ampomah,
Gounopoulos, Mazouz, 2014; Baur, Lucey, 2010; Beckmann, Berger, Czudaj, 2015,
2019; Bilgin, Gozgor, Lau, Sheng, 2018; Bouoiyour, Selmi, Wohar, 2018). Investors
acquire gold as a hedge against currency changes since it is seen as a stable asset in
both economically challenged and non-stressed contexts. As a result, gold prices tend
to remain relatively stable (Beckmann et al., 2019; Harris, Shen, 2017; Mensi,
Hammoudeh, Al-Jarrah, Sensoy, Kang, 2017; Singhal, Choudhary, Biswal, 2019).
Over the course of the previous two decades, there has been a rising interest in
the study and literature about gold investments. O'Connor, Batten, and Baur (2015);
O'Connor, Lucey, and Batten. O'Connor, Batten, and Baur (2015). Gold is a popular
investment choice among investors during times of economic instability and
underperformance (Jain & Biswal, 2016). To put it another way (Bouri, Jain, Biswal,
Roubaud, 2017). Since the global financial crisis (GFC), gold has been an
increasingly appealing alternative hedge that may be utilized in portfolio
diversification (Kirkulak, Uludag, Lkhamazhapov, 2014).
It has also been demonstrated that previous financial crises have had an effect on
the relationship between gold's reputation as a safe-haven asset and a loss in the value
of other currencies (Baur et al., 2010; Nguyen et al., 2020; Yang et al., 2014).
According to the findings of a research done by Morales-Zumaquero and Sosvilla-
Rivero (2014), which examined the period of time between 1970 and 2011, GFCs
are what induce breaks in the volatility of currency rates. Because of this, the world's
central banks were forced to implement unconventional monetary policy measures
in order to stabilize the relationship between gold prices and currency rates. These
measures included lowering interest rates to zero and initiating quantitative easing
(QE), two of the more notable examples.
Since the Great Financial Crisis (GFC), the introduction of COVID-19 has sent
ripples across the financial markets that have rattled them to their very foundations
(Baker, Bloom, Davis, Terry, 2020; Goodell, 2020). The global market for foreign
823
currencies has been significantly impacted because of the financial crisis that began
in COVID-19. This current financial crisis is significantly more extensive and
damaging than those that have occurred in the past (Shehzad, Xiaoxing, Kazouz,
2020). In response to the impact that COVID-19 had on the currency exchange rate,
several developed and developing countries implemented unconventional
macroeconomic policies that encouraged interest rates to remain at or near zero. This
was done to prevent the long-term trend of exchange rate volatility from being
disrupted (Yilmazkuday, 2022).
Academics have established a connection between the prices of stocks and
commodities such as gold and oil for many years. Economists make use of a wide
variety of economic indicators, including industrial production, interest rates,
inflation, and currency exchange rates (Amoateng, Jovad, 2004). El-Sharif et al.
(2005) used only data from the United Kingdom in their study, and they discovered
a positive and sometimes substantial correlation between the stock prices of oil and
gas sector companies and the fluctuations in the prices of oil and gas on the market.
Basher and Sadorsky (2006) stated that the risk of fluctuating oil prices has a
substantial influence on the stock returns of developing economies.
According to Zang et al., cointegration and causality both point to a relationship
between the prices of gold and crude oil (2010). The analysis found a significant
relationship between the prices of crude oil and gold during the time covered by the
sample. Additionally, it was revealed that the long-term equilibrium between the two
markets as well as the linear Granger variation in crude oil prices were the primary
drivers of the fluctuation in the gold price. In addition to this, it seems that the price
of crude oil has a greater influence on the predicted effective price between the two
markets than gold does.
Laughlin (1997) stated that the value of gold rises regardless of whether the
value of other commodities falls. In his analysis of the future price of gold,
Pravit (2009) makes use of a combination of multiple regression and ARIMA. The
ARIMA (1, 1, 1) model provides the most accurate projections of the short-term
movement of gold prices. The multiple regression model used in the research
revealed that fluctuations in the price of gold in Thailand are influenced by a variety
of economic variables, including but not limited to the following: the value of the
Australian Dollar, the Japanese Yen, the United States Dollar, the Canadian Dollar,
the European Union Ponds, the price of oil, and the price of gold futures.

The paper investigates the nature of the relationship between the euro-Ron
exchange rate, the dollar-Ron exchange rate, gold price, and inflation using monthly
data from January 2009 to May 2022. To do that, a multivariate approach has been
applied, incorporating the cointegration analysis, Granger causality, and impulse
response function.
824
4. Research Methods
The research used monthly data covering 2009-2022 using four main variables:
average Euro-Ron exchange rate, average Dollar-Ron exchange rate, average gold
price, and harmonized consumer price index.
Analyzing the average monthly Euro-Ron exchange rate between 2013 and 2015,
a relatively stationary evolution is observed, fluctuating between 4.395 and 4.52.
This is a relatively horizontal trend, with the recorded values fluctuating around an
average value. In this case, it is not a question of a significant trend (Ștefănescu,
Dumitriu, 2018). Regarding the evolution of the average monthly Euro-Ron
exchange rate in the next period, 2015-2018, it is observed that the time series shows
an upward trend corresponding to a significant increase. Thus, the national currency
depreciated against the European one.
The reason for which the Dollar-Ron exchange rate has been included is that
until 2004, the representative foreign currency in Romania was the US dollar. The
evolution of this time series highlights a downward linear trend and an alternation
of periods of appreciation and significant depreciation. In 2009-2020, the dollar-Ron
exchange rate shows a horizontal linear trend. However, during the late period, the
national currency depreciated significantly against the US dollar (Ștefănescu,
Dumitriu, 2020).
The gold market is a signal of crisis. When the prices of many financial assets
collapse, the intrinsic value of the precious metal becomes very tempting to many
investors. If rising inflation erodes confidence in some currencies and financial
market volatility is expected to remain high, gold transactions will become attractive
to many investors. As a result, the price of gold followed an upward trend in the first
quarter of 2020. However, as with the Dow Jones index, the positive shocks
alternated with the negative ones.
The study aims to explore the main dynamics between exchange rates, gold price,
and inflation rate from a multivariate perspective covering the period 2009-2022
based on the Granger causality approach and the impulse response function testing
empirically the existence of the long-run relationship using Johansen multivariate
approach and the estimation of VAR/VECM model.
The unit root ADF and PP were tested to determine the order in which the
variables should be integrated. In addition, the presence of a long-run relationship
has been investigated by utilizing a VAR model to ascertain the lack of a serial
correlation in the residuals. The optimal lag length has been determined by applying
informational standards such as the AIC and the SCH.
If the analysis does not reveal the presence of a cointegration relationship, a VAR
model in difference needs to be estimated, and thus the Granger causality could offer
only the short-term perspective. If the variables exhibit a co-movement relationship,
that a cointegrated VAR model that considers an error correction mechanism will be
necessary. It is possible to witness long-run and short-run causalities inside a VECM
simultaneously. The ECM coefficients must be negative and statistically significant
in terms of the t-test to validate the existence of Granger causation over the long run.
The short-run Granger causality is validated when the lagged coefficients are jointly
825
statistically significant in terms of the Wald test or the F test. After the Granger
causality was established, generalized impulse response functions developed by
Pesaran and Shin (1998) were used to determine the impact of a shock in gold price
and inflation on the exchange rates.
5. Findings
The analysis has used the period 2009M01 2018M12 training period and
2019M01-2022M12 as test and forecast horizon periods.
Figure 1. The Evolution of Romanian exchange rates
Source: Own processing in EViews.
Analysing both exchange rates, the ascendant trend of the dollar-Ron exchange
rate can be highlighted, as well as the oscillating trend of the euro-Ron exchange
rate, even if characterized by several shocks.
In analysing the dynamic interdependencies between exchange rates, gold price
and inflation, the first step requires the analysis of the stationarity of each series to
test if all variables are integrated on the same order, and thus the cointegration could
be considered. The ADF test revealed that all series are I (1), being integrated in the
same order, and thus, the first condition from cointegration definition is
accomplished. Furthermore, the Johansen approach is applied within a VAR
framework to explore the existence of a long-run equilibrium relationship between
the variables. The empirical results of the Johansen approach (Table 1) revealed the
existence of a unique cointegration relationship at the 1% significance level. The
826
optimal lag length according to AIC and SBC was 1, for which the main hypotheses
on residuals and the stability condition have also been validated.
Table 1. The empirical results of Johansen’s approach
Unrestricted Cointegration Rank Test (Trace)
Hypothesized Trace 0.05

No. of CE(s) Eigenvalue Statistic Critical Value Prob.**
None * 0.263153 84.70693 63.87610 0.0003

At most 1 0.157618 41.03832 42.91525 0.0761
At most 2 0.063197 16.51077 25.87211 0.4522
At most 3 0.048939 7.175339 12.51798 0.3266
Unrestricted Cointegration Rank Test (Maximum Eigenvalue)
Hypothesized Max-Eigen 0.05

No. of CE(s) Eigenvalue Statistic Critical Value Prob.**
None * 0.263153 43.66861 32.11832 0.0013

At most 1 0.157618 24.52755 25.82321 0.0734
At most 2 0.063197 9.335430 19.38704 0.6895
At most 3 0.048939 7.175339 12.51798 0.3266
The existence of a long-run equilibrium being proved, a VECM model has been
estimated (Table 2). The empirical results pointed out a co-integration relationship
between the dollar-ron exchange rate, euro-ron exchange rate, gold price, and
inflation. The long-run equilibrium analysis revealed a negative and statistically
significant relationship between both exchange rates, while the gold price positively
impacted the euro-Ron exchange rate. The inflation pointed out a negative impact
which, however, suffers from the lack of statistical significance. The results have
also been confirmed by the study of Houcine et al. (2020), which found a long-run
relationship between the price of crude oil, the Euro Dollar Exchange Rate, and the
Gold Price pointing out the existence of a Granger causality moving from the Euro/
Dollar towards oil prices, highlighting that the variation in the exchange rate causes
changes in oil prices.
Therefore, the gold price and the dollar-ron exchange rate explain the long-term
changes in the euro-Ron exchange rate, given the statistical significance of the long-
run coefficients.
827
Table 2. The empirical results of the VECM model
Cointegrating Eq: CointEq1
EXCHANGE_R_EUR... 1.000000
EXCHANGE_R_DOLL... 0.234001
(0.05673)
[ 4.12487]
GOLD_PRICE(-1) -0.001489
(0.00049)
[-3.06253]
HCPI(-1) 0.008365
(0.00460)
[ 1.82042]
@TREND(09M01) -0.007278
(0.00106)
[-6.87264]
C -5.393013
Error Correction: D(EXCHA... D(EXCHA... D(GOLD_... D(HCPI)
CointEq1 -0.446061 -0.911832 -35.98342 -4.523664

(0.07172) (0.20610) (17.6915) (1.68435)
[-6.21988] [-4.42415] [-2.03393] [-2.68571]
D(EXCHANGE_R_EU... 0.039958 0.297893 10.37209 2.558213

(0.09449) (0.27156) (23.3105) (2.21931)
[ 0.42286] [ 1.09696] [ 0.44495] [ 1.15271]
D(EXCHANGE_R_DO... 0.024283 -0.118490 -0.176224 0.061702

(0.03061) (0.08797) (7.55096) (0.71890)
[ 0.79332] [-1.34698] [-0.02334] [ 0.08583]
D(GOLD_PRICE(-1)) -0.000197 -0.000135 -0.193060 -0.002515

(0.00039) (0.00112) (0.09574) (0.00912)
[-0.50801] [-0.12103] [-2.01641] [-0.27593]
D(HCPI(-1)) 0.001303 0.007456 1.479292 -0.208708

(0.00395) (0.01135) (0.97417) (0.09275)
[ 0.32996] [ 0.65700] [ 1.51851] [-2.25028]
C 0.004213 0.006936 0.949003 0.233234

(0.00485) (0.01394) (1.19628) (0.11389)
[ 0.86871] [ 0.49772] [ 0.79330] [ 2.04782]
R-squared 0.257018 0.176151 0.062013 0.099630

Adj. R-squared 0.229902 0.146083 0.027780 0.066770
Sum sq. resids 0.450690 3.722401 27427.41 248.6095
S.E. equation 0.057356 0.164836 14.14921 1.347096
F-statistic 9.478431 5.858517 1.811493 3.031934
Log likelihood 208.9189 57.95781 -578.7446 -242.4505
Akaike AIC -2.838027 -0.726683 8.178247 3.474832
Schwarz SC -2.713711 -0.602367 8.302562 3.599147
Mean dependent 0.004581 0.008852 1.056069 0.202448
S.D. dependent 0.065359 0.178379 14.34993 1.394454
The statistical significance of the four error correction terms and the negative sign
confirmed the existence of a long-run Granger causality between the four variables
within the model.
828
Table 3. The empirical results of Granger causality
Dependent variable: D(EXCHANGE_R_EURO_RON)
Excluded Chi-sq df Prob.
D(EXCHANGE_R_D... 0.629349 1 0.4276

D(GOLD_PRICE) 0.258079 1 0.6114
D(HCPI) 0.108872 1 0.7414
All 0.773039 3 0.8559
Dependent variable: D(EXCHANGE_R_DOLLAR_RON)
D(EXCHANGE_R_E... 1.203317 1 0.2727

D(GOLD_PRICE) 0.014649 1 0.9037
D(HCPI) 0.431646 1 0.5112
All 2.447453 3 0.4849
Dependent variable: D(GOLD_PRICE)
D(EXCHANGE_R_E... 0.197984 1 0.6564

D(EXCHANGE_R_D... 0.000545 1 0.9814
D(HCPI) 2.305870 1 0.1289
All 3.069720 3 0.3810
Dependent variable: D(HCPI)
D(EXCHANGE_R_E... 1.328733 1 0.2490

D(EXCHANGE_R_D... 0.007366 1 0.9316
D(GOLD_PRICE) 0.076137 1 0.7826
All 1.414063 3 0.7022
829
Figure 2. The effect of a shock in gold price and inflation on the exchange rates
Particularly in the case of the euro-Ron exchange rate, the ECTt-1 value of
–0.44 highlighted that the deviation from the long-term equilibrium is restored by
44% each month (Table 2). The Granger causality test pointed out a long-run causal
relationship between the dollar-Ron exchange rate, gold price, and inflation to the
euro-Ron exchange rate.
However, in the short-run, the Granger causality test (Table 3) revealed that lack
of causality relationships between all variables analysed within the model, given the
high probabilities of the test.
Therefore, the relationship happened only on a long-term one. It can be revealed
that a long-term equilibrium relationship exists between the euro-Ron exchange rate,
dollar-Ron exchange rate, and gold price. Thus, changes in the dollar-Ron exchange
rate and gold price are leading to changes in the euro-Ron exchange rate. The effect
of a positive shock on the gold price revealed by the impulse response function
(Figure 3) reflected a positive impact on both exchange rates.
Figure 3. Forecasts of both exchange rates for 2021-2022
830
Analysing the forecasts provided by the model, it can be highlighted that at the
end of this year, the dollar-Ron exchange rate will register the value of 4.31 Ron,
while the exchange rate for the euro will be at the value of 5.00 Ron.
6. Conclusions
The paper investigated the relationship between euro/dollar-Ron exchange rates,
gold price, and inflation for the Romanian economy using monthly data covering the
period 2009M01-2022M12.
The empirical results pointed out a long-run relationship between exchange rates,
gold price, and inflation and denied any short-term relationship. Also, the Granger
causality test highlighted a long-run causality between all four variables in the
model. The impulse response function pointed out that changes in the dollar-ron
exchange rate and gold price lead to changes in the euro-ron exchange rate.
The central forecast results pointed out the value of 4.31 for dollar Ron exchange
rate and 5.00 for euro-ron exchange rate at the end of 2022.
As future research directions, the analysis can be extended to the level of
European Union based on VAR or VECM models using panel data.
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834

June 16-17, 2022
Human Capital or Human Beings? Analysis of Added Value

and Employee Efficiency
between SME’s and Large Companies
Dragoș Gabriel ION 1
DOI: 10.24789788367405072-078
Abstract
The aim of this research is to illustrate the differences in perception of human capital
within companies in the sector of commercializing construction materials. The analysis
focuses on the differences between SME’s and large companies that activate in the same
industry and within a similar cultural and geographic context. For the results to be valid, we
have analyzed the productivity of human capital within 1.100 companies for a period of eight
consecutive years. The companies activate under the same geo-political terms and are evenly
distributed within the territory of Romania. In total, we have 8.800 observations collected
annually (2010-2018), represented by two variables: number of employees and turnover of
the company. Using a density-based spatial clustering of applications with noise algorithm
also known as DBSCAN, we have managed to identify five subgroups that are not
homogeneous in terms of employee productivity. Our findings suggest that the indicator
analyzed could vary by more than 100% and it is size dependable.
Keywords: human capital; productivity; added value of employees, workforce,

labour.
JEL Classification: J24.
1. Introduction
Traditional research is based on the analysis of human capital as a factor of
production and investment in non-material assets. The problems of training and
efficient use of people's productive qualities have been studied within the framework
of human capital theory. The approach to human productive capacities as a result of
investments, the accumulation of skills capable of bringing income have been
reflected in the works of scholars: W. Petty, A. Smith, D. Ricardo, J. Mill, K. Marx,
F. List, L. Walras, A. Marshall, etc. In our view, the notion of human capital is
conditioned by the emergence and development of interaction between production
and consumption, and, moreover, the metric proposed is based on a quantitative
1 Bucharest University of Economic Studies, Bucharest, Romania, [email protected]
© 2022 D.G. Ion, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0 License.
measure that evaluates the efficiency of human capital. These values are determined
by analysing the financial results of a company in close relationship to the size of the
company and the efficiency of human capital. The proposed measured human
productivity is calculated as total turnover of a company over the number of
employees. Using this technique, we have obtained an “average employee turnover”
according to company size.
The aim of the paper is the in-depth investigation of the methodological theory
of human capital and its role in the process of formation of the commerce economy
of Romania. We are trying to demonstrate the importance of human capital in the
process of added value and hence the necessity of developing the innovative
economy through analysis of human capital efficiency.
In order to achieve the purpose of the research, the following questions
were proposed:
a. What is the productive capacity of an individual from a financial perspective in
the given sector (commercializing construction materials)?
b. Are there any differences between productive capacity of individuals according
to company size?
Our findings suggests that the employee efficiency of companies that activates in
the same industry and within similar cultural and geographic context (Romania)
could vary by more than 100% and it is dependable in size. Using DBSCAN, we
have managed to identify five subgroups that are not homogeneous in terms of
employee productivity. This may suggest that according to company size, there could
be entry barriers and technological advancements that can be translated into
improved employee productivity.
Although many avenues of research opened up by human capital theory is the
"capability approach", which is an application of human capital theory, but which is
not limited to addressing the problem exclusively through the labour market,
but includes the analysis of individuals' access possibilities in other markets,
such as the housing and health care markets, the issue with the human capital theory
is that it focuses mostly on the inputs included in developing human capital
(e.g., The Organization for Economic Cooperation and Development OECD, (1998)
defines human capital as "... productive resources concentrated education, skills,
competencies, and knowledge" or "... human competences and skills generated by
investment in education and health".), but fails to measure the output of an
individual. Because a society is composed of large numbers of individuals that
activate under the same conditions, the GDP per capita offers a decent metric in
regard to economic development of a society, but the result is homogenised over the
industries. The metric that we have proposed looks at one industry and analyses
differences of human capital in closed relation to company size.
Aggregate human capital at the national level has been used in particular
to characterize the level of development of a country or to explain its economic
growth (Robu, Anghel, Șerban, 2014). Poverty can lead to the degradation
of the quality of human capital, thus the need for development. Some academics
(Hackman, 1999) regard human capital as a means of preventing impoverishment
836
by making education systems more efficient but especially by investing in

lifelong learning.
Specialists addressing the issue of economic growth and development agree with
the idea of that as soon as a certain level of human capital accumulation is reached,
it becomes more productive, correlating positively with growth in employment rates.
The issue of investment in human capital concerns today all countries competing
for progress and welfare, but even more so in emerging economies. Human capital
emerges as a complementary factor to other factors of economic growth (Mankiw,
Romer, Weil, 1992; Romer, 1986). Investment in human capital, i.e., education,
training, and health, is aimed firstly at the professional-scientific training of available
human resources and, secondly, on adapting to the structural changes in the economy
brought by scientific and technical progress, based on efficiency criteria.
Human capital development strategies focus on the size of capital resources and
operational needs of the national economy and on ensuring that human resources use
these resources efficiently. They will contribute to the formulation of development
strategies by determining future human capital requirements and identifying ways
of the best use of this capital, whereby available human capital will support the
implementation of economic development plans. But it should be stressed that
there are certain restrictive limits in the use of human capital, such as shortage of
qualified personnel, difficulties of labour force, low labour productivity, flexibility
and adaptability of the labour force, and insufficient flexibility and adaptability,
or a work climate that discourages cooperation and personal commitment.
2. Context
The concept of human capital was theoretically founded in the 1960s by the
American economist Th. Schultz and G. Becker (Nobel Prize winners in economics:
the former in 1979, the latter in 1992). They showed that spending to increase an
individual's education increases his or her productivity and hence future income -
hence the term "human capital".
In the current literature, there are many definitions of this concept. According
to the definition in official OECD publications, human capital is "the sum of
knowledge, skills, competencies, and individual characteristics that facilitate the
creation of personal, social, and economic well-being".
An important application of the concept of human capital is to deepen the
analysis of economic growth. Thus, economic growth theory was initially based on
a quantitative approach to the role of labour. For example, in economic growth
models based on the Cobb-Douglas production function, the factors capital and
labour have an elasticity of substitution equal to 1 (to achieve the same volume of
output, a 1% reduction in capital must be compensated by a 1% increase in labour).
In these models, labour is considered a homogeneous factor of production;
it depends on the number of the working population and on people's behaviour
(creativity, performance, etc.), but it influences the rate of economic growth only
marginally, since workers are mostly unskilled and therefore only have a role
as undifferentiated labour.
837
The use of the Cobb-Douglas function in empirical investigations of economic

growth has made it possible to measure the relative action of capital and labour on
the volume of total output. However, this tool has proved insufficient to explain the
high rate of economic growth in Western countries in the early post-World War II
years and continued into the 1950s. As a result, some economists began to point out
the limitations of this approach. For example, Solow (1956) (winner of the 1987
Nobel Prize for economics) introduced a third factor into the Cobb-Douglas function,
namely the "residual factor", determined by technical progress, scientific knowledge,
the creative capacity of people, etc. This is therefore an "endogenous" factor in
relation to the economic growth process, but it incorporates a number of "exogenous"
elements which are likely to increase the effectiveness of production processes. In
this way, a qualitative approach to the labour factor has been prefigured.
Today, this qualitative approach is predominant in the literature because it
allows the role of internal conditions of economic growth to be highlighted.
Often referred to as "technical progress", the residual factor reflects the importance
– in contemporary economies – of scientific knowledge and technical and
organizational innovations, which increase the efficiency of using other factors
of production, primarily labour productivity. Therefore, theoretical analyses and
empirical studies of technical progress have helped to clarify the role of human
capital in economic growth.
The idea that education is not an investment to increase human capital, but a
means to create positive externalities in society, was put forward by M. Spence, who
is one of the main promoters of the application of what is called "signal theory" in
the study of education. According to this theory, education is not only to increase the
productivity of individuals but primarily to select the most productive individuals.
The social usefulness of an education system which, although costly, does not
increase labour productivity can therefore be questioned.
The 'capability approach' is a scientific approach primarily in terms of individual
benefits. These advantages are manifested in the capacity of human beings to do
many things that are considered important for life. Sen's work thus places at
the heart of the economic development process the growth of the individual's
capabilities: a set of real freedoms that enable him to use his personal endowments
and control his life. In doing so, the scholar (winner of the 1998 Nobel Prize in
Economics) takes into account, in addition to pecuniary wealth, all possibilities –
economic, social and political opportunities offered to individuals by the society in
which they live, opportunities that are directly linked to their health, their level of
education, their life expectancy, and the possibility of making their voice heard in
local and national debates.
Schultz proposes a way of measuring human capital that takes into account
variables likely to improve those attributes of individuals that are likely to lead to
higher wages in the labour market: infrastructure and health services, which
influence the life expectancy and vitality of individuals; vocational training
(including on-the-job apprenticeships) organized by enterprises; the education
838
system (from primary schools to universities); adult education and training programs
organized outside enterprises; migration of individuals and families to find work.
Schultz (1959) concluded that this scarce resource, human capital, must be
developed by appropriate means. This confirms Acemoglu (2012) and Acemoglu,
Robinson (2019) perspective that countries emerge from poverty if and only if they
have adequate economic institutions.
An important contribution of Becker (1964) is the distinction he makes
between general human capital and firm-specific capital. General training, which is
carried out in the public education system, determines the level of productivity of
individuals in all the firms in which they will work, because it is closely linked
to the individual worker and can be exploited by him or her in the whole labour
market (domestic or international).
Businesses are therefore little interested in bearing the costs involved in an
individual's general training, as the individual may well use his or her knowledge in
another business, which is prepared to pay better. The firm in question may be
interested in financing such specialist training because its managers believe
that they have a reasonable chance of getting a return on their investment: the wages
they will pay the worker after the end of his training period will be higher than
the wages of workers in other firms, which gives the worker an incentive to stay
with the firm that trained him. However, this wage will still be lower than the amount
of the production bonus obtained by the company as a result of the worker's increased
skills. The difference between the value of the additional production achieved by
the worker and the wage paid to him represents the return on the investment made
by the undertaking in his training.
An important feature of advanced economies is the self-sustaining nature of
economic growth. This puzzling phenomenon can be better understood using the
conceptual and analytical apparatus provided by human capital theory, which, as we
have shown, allows technical progress to be treated as an endogenous factor of
economic growth. Indeed, technical progress and innovations (as measured by
overall factor productivity) are the creations of scientists, researchers, engineers, etc.,
trained through investment in human capital.
3. Research Methods / Questions

The approach we have used aims to illustrate the differences in perception of
human capital within companies in the sector of commercializing construction
materials.
The analysis focuses on the differences between SME’s and large companies that
activates in the same industry and within similar cultural and geographic context.
For the results to be valid, using the software termene.ro, we have analysed the
productivity of human capital within 1.100 companies for a period of eight
consecutive years (2010-2018). The companies activate under the same geo-political
terms and are evenly distributed within the territory of Romania. In total we have
8.800 observations collected annually, represented by two variables: the number of
employees and turnover of the company. We have used a density-based spatial
839
clustering of applications with a noise algorithm, also known as DBSCAN, with the
help of Python.
The DBSCAN algorithm can identify clusters in large spatial data sets by looking
at the local density of database elements, suggesting one core parameter. The
DBSCAN can also determine what information should be classified as noise or
outliers. By using the density distribution of nodes in the database, DBSCAN can
categorize these nodes into separate clusters that define the different classes.
Compared to other clustering algorithms, DBSCAN can find clusters of arbitrary
shape, as can be seen in Figure 1.
Figure 1. Comparing 10 clustering algorithms on dummy datasets
Source: https://scikit-learn.org/.
Its computing process is composed on six rules or definitions, creating

two lemmas:
Definition 1: (The Eps-neighborhood of a point) For a point to belong to a cluster
it needs to have at least one other point that lies closer to it than the distance Eps.
NEps(p) = {q ϵ D|dist(p,q)<Eps}
Definition 2: (Directly density-reachable) There are two kinds of points
belonging to a cluster; there are border points and core points.
Definition 3: (Density-reachable) A point p is density-reachable from a point q
with respect to Eps and MinPts if there is a chain of points p1…,pn, p1=q, pn=p such
that pi+1 is directly density-reachable from pi.
Definition 4: (Density-connected) A point p is density-connected to a point q with
respect to Eps and MinPts if there is a point o such that both, p and q are density-
reachable from o with respect to Eps and MinPts.
840
Definition 5: (Cluster) If point p is a part of a cluster C and point q is density-

reachable from point p with respect to a given distance and a minimum number of
points within that distance, then q is also a part of cluster C.
Definition 6: (Noise) Noise is the set of points, in the database, that don’t belong
to any of the clusters.
Lemma 1: A cluster can be formed from any of its core points and will always
have the same shape.
Lemma 2: Let p be a core point in cluster C with a given minimum distance (Eps)
and a minimum number of points within that distance (MinPts). If the set O is
density-reachable from p with respect to the same Eps and MinPts, then C is equal
to the set O.
Inputs: Turnover for a period of one year; average number of employees for
one year.
Outputs: Employee productivity (employee turnover) compared to company size
(number of employees).
4. Analysis of Employee Productivity

In the graph below, we have illustrated a scatter plot for companies that have
between 50 and 3050 employees. On the X axis is represented the average number
of employees and on the Y axis is represented the average employee productivity
obtained by dividing the yearly turnover to average number of employees for each
company, for a period of eight consecutive years (2010-2018). Using this method,
we can have a holistic image of the variation of employee productivity in relation to
company size.
Figure 2. Average employee productivity for large companies
Source: Personal research and analysis.
For the companies that have between 50 and 3050 employees we can distinguish
three groups using DBSCAN.
841
The first cluster, which is represented by the majority, is composed of companies

that have between 50 and 500 employees. Within this cluster, the median value of
employee productivity is 91k EUR/year.
The second cluster is represented by companies that have between 500 and
1500 employees. Within this group, the median employee productivity is
78k EUR/year; however, due to a reduced number of companies that meet the criteria
of the above-mentioned cluster, our findings suggest that there could be a penetration
barrier that requires a different business approach. The third cluster is represented
by the companies that have between 1500 and 3000 employees. Within this cluster,
the median value of employee productivity is 118k EUR/year.
In the graph below is illustrated a scatter plot for companies that have between
0 and 50 employees. On the X axis is represented the average number of employees
and on the Y axis is represented the average employee productivity obtained by
dividing the yearly turnover to average number of employees for each company,
for a period of eight consecutive years (2010-2018). Using this method, we can
have a holistic image of the variation of employee productivity in relation to
company size.
Figure 3. Average employee productivity for SME's
For the companies that have up to 10 employees, the average productivity has
a descending trend ranging from 560k EUR to 116k EUR with a median value of
184k EUR/year. This is an overall 84% increase in employee productivity in
comparison to the companies that have between 10 and 50 employees. In other
words, our findings suggest that there could be an exogenous effort led by the owner
of the company that is translated in increased overall employee productivity.
However, as the company size exceeds 10 employees, the overall productivity ranges
from 72k EUR to 128k EUR with a median value of 100k EUR/year. In this scenario,
we can observe that the effort input of the owner is homogenized due to the increased
number of employees. For this reason, we can consider this indicator a representative
one for SME’s activating in this industry.
842
5. Findings
In order to fulfil the purpose of the research, we have answered the following
questions that have been proposed:
a. What is the productive capacity of an individual from a financial perspective in
the given sector (commercializing construction materials)?
b. Are there any differences between productive capacity of individuals according to
company size?
Our findings suggest that there is a large disequilibrium within a homogeneous
industry according to employee productivity. Due to exogeneous factors, the
discrepancy within the same context measured by quantitative indicators varies by
more than 100%. Within the first group (0-10 employees), the median employee
productivity is 56% larger compared to the fifth group (1500-3000 employees). This
result was unexpected, but could be translated in a surplus of effort led mostly by the
owner, or some type of embezzlement for unreported employment. This could be a
common practice for small companies that activate in an emerging economy.
The second group (10-50 employees) has a median employee productivity
of 100k EUR/year. Within this group, the overall productivity of employees is
9% larger than the third group (50-100 employees), and 28% larger than the fourth
group (500-1500 employees). However, when we compare it to the fifth group
(1500-3000 employees) the representative value for SME’s is 18% lower than the
employee productivity of large companies.
Figure 4. Employee productivity according to company size
Our findings suggests that the indicator analysed of companies that activate
in the same industry and within similar cultural and geographic context could vary
by more than 100% and it is size dependable. Using DBSCAN, we have managed
to identify five subgroups that are not homogeneous in terms of employee
productivity. This may suggest that according to company size, there could be entry
barriers and technological advancements that can be translated into improved
employee productivity.
843
6. Conclusions
The conclusion that emerges from this research is that within the same industry,
within similar cultural and geographic context, the human capital is exploited
differently, contrary to previous beliefs. Thus, analysing an industry as a
homogenous group could result in misleading indicators. Our findings suggest
that small companies (< 10 employees) tend to have better metrics, in our case,
the median employee productivity is 56% larger compared to the fifth group
(1500-3000 employees). This result was unexpected, but could be translated in a
surplus of effort led mostly by the owner, or some type of embezzlement for
unreported employment. This could be a common practice for small companies that
activates in an emerging economy.
For this reason, when an industry analysis is performed, our recommendation
for further studies is to pay adequate consideration at the number of employees of
that specific group of companies and see if they illustrate aberrant values in
comparison to the other groups.
“Through this prism, education is not just a means to other ends (income,
pleasure, prestige, etc.), but an end in itself, whose multiple ethical and social
dimensions stem from the fact that it enables human beings to be free, to grow and
evolve as a species.”
References
[1] Acemoglu, D., Robinson, J. (2019). De ce eșuează națiunile. Originile puterii, ale
prosperității și ale sărăciei, București, Editura Litera [Why Nations Fail. The origins of
power, prosperity and poverty, Bucharest, Litera Publishing House].
[2] Acemoglu, D. (2012). Introduction to economic growth, Journal of Economic Theory,
147(2), pp. 545-550.
[3] Becker, G. (1964). Human Capital. A Theoretical and Empirical Analysis, New York,
Columbia University Press for the National Bureau of Economic Research.
[4] https://scikit-learn.org.
[5] Mankiw, G., Romer, D., Weil, D. (1992). A contribution to the empirics of economic
growth, quarterly, Journal of Economics, 107.
[6] OECD (1998). L’investissement dans le capital humain, p. 9, Du bien-être des nations, le
rôle du capital humain et social, 2001, p. 18.
[7] Romer, P. (1986). Increasing Returns and Long-Run Growth, Journal of Political
Economy, 94(5), pp. 1002-1037.
[8] Solow, R. (1956). A Contribution to the Theory of Economic Growth, Quarterly Journal
of Economics, 70(1), pp. 65-94.
[9] Schultz, T. (1959). Investment in Man: an Economist’s View, Social Service Review, 33.
[10] Robu, V., Anghel, I., Șerban, E.C. (2014). Analiza economico-financiară a firmei, Editura
Economică, Bucureşti [Economic and financial analysis of the company, Economic
Publishing House, Bucharest].
844

June 16-17, 2022
On the Potential of Google’s “Popular times” Data

in Epidemiology
Eduard C. MILEA1*, Marian NECULA2, Maria-Magdalena ROȘU3
DOI: 10.24789788367405072-079
Abstract
Human interaction and mobility patterns are one of the key factors in modeling and
controlling epidemiological outbreaks, seen with the ongoing SARS-COV2 pandemic. Most
public health policies, adopted over the past two years, were designed to contain virus
transmission by imposing restrictions on human mobility and interactions.
We provide a test case scenario of using crowdsourced data from Google’s “Popular
times” graph available on Google Maps for various points of interest present there. We posit
that the data available in this graph can be used as a proxy for both human mobility and
human interactions, and at a more granular level, could be used to evaluate the current
epidemiological situation and assess the impact of the ongoing public health restrictions. The
data collected during our study period was then plotted as a heatmap overlaid atop
OpenStreetMaps for ease of visualization.
The dataset is comprised of a randomly stratified sample of restaurants, bars, and clubs
in Bucharest, for which we collected the daily rates “busyness” for each of the points of
interest in the sample. For hypothesis testing, we employed several classification
algorithms/models to assess Google’s “Popular times” statistical strength in predicting
current epidemiological status and public health policy effects.
Keywords: COVID-19 transmission, crowd-generated data, epidemiology, human

mobility, social interactions.
JEL Classification: C22, C53, I10, I12.
1. Introduction
The COVID-19 pandemic brought forth by SARS-CoV-2 came with many
disruptions to our modern life style, and while the pandemic potential of

© 2022 E.C. Milea, M. Necula, M.-M. Roșu, published by Sciendo. This work is licensed under the Creative
coronaviruses coupled with habitat disruptions were discussed by scientists for many
years, the world as a whole was still taken by surprise.
The main public health policies adopted by governments around the world,
consisted of lockdowns and severe mobility restrictions for various periods across
the early phases of the pandemic. These policies were estimated to have saved
millions of lives by curbing the viral spread and keeping the hospitals from being
overloaded. However, with more knowledge about the virus being obtained, nations
moved away from lockdowns to other non-pharmaceutical interventions (NPI), and
with vaccines and better treatment protocols becoming available, blanket restrictions
were mostly lifted.
In Romania, the initial lockdown and early policies proved to be highly
successful, with the moving average 7 days (MA7) cases before the lockdown was
lifted on May 14th, 2020, being 250, and death MA7 at around 23. However, as the
lockdown was lifted, cases MA7 jumped to ~1200 by the end of August, 2020, with
the death MA7 being at around 45, continuing to increase at an accelerated rate once
more restrictions were lifted globally and people interacted more.
Previous research, on other diseases with a respiratory component to them, has
shown that mobility and human interaction patterns correlate well with disease
transmission (Findlater, Bogoch, 2018), thus it was expected that NPIs will help
reduce the spread; however, exact causality of NPIs is hard to establish within a
population due to the myriad of host intrinsic and extrinsic factors affecting disease
transmission, especially respiratory ones.
Existing literature describes the role human social interactions have in viral
transmission dynamics, especially for respiratory diseases (Leung, 2021; Buckee,
Noor, Sattenspiel, 2021; Cauchemez et al., 2011). Typical models used in
epidemiology are based on SIR (Hethcote, 1989), and other derivatives, wherein
they typically forecast growth based on certain disease/pathogen characteristics,
such as R0 (i.e. how infectious a disease is), how large the susceptible (S) population
is, how many people were already infected (I), and how many recovered (R) and
assumed to be completely immune afterwards.
These models were developed to be used in small isolated populations with the
specific assumptions of a constant population size and homogeneity in interactions
between the individuals of said populations.
Our approach, while also focusing on local populations, uses Google’s Popular
Times data to explain and potentially forecast the local daily cases. Popular Times is
a Google Maps feature which reports historical averages for each hour of each day
of the week, in addition to this, it also reports, where available, the “live busyness”
value of venues. This live value is determined based on Android’s built-in location
sharing (Google, 2020). Because the data is aggregated on a temporal basis from
local devices, it is able to act as a proxy for local social interaction patterns.
846
We know from the existing literature that the incubation period of SARS-CoV-2
fluctuates to some degree between populations (due to intrinsic and extrinsic host
factors), as well as between circulating variants, with the median value ranging
between 3-7 days after contact until symptom onset, for both Omicron and Delta
variants (Del Águila-Mejía et al., 2022; Mefsin et al., 2022; Zhang et al., 2021). In
addition to this lag interval, there exists also a human and bureaucratic lag interval.
The human one stems from the time the symptomatic person decides to get tested,
be it because they recognized their symptoms as being related to COVID-19, or
because they were required to get tested. The other lag stems from how long the test
result takes to come back to the person, and be officially counted in the national
statistics. This second, bureaucratic, lag interval will fluctuate depending on the local
epidemiological situation and the backlog of testing sites and authorities.
Thus, in order to assess the predictive power of our indicator, we first had to
approximate the local bureaucratic lag, and use it to estimate approximate interval
between a potential exposure event and being registered in the official statistics.
4. Research Methods
4.1 Data Sources
Venue lists
We compiled a list of popular venues in Bucharest from various websites
(e.g., TripAdvisor, Metropotam), from which we kept only ones that had any sort
of rating or review. The resulting list was then fed through a Python script to gather
and append to each of the venues their peak popular hour for each day of the week,
while dropping venues which had no available Popular Times data for the full week.
Our final list contained a total of 63 venues, which was then fed through a Python
script to gather and add to each of the venues their peak popular hour for each day
of the week.
Table 1. Venue type distribution per Google’s data
Venue type
Beer 27
Restaurant 25
Bar 10
Clubs 1
Source: Authors’ own work.
COVID-19 data
We used the reports made available on the official coronavirus-related
government websites “datelazi.ro” and “stirioficiale.ro”. We built 2 datasets from
these sources, one containing daily SARS-CoV-2 infections in Bucharest, and one
847
containing total daily tests, accounting for our study period, from February 10th,
2022 to February 26th.
Popular Times
Since this data is not publicly exposed in Google’s Maps API, nor any
other public API made available by Google, we employed two different methods
for redundancy.
The first method was to build a Selenium scraper that would run daily and visit
each of the venues on the list at their peak hour to scrape the “busyness” value, and
two hours after the curfew started. This method, however, requires supervision
as Google sometimes detects unusual actions and requires a captcha puzzle to
be solved.
The second method involved using a third-party platform (i.e., besttime.app)
which makes available via API their services to obtain the required popular times
data without the issues of the previous method. The dataset obtained from both
methods was congruent.
4.2 Data Analysis

To analyse the correlation between human mobility and new COVID-19 cases,
we need to account for the lag between first coming into contact with the virus, and
when the case is officially recorded in the public data. This lag will consist of the
incubation period and the bureaucratic lag.
In order to approximate what the bureaucratic lag was during February, the month
of our study period, we fitted the number of daily tests and cases from Bucharest, to
a linear regression, and selected the lag which best fit our data, which was 4 days.
For analysing the correlation between our mobility indicators and new daily cases
in Bucharest, we offset the data from our dates by the median incubation period
(5 days median of 3-7 range) and the bureaucratic lag (4 days), thus 9 days.
5. Findings
5.1 Busyness and dwell time values

Figure 1 presents the aggregated busyness and dwell time values across our
study period. Dwell time represents how much time people spend in a location. The
first dip is on Tuesday, February 15 th, while the second is one is on Monday,
February 21th.
848
Figure 1. Busyness and dwell times
It is reasonable to assume a cyclicity in busyness trends based on days of the

week, with Monday being the lowest, barring any significant events such as February
14th which seems to have pushed the busyness higher than on February 21 th in.
Figure 2. Busyness across day of the week
849
In Figure 2, we look at the aggregated data for days of the week, where we see
that Monday is indeed the lowest. As expected, Thursday to Sunday shows a peak,
reflecting social interaction patterns.
It is also possible that the increased number of observations in this timeframe is
from a number of venues which are not open for the full week.
5.2 Daily tests versus new cases in Bucharest

Figure 3 shows the test-case relationship during the month of our study, whereas
Table 2 presents the result of the regression where 4 days offset between test date
and the official case count was used. With an adjusted R-squared value of 0.8876,
the model has a good fit within the time period analysed and with the offset used.
Figure 3. Tests versus cases
Table 2. Test vs cases regression statistics

Adj. R F Ratio P Value
R Squared RMSE
Squared
0.915714260 0.887619014 4,061.26678129 32.5932098161 0.0106
850
5.3 Effect of busyness and dwell time on cases

We fitted the busyness value and dwell times on a linear regression versus cases.
Table 3 presents the power of the model.
Table 3. Busyness and dwell time vs cases regression statistics

R Squared RMSE
Squared
0.584231011 0.514936179 562.94886967 8.4310907369 0.0051
Source: Authors’ own work
Figure 4 shows how the same variables, when used in Facebook’s time series
Prophet forecasting procedure, is able to predict accurately the daily cases in
Bucharest. Table 4 presents the summary of the model, with a mean absolute
percentage error of 20%, the model is considered good.
Figure 4. Prophet forecasting model
Source: Authors’ own work
Table 4. Prophet summary

RMSE MAE MAPE
473.6198 358.4501 0.2055
From an epidemiological standpoint, the more time someone spends in a location,

the bigger the increase in risk of acquiring an infection. Thus, if someone spends
more time in an already busy location, we expect that fitting busyness x dwell time
(named abs_index in our data) as a factor to increase the fit of the model, which is
confirmed in Table 5.
851
Table 5. abs_index regression statistics

R Squared RMSE
Squared
0.631954504 0.603643312 529.65570998 22.321720127 0.0003
Testing the abs_index, along with the standalone values, using Spearman's rank
correlation, we obtain the results presented in Table 6 and Figure 5. These results
show how intertwined human behaviour is in cases, as they are in a perpetual
feedback loop. As cases go up, people self-correct their behaviour and start avoiding
busy places, thus causing venue busyness and dwell times go down. But as they go
down and cases peak and start falling, people start to go out more.
Table 6. abs_index correlation statistics

Correlation P Value ρ (rho) Value
abs_index live_busyness 0.81785714 0.0002971 102
abs_index dwell_time_avg 0.57857143 0.02636913 236
live_busyness dwell_time_avg 0.09642857 0.73373753 506
live_busyness cases -0.4892857 0.06659231 834
dwell_time_avg cases -0.5678571 0.02980447 878
abs_index cases -0.7285714 0.00292671 968
Figure 5. abs_index correlation graphic
852
5.4 Venue activity before and after curfew

During the period of our study, in Romania several restrictions were in place, one
of them being a 10 PM curfew time for public places.
Figure 6a. Activity before curfew
As per our collected data, Figure 6a shows the aggregated activity of 63 venues,
before the closing time imposed by the 10 PM curfew.
Figure 6b. Activity after curfew
853
After curfew, 23 venues still present activity at 23:59 when the snapshot
was taken.
6. Conclusions
Our approach shows the potential to explain, at least in the short term, the
evolution of local daily cases. An advantage to this approach is that, in essence,
the indicators are based on crowd-generated data, which is publicly available for
anyone to scrape and use.
With only 2 indicators, that of venue busyness and time spent by patrons, our
model is able to explain the change in cases, and because the indicators
dynamically reflect human interaction and mobility patterns, a live forecast model
can be deployed to make predictions based on them with decent accuracy and
few resources.
An unexpected result of our approach comes from also being able to track
adhesion to public health policies, specifically the one imposing a curfew for
venues. With a decent number of venues still having live traffic after the curfew
hour, it could potentially reflect the mistrust people have in the measures
implemented by the authorities, which in a pandemic situation proposes both
health and governmental challenges.
Moreover, the two challenges are strongly connected with a governmental crisis
leading to inefficacy to manage public health. As such, mistrust in government
authority is associated with misperceptions concerning the threat proposed by
COVID-19 (Jennings et al., 2021). Extant literature underlines mistrust in authority
as the main factor leading to vaccine hesitancy (Hudson, Montelpare, 2021), low
engagement in safety behaviours (Blair et al., 2021), and refusing assumed
responsibilities such as lockdown measures (Hilhorst, Mena, 2021). As health crises
such as COVID-19 surprise in various ways, the public needs to combat the
generalized sense of uncertainty with the trust that ministers adequately respond to
ambiguous situations (Boin, 2008). In turn, policymakers need to trust the public to
implement the measures targeted at reducing the virus spread (Ahern, Loh, 2021).
With problems arising in rapid succession, this type of reciprocal trust can only be
guaranteed by consistent evidence. Studies suggest that, indeed, controversies should
be addressed through thought through crisis communication, responsible journalism,
and rumours dispelled (Yu, Lasco, and David, 2021; Jacob et al., 2021). Finally,
effective crisis management based on public trust is crucial not only for society as a
whole but also for individual well-being and mental comfort with stress, depression,
and anxiety steadily increasing across the globe due to the outbreak of COVID-19
(Bawankule et al., 2020).
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sustaining trust in times of uncertainty, BMJ Leader, 5(4), doi:10.1136/leader-2020-
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[2] Bawankule, S., Khatib, M.N., Quazi Syed, Z., Gaidhane, A., Telrandhe, S.,
Godhiwala, P. (2020). Depression, Anxiety and Stress among the general population in
the time of COVID-19 lockdown: A cross-sectional study protocol, International Journal
of Research in Pharmaceutical Sciences, 11, pp. 360-364, doi:10.26452/ijrps.v11iSPL1.
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[3] Blair, R.I., Kaur, N.A., Oriaku, I., Levsky, S., Gans, K., Patterson, F., Crowley, J.P.,
Satti, A. (2021). Is Trust in Medical and Public Authorities and the Media Associated
with COVID-19 Related Stress, Perceptions, Safety Behaviors, Inflammatory Biomarkers
and Sleep Quality Among Black Adults? In: TP11. TP011 use of health services and
medical education research to evaluate the effect of COVID-19, American Thoracic
Society International Conference Abstracts, American Thoracic Society, pp. A1495-
A1495, doi:10.1164/ajrccm-conference.2021.203.1_MeetingAbstracts.A1495.
[4] Boin, A. (2008). Governing after Crisis: The Politics of Investigation, Accountability and
Learning. Cambridge, Cambridge University Press, doi:10.1017/CBO9780511756122.
[5] Buckee, C., Noor, A., Sattenspiel, L. (2021) Thinking clearly about social aspects of
infectious disease transmission, Nature, 595(7866), pp. 205-213, doi:10.1038/s41586-
021-03694-x.
[6] Cauchemez, S., Bhattarai, A., Marchbanks, T.L., Fagan, R.P., Ostroff, S., Ferguson,
N.M., Swerdlow, D., the Pennsylvania H1N1 working group, Sodha, S.V., Moll, M.E.,
Angulo, F.J., Palekar, R., Archer, W.R., Finelli, L. (2011). Role of social networks in
shaping disease transmission during a community outbreak of 2009 H1N1 pandemic
influenza, Proceedings of the National Academy of Sciences, 108(7), pp. 2825-2830,
doi:10.1073/pnas.1008895108.
[7] Del Águila-Mejía, J., Wallmann, R., Calvo-Montes, J., Rodríguez-Lozano, J., Valle-
Madrazo, T., Aginagalde-Llorente, A. (2022). Secondary Attack Rate, Transmission and
Incubation Periods, and Serial Interval of SARS-CoV-2 Omicron Variant, Spain.
Emerging Infectious Diseases, 28(6), pp. 1224-1228, doi:10.3201/eid2806.220158.
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[11] Hilhorst, D., Mena, R. (2021). When Covid-19 meets conflict: politics of the pandemic
response in fragile and conflict-affected states, Disasters, 45(S1), pp. S174-S194,
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[12] Hudson, A., Montelpare, W.J. (2021). Predictors of Vaccine Hesitancy: Implications for
COVID-19 Public Health Messaging, International Journal of Environmental Research
and Public Health, 18(15), p. 8054, doi:10.3390/ijerph18158054.
[13] Jacob, J., Stephen, S., Issac, A., Krishnan, N., Vadakkethil Radhakrishnan, R., R, V.V.,
Dhandapani, M., Jose, S., Sm, A., Nair, A.S. (2021). Determinants of Willingness for
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Indians, Cureus, 13(5), p. e15271, doi:10.7759/cureus.15271.
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[14] Jennings, W., Stoker, G., Valgarðsson, V., Devine, D., Gaskell, J. (2021). How trust,
mistrust and distrust shape the governance of the COVID-19 crisis, Journal of European
Public Policy, 28(8), pp. 1174-1196, doi:10.1080/13501763.2021.1942151.
[15] Leung, N.H.L. (2021). Transmissibility and transmission of respiratory viruses, Nature
Reviews Microbiology, 19(8), pp. 528-545, doi:10.1038/s41579-021-00535-6.
[16] Mefsin, Y., Chen, D., Bond, H.S., Lin, Y., Cheung, J.K., Wong, J.Y., Ali, S.T., Lau,
E.H.Y., Wu, P., Leung, G.M., Cowling, B.J. (2022). Epidemiology of infections with
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[17] Yu, V.G., Lasco, G., David, C.C. (2021). Fear, mistrust, and vaccine hesitancy:
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[18] Zhang, M., Xiao, J., Deng, A., Zhang, Y., Zhuang, Y. et al. (2021). Transmission
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doi:10.46234/ccdcw2021.148.
856

June 16-17, 2022
Empirical Study of Information Technology

in Supply Chain Management: Barriers and Risks
Elena PUICĂ1
DOI: 10.24789788367405072-080
Abstract
The article focuses on technology adoption in Supply Chain Management (SCM) and the
barriers encountered when technology is implemented, and provides a comprehensive
picture of the barriers and risks that arise. The knowledge gained from this study would be
helpful to organizations that plan to implement information technology in SCM. The paper
starts with a brief examination of the notion, definition, and use of technology in SCM. Then,
an empirical model is proposed, the model analyzes the barriers at the time of the adopting
technology in SCM. A classification predicted model was constructed to predict the variables
that have the most significant influence and that can represent the biggest barriers in the
adoption of information technology in SCM for a period of four years (2016 – 2019). Finally,
the article proposes some recommendations that could be implemented to improve the
competitiveness and performance of the SCM by reducing the barriers and risks encountered.
Keywords: IT Risks in SCM, IT Barriers in SCM, IT in Supply Chain Management.
JEL Classification: C, C49.
1. Introduction
The main objective of the barrier and risk analysis presented in this article is to
highlight the threats that make the supply chain system vulnerable. The study
analyses barriers and risks aimed at promoting technologies in SCM. The analysis
should be seen to become more proactive, addressing relevant vulnerability issues
before critical events, incidents, or accidents occur. This can be understood as part
of the transformation in technology adoption in SCM, which can allow decision-
makers to discover new areas of risk factors before implementing and operating
technologies in SCM.
There are numerous barriers to applying new technologies; these barriers contain,
but are not restricted to, a deficiency of a trained labour force that understands these
technologies, inefficient legislation and controls, an inefficient performance
framework, and short-term corporate goals (Pravin et al., 2020). The top five barriers
© 2022 E. Puică, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0 License.
to the manufacturing industry are lack of technical expertise and training, lack of
research and development capabilities, the popularity of traditional technology, high
initial investment in state-of-the-art technology, and fear of additional workload and
loss of flexibility. in their quest to adopt and implement sustainable supply chain
innovation practices (Himanshu et al., 2020). In the early stages of process
technology, it is often difficult to match specific configurations of production
equipment with the characteristics of the final product, increasing the
interdependence between manufacturing and research and development activities
(Gray et al., 2015). Tolerances are high, and production output is usually low,
resulting in additional processing costs and material waste, where recovery costs can
exceed labor costs in high-tech industries (Bohn et al., 1999). Moreover, engineers
often have to visit the troubleshooting workshop, increasing process downtime and
lowering production rates (Fuchs et al., 2010). Better tools and automated processes
can increase the reliability of the technology and allow the production of larger
volumes at a lower cost (Featherston et al., 2017); new sensors and measuring
instruments accelerate the ability to find potential defects in companies' products that
could not otherwise be detected (Hoyssa et al., 2009); the new software modeling
tools allow a quick pre-evaluation of the various design options without the cost of
extensive prototyping and mechanical testing (Nightingale, P., 2000); shared data
platforms and standardized interfaces can accelerate the learning speed of the
research community and allow for the specialization of providers (Wamba et al.,
2015; Tassey, 2000). Despite their benefits, SCMs face significant barriers to
adoption. Adoption costs constitute a significant factor. The technologies must be
compatible with the pre-existing SCM processes and routine; they are often subject
to network externalities and must become an industry standard before experiencing
widespread adoption. Additionally, the SCM must also be approved by the
appropriate regulatory agency in highly regulated industries, as existing industry
standards may not be good enough to ensure product safety (Bonnín Roca et al.,
2017). SCM offers organizations the approach to maintain their competitiveness in
the global/global market, and the approach has also been inspired by organizations
to improve their quality control, maintain quality products, improve industrial
networks, and customer satisfaction. One of the critical factors in improving
competitiveness is increasing quality performance to a world-class standard.
Increased SCM performance, which includes inventory management and quality
control, will become weaker, as developing operational and management skills and
improving IT and technology are also essential elements for improving SCM
performance. As difficulties have arisen in the introduction of IoT technology, such
as the lack of IoT platform development staff, standardization, integration with the
existing system, professional workforce, expenses, detail management, and
operation, it has become necessary for us to exercise or greater come up with
solutions (Kangbae et al., 2016). Complex technologies offer substantial economic
benefits, are difficult to invent and imitate, and refuse rapid dissemination. This
duality motivates the idea that the competitive advantages of the regions and,
858
consequently, their economic growth must have their origin in their capacity to
produce and use complex technologies.
The research paper begins with a brief review of technology's concept, definition,
and use. The second part of the paper highlights the technologies used in SCM.
Subsequently, Sections three and four present the barriers and risks encountered in
SCM following the use of the technology. In the last part, an empirical model is
proposed that analyzes the barriers and risks in adopting technology in SCM. Finally,
the article proposes some recommendations that could be implemented to improve
the competitiveness and performance of the SCM by reducing the barriers and
risks encountered.
2. Information Technology in Supply Chain Management

Proper alignment and integration between key supply chain actors and increased
visibility and transparency will ensure an adequate forecast of resources (people,
materials, and equipment), enhancing resource/process optimization, market
alignment, and employment growth work.
Over the last decade, the use and evolution of technology in SCM have become
inevitable, mainly because it is vital for increasing the organizational efficiency
and its level of competitiveness (Heuser et al., 2008) that has promoted the
adoption of technology in SCM. Technological evolution is highlighted by
well-known applications such as Enterprise Resource Planning (ERP), Warehouse
Management Systems (WMS), Systems Management Systems (TMS), and
Intelligent Transportation Systems (ITS) (Hasan et al., 2013). The new advanced
technology in SCM may require something like the great need for transparency
(supply chain visibility); SCM integrity check (right products at the right time,
quantity, location, and correct cost) (Macaulay et al., 2015); Dynamic
"reconfigurability" of supply networks, in particular by reviewing service level
agreements with upstream suppliers and contacting them (Carvalho et al., 2011). The
demand for highly personalized products and services is constantly growing.
Inbound and outbound logistics must adapt to this changing environment.
Warehouses have always been a vital center in the flow of goods within a supply
chain. It should also serve as a critical source of competitive advantage for logistics
suppliers. Introducing "smart" management during the proper adoption and
implementation of Warehouse Management Systems (WMS) will transform
warehouse activities into the future requirements of inbound logistics (Schrauf et al.,
2016). The necessary integration among the various actors and stakeholders of the
SCM will ensure complete coordination and alignment. Shipments will be able to
communicate their position and expected arrival time to the intelligent warehouse
management system, which will be able to select and prepare a docking slot,
optimizing just-in-time and just-in-sequence delivery. At the same time, the RFID
sensors will reveal what has been delivered and send the tracking and tracking data
to the entire SCM.
Necessary to increase the level of customer service. The WMS will automatically
allocate storage space according to the specifics of the delivery and will demand
859
suitable equipment to transfer the goods to the precise setting autonomously. Once
the pallets are moved to the assigned location, the labels will send signals to WMS
to offer real-time distinguishability into inventory points, avoiding overpriced
inventory circumstances and improving management decision capacity for
adjustments that could be made.
A transport management system (TMS) is part of the SCM focused on transport
logistics. A TMS allows interactions between an order management system (WHO)
and a distribution center (DC) or warehouse. These systems have been named to
support firms in controlling and managing rising transport costs, integrating with
other supply chain technologies, and managing electronic communications with
customers, trading partners, and carriers. A TMS system is essential for a company
to use GPS technology to locate its vehicles accurately. At the same time, on the
road, monitor the movement of goods, negotiate with carriers, strengthen shipments,
and use the advanced functionality of the platform, and interact with Intelligent
Transport Systems (ITS). Major software companies are rapidly moving their TMS
solutions to the cloud, thus drastically reducing the number of on-site installations
(Cunnane, 2017). TMS redefines companies' strategies, as the latest TMS solutions
provide better end-to-end supply chain visibility; with amplified usage of mobile
devices and services, which will integrate smartphone applications that drivers can
use to create visibility places where there are specific trucks whenever they are
needed.
As an increase of physical items is equipped with barcodes, RFID tags, or sensors,
transportation and logistics companies can perform real-time monitoring of the
movement of physical objects from a source to a destination along the entire
supply chain, including production, transportation, and distribution. The IoT also
offers promising solutions to transform transportation systems and automotive
services (Qin et al., 2013). IoT technologies make it possible to track the current
location of each vehicle, monitor its movement, and predict its future location.
The Intelligent Transport System (ITS) is a new field that can work together to
achieve a common goal in different areas of transport systems, such as transport
management, control, infrastructure, operations, policies, and control methods. ITS
adopts new technologies such as computing hardware, positioning system, sensor
technologies, telecommunications, data processing, virtual operation, and planning
techniques. Integrating virtual technologies is a new issue in transport and plays a
vital role in overcoming the problems of a global world. SITs are essential to increase
safety and reliability, speed, and traffic flow and reduce risks, accident rates, carbon
emissions, and air pollution. An intelligent transport system offers cooperation
solutions and a reliable transport platform.
SCM is encouraged to develop sectoral market strategies that allow their
corporations to take advantage of technology development while maintaining
sufficient flexibility, where possible, to move where appropriate. However, it is often
challenging to switch technologies once implemented. Modern SCM is a complex
network that connects organizations, industries, and economies. Virtually all SCMs
operate in a network of business and multiple relationships.
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The increased use of IT, the globalization of SCM, and the integration of
companies' networks into "smart businesses" have helped reduce the exposure of
SCM to a catastrophic disaster. The challenge for SCM is to recognize the full scope
of technology and the barriers it faces and then mitigate and manage them. Barriers
can only be managed if the organization and network have the necessary supply
chain capabilities (i.e., skills, processes, and contingencies).
Technological innovation and customer requirements for sophisticated
technology and services promote the emergence of new challenges, which are
increasingly changing SCM. The emergence of technology has promoted new
challenges in SCM, which may require technological changes, such as the great need
for transparency (supply chain visibility) and integrity control in supply chains (right
products, at the right time, place, quantity, and the correct cost). This transformation
will dramatically influence how the SCM will be managed following the new
incentives and the environment and context configuration.
3. Barriers Encountered in Supply Chain Management Following

the Use of Technology
Any condition that hinders progress or the achievement of a goal is defined as a
barrier. It is essential to study and highlight barriers as they belong to technological
integration, as this knowledge could guide ways to improve technological
integration. A developed EMS will encourage a common approach to problem-
solving and lead to cost reductions, improved product quality, and exports. The
digital technologies used in the supply chain are constantly evolving, so the skills
needed to support the technologies must also evolve. For this reason, many
companies target more general skill sets, more suitable for dynamic work
environments.
Predictive analytics and inventory and network optimization are two critical areas
in the digital transformation of the supply chain. The technology value is determined
by the increasing accumulation of data and the ability to extract valuable information
from this data. In the field of technology, SCM tends to expand its talent groups in
data analysis to allow access to these technologies in all sectors of activity. The cost
of implementation is a significant barrier to adopting supply chain technologies. The
costs include the implementation of automation and sensors and the maintenance of
the networks and storage space needed to communicate and collect the data that these
systems generate, as well as investing in analytical tools and skills to understand
everything. The respondents also identified a lack of qualified talent as a significant
barrier to progress.
According to the annual reports published by MHI, the most highlighted barriers
identified to the use of technology in SCM are:
• Deficiency of a clear business case to justify the investment: used during the
complete life cycle, from initial decisions to implementation, and later project
evaluation. A business case is an important tool for "reaping the benefits." The
business case can be used as evidence of agreements concluded before and during
the execution of a project.
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• Deficiency of adequate talent to use technology effectively: technological skills

are no longer just focused on IT; they need to be mixed between organizational
functions and coupled with "soft skills" to achieve the success of the digital
transformation. Also, a critical factor is the degree of knowledge of the SCM
processes.
• Deficiency of understanding of the technological landscape: the technologies
bring substantial design and integration challenges, which also pose risks for
SCM. An in-depth understanding through a current analysis of technology design
and integration and the identification of challenges can eliminate these barriers
faced by SCM.
• Deficiency of access to capital to make investments: many factors cause a lack of
access to capital to make investments (low credit score, inability to borrow from
traditional sources of financing, operational problems are affecting cash flow).
• Not wanting to invest due to economic uncertainty: there is always uncertainty
about the future, which means it is more challenging to make future-oriented
decisions. In the face of an increasingly uncertain future, SCM should wait until
there is more certainty in making an important decision. The SCM expects to
make an investment, delay research projects, or postpone employment until the
economy's future is more precise.
4. Risks Encountered in Supply Chain Management Following

the Use of Technology
SCM can face many risks, for example, weaknesses and potential risks within
SCM regarding the ability to meet customer needs (uncertainty arises when supply
and demand are out of balance) and the fragility of SCM to external events/threats.
The aim is to identify potential risk areas and implement appropriate actions to limit
this risk in the SCM.
The lack of visibility and control in the SCM can lead to a lack of trust, which
increases the risk to the supply chain. Lack of confidence in the SCM can increase
the risk. In an effective risk environment, the first thing is to create awareness, which
develops when a firm recognizes that it is at risk in a better place of supply and
realizes the potentially severe consequences of these disruptions. Awareness must
be developed internally at several levels of management so that resources can be
allocated and appropriate processes and tools for risk management can be developed
and implemented. The second element is prevention to reduce the impact of supply
chain disruptions.
The third element is remediation; the SCM needs to take action to recover from
a disturbance when it occurs and should consider how it could shorten the duration
of the disturbance and minimize its impact. The last element is knowledge
management; SCM professionals need to learn from experience when an interruption
occurs. Past events should be captured, which will allow SCM professionals to assess
whether their strategies have been appropriate and allow management to review what
has happened and, in essence, provide information.
862
According to the annual reports published by MHI, the most highlighted barriers
identified to the use of technology in SCM are:
• Cultural aversion to risk: for similar SCM processes, such as making a purchase,
SCM processes can be constructed differently depending on the cultural group.
Different cultures think differently when presented with risky options due to
various cultural environments, such as the community environment, values , and
social interactions that could explain these risk responses.
• Cybersecurity: SCM requires a collaborative partnership between people and
organizations, leading to several barriers. Through the relationships created, SCM
exposes itself to sensitive aspects of the business.
A first step in protecting SCMs from such risks is to identify them. A form of risk
comes from Cloud service providers who store confidential data, and these entities
invest significantly in the security of their systems. Without solid security, the
Internet of Things (IoT) allows attackers to access SCM systems, so these devices
should not be overlooked. IoTs have sensors that connect them to the Internet for
communication purposes and are common in supply chains because they can help
predict machine failures and inventory management. Despite their functional value,
they are a popular attack vector that can give attackers access to sensitive data.
5. Empirical Model
The third part of the article describes the application of the empirical approach to
investigate the variables associated with barriers to the adoption of technology in
SCM. The main objective is to acquire a model that provides a better framework of
variables and dynamics that lead to barriers to adopting technology in SCM. The
resulting empirical knowledge can be understood as those cases in which new
information and knowledge are acquired. It is essential to consider that when
modelling is applied to any logistics system, flexibility must be considered.
Root-Mean-Square Error (RMSE): The term average square root error
(RMSE) is the square root of the average square error (MSE). RMSE calculates the
variances between the values predicted by a hypothetical model and the observed
values. It calculates the quality of the match among the real data and the projected
model. RMSE is one of the most commonly used measures of goodness for matching
generalized regression models (Salkind, 2010).
The mean square root error (RMSE) was used as a standard statistical metric to
measure model performance in research studies. Each statistical measure condenses
a large amount of data into a single value. It provides a single projection of model
errors, emphasizing a particular aspect of the model's performance error
characteristics. Moreover, in data assimilation, the sum of square errors is often
defined as the cost function that must be minimized by adjusting the model
parameters. In such applications, penalizing significant errors by the terms defined
with the smallest square proves to be very effective in improving the model's
performance.
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5.1 Data
The studies were carried out with data processed over a period of 4 years, starting
with 2016 and until 2019, extracted from the MHI annual reports.
Table 1. Hypotheses for IT barriers and risks in SCM

Hypothesis Description
H1 Deficiency of a clear business case to justify the investment
H2 Deficiency of adequate talent to use technology effectively
H3 Cultural aversion to risk
H4 Cybersecurity
H5 Deficiency of understanding of the technological landscape
H6 Deficiency of access to capital to make investments
H7 Not wanting to invest due to economic uncertainty
Source: Own processing based on data from https://www.mhi.org/publications/report.
5.2 Analysis
Comparisons are limited to individual time series. The tables below represent the
average RMSE on barriers to technology adoption in SCM. RMSE is analogous to
the standard deviation (MSE invariance) and measures the extent to which the
residues are distributed. RMSE is a quadratic equation counting rule that measures
the typical degree of error. Because errors are square before they are mediated,
RMSE gives a relatively high weight to significant errors. RMSE is most beneficial
when big errors are predominantly undesirable.
The calculation of the RMSE and MSE for the dataset is as follows:
∑𝑛
𝑖=1|ŷ𝒏−𝒚𝒏 |
𝑀𝑆𝐸 = (1)
𝑛
∑𝑛
𝑛−1(ŷ𝒏−𝒚𝒏)
2
𝑅𝑀𝑆𝐸 = √ (2)
𝑛
where:
ŷ𝑛 – means predictive assessment;
y𝑛 – means the actual evaluation of the test data set;
n – is the number of evaluation prediction pairs between the test data and the
prediction result.
Lower RMSE values specify a better fitting model, RMSE is a good measure of
how the model accurately predicts the answer, and is the most crucial matching
criterion if the model's primary purpose is prediction.
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Table 2. Barriers in technology adoption in SCM (2016)

Square Squared
Hypothesis Actual
difference (SE) Error
H1. Deficiency of a clear business case to
43 4.333 18.778
justify the investment
H2. Deficiency of adequate talent to use
38 -0.667 0.444
technology effectively
H3. Cultural aversion to risk 35 -3.667 13.444
MSE 10.8888
RMSE 3.2998
The value of RMSE is 3.2998 in 2016 (Table 2) resulting from the adoption of

Square Squared
Hypothesis Actual
difference (SE) Error
H1. Deficiency of a clear business case to justify
44 -4.333 18.778
the investment
H5. Deficiency of understanding of the
45 -3.333 11.111
technological landscape
H6. Deficiency of access to capital to make
56 7.667 58.778
investments
MSE 29.5555
RMSE 5.4365
The RMSE value is 5.4365 in 2017 (Table 3) resulting from the adoption of

Square
Squared
Hypothesis Actual difference
Error
(SE)
28.2 3.780 14.288
24.4 -0.020 0.000
21.5 -2.920 8.526
investments
22 -2.420 5.856
H4. Cyber security 26 1.580 2.496
MSE 6.2336
RMSE 2.4967
865

Square Square
Hypothesis Actual
difference (SE) d Error
27 10.286 105.796
26 9.286 86.224
19 2.286 5.224
14 -2.714 7.367
investments
H7. Not willing to invest because of economic
11 -5.714 32.653
uncertainty
H3. A cultural aversion to risk 10 -6.714 45.082
H4. Cyber security 10 -6.714 45.082
MSE 46.7755
RMSE 6.8392
This research used RMSE for comparative results over a period of four years
(2016-2019). The RMSE value had the highest value of 6.84 in 2019 (Table 5) and
the lowest value of 2.50 in 2018 (Table 4), which determines that the model applied
in 2018 is the most slightly prone to errors.
5.3 Determine the Barriers in Adoption of IoT in SCM

The classification model predicted the variables that have the most significant
influence and that can represent the biggest barriers to the adoption of information
technology in SCM for a period of four years (2016 – 2019). Azure Machine
Learning was used. The main goal of the classification model is to predict the most
significant barriers that can arise when implanting IoT in SCM.
The results of the predicted values for variable “H1. Deficiency of a clear
business case to justify the investment” indicates that in 2019, the percentage to
represent a barrier in IoT adoption in SCM decreased compared to 2016. In 2016 the
percentage is 35.7-44% to encounter this barrier, compared to 2019, when the
percentage is 19-27.3% (see Figure 1).
866
Figure 1. Prediction of variable H1. Deficiency of a clear business case

to justify the investment
For the second variable “H2. Deficiency of adequate talent to use technology
effectively” in 2017, it was the most possible to encounter this barrier, with a
percentage of approximately 12%. Through the year the percentage increased, and
in 2019 has the value of 26-38%. (see Figure 2)
Figure 2. Prediction of variable H2. Deficiency of adequate talent
to use technology effectively
The results of predicted values for the variable “H3. Cultural aversion to risk”
indicates that in 2016, the highest percentage to encounter this barrier in the adoption
of IoT with a value of 24-35%. For the next three years, the values remained constant
and decreased compared with 2016 (approximatively 13%) (see Figure 3).
Figure 3. Prediction of variable H3. Cultural aversion to risk
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The results of predicted values for the variable “H4. Cybersecurity” indicates a
growth from 2016 to 2019. If in 2016 and 2017 the percentage for this variable was
around 8%, in 2018 the values increased to 18-26%. When comparing 2018 with
2019, in 2019 it was a decrease of how possible to have the Cybersecurity as a barrier
(9-17%) (see Figure 4).
Figure 4. Prediction of variable H4. Cybersecurity
For the variable “H5. Deficiency of understanding of the technological

landscape” through the years, the values increased in what concerned the adoption
of IoT in SCM. If in 2016 the percentage for this variable was approximately 15%,
in 2018 the values increased to 30-45%. When comparing 2018 with 2019, in 2019
it was a decrease and the values were around 15-30%. (9-17%). (see Figure 5).
Figure 5. Prediction of variable H5. Deficiency of understanding

of the technological landscape
For the variable “H6. Deficiency of access to capital to make investments”

through the years the values fluctuated from approximately 18.7% in 2016 and 2019
to 18.7-37.3% in 2018 and 37.3-56% in 2017 (see Figure 6).
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Figure 6. Prediction of variable H6. Deficiency of access

to capital to make investments
The results for the last variable analysed, “H7. Not willing to invest because
of economic uncertainty” are indicating that the values have constantly increased
through the years. From approximately 3% in 2016 to 8-16% in 2019 (see Figure 7).
Figure 7. Prediction of variable H7. Not willing to invest because

of economic uncertainty
Analysing all the seven variables indicated above has resulted that the overall
biggest barrier in the adoption of IoT in SCM is the “Deficiency of a clear business
case to justify the investment”, even though the percentage have decreased
significatively in 2019. In 2019 the most significant impediment is represented by
the “Deficiency of adequate talent to use technology effectively” and, respectively,
“Deficiency of understanding of the technological landscape”. The lowest
impediment is represented by “Not willing to invest because of economic
uncertainty”, followed by “Cyber security concerns” and “Cultural aversion to risk”.
869
6. Conclusions
SCM professionals must therefore take positive steps to identify and manage
barriers and risks. They even learn from previous experiences and events, using them
to improve your understanding and resilience of SCM. The buyer should constantly
check how well the current SCM process is working and whenever there is a non-
compliance event, it should be analysed. Learn from the experience of others. Shorter
life cycles, driven by changing technology, contribute to the volatility and
unpredictability of demand in SCM. Several key recommendations can be concluded
on how broader and faster adoption and implementation of technologies in SCM can
be supported: (1) the need to improve knowledge for talent creation in technology
use and business development in SCM; (2) SCM decision-makers need a more
sophisticated decision support framework to introduce or not the technology
available in the SCM; (3) an improvement could be achieved through funding
mechanisms to make investments and overcome periods of economic uncertainty;
and (3) a security improvement to prevent cyber-attacks. Addressing these
challenges could strengthen confidence in the adoption of SCM technologies,
helping to better understand risks and barriers so that they can be mitigated.
Acknowledgment
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871

June 16-17, 2022
How Convincing is Reliable Data?

Lay Perception of Statistical Evidence
Maria-Magdalena ROȘU1*, Marian NECULA2, Eduard C. MILEA3
DOI: 10.24789788367405072-081
Abstract
Statistical communication has become crucial in recent years. People are often
confronted with making decisions that require comprehension of data insights. Behavioral
economics underline that decisions are rarely justified by objective information and that
people tend to amend even the most clear-cut evidence. The current study investigates the
impact of divergent perceptions of proposed evidence concerning an event on subsequent
estimations. To this end, 325 volunteers read the most recent TE-SAT report concerning
terrorist attacks from the previous year. The report ends with the official statistics stating
that 13 people were killed in these terrorist acts. When asked to estimate the number of
victims for the current year, participants' estimations differed based on whether they
perceived 13 to indicate a low or a high level of terrorism. Those who perceived 13 as
indicative of a big threat also estimated a higher number of victims for the current year.
Pre-surveyed worry regarding terrorism determined the personal interpretation of official
data. The perceived risk of terrorism did not influence the participants' positioning. Age,
gender, and education had no impact on how people perceived the official data on terrorism.
Neither did the level of conspiracy ideation, conservatism, religiosity, or optimism. However,
numeracy had a significant impact. In their case, contextualizing terrorism as a lesser threat
than other threats may be more apparent. However, general analytical thinking had no
significant impact. These results show how evidence and perceptions interact. Even though
we would expect a one-way causality from objective information to subjective perception,
people process information such that evidence and perception are altering one another. This
conclusion is most relevant in a data-driven environment that simultaneously triggers
emotional reactions with implications for crisis management, public policy, and government
communication.
Keywords: information processing, anchoring effect, statistical evidence, reliable

data, public communication.
JEL Classification: M15, C10, D73.

© 2022 M.-M. Roșu, M. Necula, E.C. Milea, published by Sciendo. This work is licensed under the Creative
1. Introduction
The abundance of information today is one of the most challenging aspects of our
daily lives. To avoid false information and the subsequent consequences of
misinformation (e.g., the shift in political opinions, negative impact on well-being,
biased perception of strangers; Tucker et al., 2018; Thompson et al., 2019; Ahler,
2014), the most common suggestion is to reduce our engagement solely to accurate
information (Zhang, Ghorbani, 2019). However, even the controlled exposure only
to trustworthy information sources has its limitations.
Even though statistics and numbers are regarded as more objective than stories
or opinions, people deal poorly with understanding statistics. Behavioral studies
show how, in an attempt to avoid uncertainty, people fixate on numbers, even when
the numbers are arbitrary or wrong (Tversky, Kahneman, 1974; Ariely et al., 2003).
People tend to fixate most strongly on the first number they encounter, especially
when that number is shocking and seems precise. Even when people are warned that
they are facing an unreliable anchor that might influence their decision, they are not
able to neglect it (Wilson, 1996).
Even though studies observed an anchoring-and-adjusting tendency (Epley,
Gilovich, 2006), further investigation is needed to determine whether people
fully commit to these anchors, both rationally and emotionally. The existing
literature indicates a possible discrepancy between the two (Roets, 2017;
Lewandowsky et al., 2012; Nyhan, Reifler, 2010). This type of insight is most
relevant in the case of statics describing real events together with understanding the
mediators for a positive or negative adjustment to a supposed anchor.
To this end, we instructed our participants to read basic statistics on terrorist
attacks in 2018 and their impact on life losses. We chose terrorism as it is a real
event, but remote from Romanian participants ’cultural context. We anticipated that
people's expectations will be primed into the proposed statistics, while marginal
adjustment will depend on their mental representation of these statistics. The current
paper intends to propose some factors driving participants' perception of statistical
evidence and the consequential adjustments.
When discussing the assessment of public communication, most authors propose
partisanship and political convictions as drivers for perception (Sunstein, 2018;
DellaVigna, Kaplan, 2007). Although the entire political spectrum is prone to
biased information processing (Harper, Baguley, 2019), the lean toward prior
perceptions is more substantially observed among conservatives (Harper, Baguley,
2019; Pennycook, Rand, 2019). Therefore, prior perception of terrorism might
moderate how people interpret statistical evidence regarding terrorism with
potentially stronger effects for conservatives, those already adopting conspirational
ideas, and eurosceptics.
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Secondly, the existing literature debates the role of critical or analytical thinking
in information processing. Empirical studies agree that successful information
processing requires considerable cognitive effort (Pennycook, Rand, 2019) and
deliberate attention (Allcott, Gentzkow, 2017). Other studies propose that general
critical thinking does not suffice in identifying accurate information and correctly
adjusting to misinformation. In this vein, specific analytical skills and direct
engagement with a proposed topic are more relevant (Rosu et al., 2021). Therefore,
analytical thinking might be less relevant than specific numerical abilities when
discussing the interpretation of proposed evidence.

Hypothesis 1 (H1): Statistical evidence drives readers into the “anchoring effect”.
Hypothesis 2 (H2): Statistical evidence drives divergent interpretations, which
further influences the estimations regarding the evolution of the event in question.
Hypothesis 3 (H3): The interpretation of proposed evidence is dependent on
emotional triggers.
Hypothesis 4 (H4): The interpretation of proposed evidence is dependent on the
specific ability to understand and work with numbers.
Hypothesis 5 (H5): The perception of proposed evidence is not dependent on
partisanship or event rationalizations (i.e., conspiracy ideation, conservatism, or
Euroscepticism).
Demographics such as age, gender, and education are considered control
variables.
4. Research Methods
Data were collected at the end of 2019 (November) through an online
questionnaire assessing baseline characteristics and a secondary short survey
registering perception and estimation after a text reading. A total of 260 participants
completed the two surveys with one month gap between them.
4.1 Baseline Characteristics

The first questionnaire consisted of items concerning demographics (age, gender,
and education), respondents' prior perception of terrorism (perceived risk and
worry regarding terrorism), analytical thinking, specific ability to understand and
work with numbers (numeracy), and partisanship and social rationalizations
(conservatism, conspiracy ideation, euroscepticism).
Table 1 presents the descriptive statistics fort the demographics.
874
Table 1. Demographics and socioeconomic variables.

Variable Statistics
Gender:
20.64%
Male
79%
Female
0.36%
Other
The highest level of completed education:

High school degree 75.7%
Bachelor’s degree 20.7%
Master’s degree 2.86%
PhD studies 0.74%
Min = 18, Max = 48,

Age Mean = 21.17 (SD =
4.45)
Source: Descriptive statistics conducted in Rstudio.
The risk of terrorism was assessed on the recommendations of Nellis and Savage
(2012) with two components dimensions: perceived risk to oneself (comprising five
items) and perceived risk to someone whom the respondent knows (similar to the
same five items).
The worry about terrorism was also assessed through the measurement
proposed by Nellis and Savage (2012) by the question “How worried are you about
the situation of terrorism in Europe?” on a 1-10 scale (1 = no worried at all,
10 = extremely worried).
Conservatism was measured through respondents' perception of abortion,
military and national security, religion, traditional marriage, traditional values, the
family unit, and patriotism. The negative or positive leaning towards these seven
items was assessed as a score of 1 (greater negativity) through 100 (greater
positivity) as recommended by Everett (2013).
Conspiracy ideation was approached through the generic conspiracist
beliefs scale (Brotherton et al., 2013), which tackles government malfeasance,
extraterrestrial cover-up, malevolent global conspiracies, personal well-being, and
control of information.
Euroscepticism was measured on the dimensions proposed by Lubbers and
Scheepers (2005) considering the agreement with the empowerment of the European
institutions for international policies, immigration policies, sociocultural policies,
and country benefits from membership of the EU.
Numeracy was assessed as the score for correctly solving 7 items implying the
calculation and understanding of proportions, percentages, and chances as proposed
by Lipkus et al. (2001).
Analytical thinking was measured with the short version (Toplak et al., 2014)
substitute for the Cognitive Reflection Test (CRT; Frederick, 2005).
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4.2 Statistical Evidence and Readers’ Following Perceptions

Statistical evidence on terrorist attacks in 2018 was presented as concluded by
Europol. The text presented general information regarding Europol’s activity, and
the TE-SAT reports and followed with the listing of the 2018 terrorist attacks
with the corresponding number of victims per attack. The text can be found in
Appendix A.
To investigate the anchoring effect, a control group (N=141) received the same
text but with coverings for the number of victims per attack. Therefore, these
participants had to estimate both the number of victims for 2018 and for 2019.
To control for participants' engagement with proposed evidence, the text
ended with a question requiring mathematical computation: “How many human
lives losses (people killed) were registered as a result of the terrorist attacks
in 2018 in Europe?” Participants were asked to fill in a blank space with the
correct calculation, meaning a total of 13 life losses.
Finally, the experimenter presented the participants with the correct calculation,
and the participants registered their perception of the number of life losses
from terrorist attacks (high or low), and they were asked to estimate the number
of life losses for the current year for which no TE-SAT report was yet released
(How many human lives do you think will be registered as a result of the terrorist
attacks in 2019 in Europe?).
5. Findings
Figure 1 reveals the anchoring effect as the difference between the estimations
for future statistic between the main group (Min = 0, Max = 30, Mean = 12.93,
Median = 10, SD = 7.65) and the control group (Min = 0, Max = 500, Mean = 131.6,
Median = 84, SD = 134.9). For the control group, only 16% of the participants
(N = 21) reported estimations below 30.
Of all participants, 11% perceived the proposed evidence (i.e., 13 people being
killed in terrorist attacks in 2018) to indicate a high level of terrorism, while 89%
perceived it as low.
The second hypothesis was confirmed as results revealed a significant difference
between the estimations provided by those perceiving 13 as a large number and
those perceiving it as a small number (Kruskal-Wallis H = 4.2851, p = 0.04, df = 1).
The results are illustrated in Figure 1.
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Figure 1. Estimation between perception groups
For those perceiving 13 as a small number, further estimations were significantly

above 13 (p = 0.01). For those perceiving 13 as a large number, the estimation is not
significantly different than 13 (p = 0.22).
The third hypothesis was confirmed as worry concerning self-person (Kruskal-
Wallis H = 7.5477, p < 0.01, df = 1) and a family member (Kruskal-Wallis H = 6.663,
p < 0.01, df = 1) having a significant influence on the perception of proposed
evidence. The perceived risk to self (Kruskal-Wallis H = 0.023402, p = 0.88, df = 1)
or risk to others (Kruskal-Wallis H = 1.8892, p = 0.17, df = 1) had no influence on
whether participants considered 13 to be a large or a small number.
The fourth hypothesis was confirmed, with numeracy having a significant impact
on how the proposed evidence is perceived (Kruskal-Wallis H = 4.1183, p = 0.04,
df = 1). Analytical thinking revealed no significant impact on the perception of
proposed evidence (p = 0.41).
The fifth hypothesis was confirmed with conspiracy ideation (Kruskal-Wallis H
= 2.7026, p = 0.10, df = 1), conservatism (Kruskal-Wallis H = 0.43312, p = 0.51,
df = 1), or euroscepticism (X-squared = 0.0092608, df = 2, p = 0.9) having no impact
on the perception of proposed evidence.
As for the control variables, gender revealed no significant impact (X-squared =
2.4771, df = 2, p = 0.12). There was no significant difference (Figure 2) in perception
with respect to education (X-squared = 4.0193, df = 3, p-value = 0.3) or age (Kruskal-
Wallis H = 2.6219, p = 0.11, df = 1).
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Figure 2. Future estimations by level of terrorism
6. Conclusions
When presented with statistical evidence, people are primed by the numbers they
encounter, and they make subsequent estimations accordingly with the "anchoring
effect". However, the mental alignment to numerical evidence is not uniform among
participants, and people base their expectations also on emotional representations.
In our study, the interpretation of the proposed evidence as indicating a low level
of terrorism impacted their expectations so that they estimated a higher level for the
future. For those who perceive a high level of terrorism based on the same statistical
evidence, no such expectation was identified.
When looking at the factors that lead to divergent interpretations, we identified
the worry of terrorism to play a significant role as opposed to the perceived risk of
terrorism. This may be indicative of the weight of subjective representations rather
than objective calculations, personal worry vs. risk. These results stand both in terms
of risk and worry regarding the self-person or others.
As for analytical thinking, it did not reveal any impact on how people interpreted
statistical evidence. However, the specific ability to understand and work with
numbers had a significant impact.
This type of anchoring-and-adjusting is a general effect, with age, gender, and
education revealing no significant differences among participants. Moreover,
conspiracy ideation, conservatism, and Euroscepticism did not significantly
influence participants' perceptions. This underlines once again the relevance of
specificity and contextualization when discussing information processing.
The conclusions of this study are of greatest impact for policymakers and public
administrators in the case of successful public communication.
Further investigations should tackle not only the perception but also the
behavioral impact of divergent interpretations of statistical evidence and should also
adapt to different topics of interest.
878
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Appendix
Statistical Evidence
Europol is the European Union’s law enforcement agency. Europol supports law
enforcement authorities throughout the EU on crime-fighting activities in all its
mandated areas. Analysis is at the core of our activities. Our criminal analysts are
among the best trained in Europe. They use state-of-the-art tools to support
investigations by law enforcement in Member States on a daily basis. We produce
regular assessments that offer comprehensive, forward-looking analyses of crime
and terrorism in the EU.
Every year, the agency produces the EU Terrorism Situation and Trend Report
(TE-SAT), which gives a detailed account of the state of terrorism in the EU.
According to the TE-SAT 2019 Report, in 2018, these are the terrorist attacks
that resulted in human life losses:
MARCH Carcassone, France — 4 people killed

MAY Paris, France — 1 people killed
MAY Liège, Belgium — 3 people killed
DECEMBER Strasbourg, France — 5 people killed
How many human lives losses (people killed) were registered as a result of the
terrorist attacks in 2018 in Europe?
Answer:
880

June 16-17, 2022
Cyber Security of National IT Applications

and Critical Infrastructure for European Funds
Marius ȘTEFAN1
DOI: 10.24789788367405072-082
Abstract
Modernity is characterized by major transformations and evolutions, which have
penetrated into the depths of all levels of human life, in all economic, political, and social
spheres, thus significantly increasing the quality of human life.
These legacies of modernity have laid the foundations for an evolving present,
characterized by a new model of society, in which production is being replaced by global
information services, knowledge and technologies, called the information society. The post-
industrial society focuses not on the production of goods, but on the use of services in
particular, the evolution thus depending on the use of technology.
Thus, a hierarchy of knowledge occurs, so that the model of access to knowledge
undergoes essential changes, the primary interest no longer targets the universal aspect, the
concern becoming centred on the local-individual space, producing transformations between
word and image, speech and personality.
The information society is the postmodern society, in which the old norms and ways of
thinking are replaced by new technologies and new lifestyles. There is a transformation of
civilization through three scientific and technological revolutions: traditional conventional
crafts, the scientific organization of production, and the automation of the intelligent
artificial future.
Starting from the increasing role of science in production processes, corroborated with
the emergence of information technologies, the economy and society become focused on a
new fundamental principle, namely theoretical knowledge.
The information society is a society in which the quality of life, as well as the prospects
for social change and economic development, depend, to an increasing extent, on information
and its exploitation. In such a society, living standards, working patterns, the education
system, and the labour market are all markedly influenced by advances in information and
knowledge. The theme of the information society is described by this phrase - the society
based on theoretical knowledge, also being very well synthesized in the term of the
information age.
© 2022 M. Ștefan, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
Keywords: e-Business; emerging technologies; digital transformation; digital

culture and cybersecurity; security of critical infrastructure of national interest;
European funds; development of the national economy.
JEL Classification: K24, F52, P48, L63.
1. Introduction
Technological developments in recent decades have radically changed the way
people communicate with each other, the ways in which they have access to a wide
range of services, starting with education and health and continuing especially with
working methods.
For decades, the European Union, through its institutions at the Member States
level, has been a guarantor of the principles underlying freedom and security
(ENISA, 2020).
Respect for human rights, the rule of law, as well as solidarity, give the measure
of a free European Union, which will ensure the increase of the quality of life of
the citizens.
Public administration services can be simplified through the use of advanced
information technology. The European Commission is trying to set its own example
in this, through the procedures and tools it uses in its day-to-day work, in its links
with Member States' administrations and its own decentralized agencies, which are
marked by progress in computerization. The aim is to facilitate citizens' access to
public information through new computer applications, as well as to achieve better
communication between all levels of public administration across the Union, thanks
to the high-speed connection.
The development of the European Information Society involves a considerable
and ever-increasing financial effort, which cannot be fully assumed by the European
Union and the governments of the Member States. Experience shows that the private
sector is best able to take risks of exploitation, so on, and the development of new
adaptable markets and holds the capital needed to make such investments.
The social dimension of the information society is undoubtedly one of the most
important facets of the new model of society and must be treated with great care in
order to minimize risks and maximize potential benefits.
Science has made possible the technologies on which the information society
is based, and the needs of the scientific community have often led to innovation
in information technology, today benefiting from the Internet and the World
Wide Web.
Science is systematized knowledge, which also includes derived activities, such
as scientific research, technological development, technology transfer, and
innovation.
In the technological age, action plans and policies are being developed to meet
the challenges, the most important technology being ICT, which allows information
to be processed and conveyed in a revolutionary way.
882
We thus identify the key terms that dominate the world we live in today:
information, communication, and knowledge. The information society is considered
to be the ICT-based knowledge society. Information society technologies will evolve
in the direction of being at hand in the process of knowledge, i.e., the storage,
transmission, and generation of knowledge. Knowledge is the result of the process
of information management.
Knowledge and scientific information are of enormous importance in the global
information society (European Information Society, 2005), through: supporting
innovation, promoting economic development, making decisions in an efficient and
transparent way, especially at government level and especially for the fields of
education and training.
In order to move towards the construction of the knowledge society, it is
necessary to reduce the digital divide, which accentuates disparities in development,
excluding groups and even countries, from the benefit of information and
knowledge. The human capacity to assimilate and develop these innovations and
services can change the paradigm of achieving the impossible for the future of man-
made artificial intelligence.
The creation of the European information society cannot be achieved only by
adopting decisions and action plans of decision-makers at EU or Member State level,
an essential role being played by the final beneficiaries of ICT, i.e., economic actors-
companies, consumers, citizens. It is necessary to understand the benefits and the
risks involved in developing new technologies, as well as how ICTs can influence
their daily lives. While decision-makers have a duty to explain the new model of
society and to take into account the suggestions and needs of the beneficiaries in the
development of information society policies.
The EU institutions, in particular the European Commission, through its
programs, take on the role of coordinator and catalyst for investment in the
European Information Society. Coordination is mainly achieved by stimulating
cooperation at the European level in order to avoid duplication of funded projects
with the same result.
2. History of Computer Applications for European Funds

Computer applications designed to manage European funds have been developed
as a necessary measure to increase the absorption of European funds, by streamlining
the management of document flows, using capabilities of computer applications
and new technologies, as a computing technique, thus succeeding, first notable steps
in the process of continuous computerization of the central public administration.
In the 2007-2013 programming period, at the level of 2010, the management of
IT applications for European funds was carried out in a decentralized manner, each
operational program having its own form of IT organization, which also included an
IT application with program-specific features. POSDRU was a pioneer in the
electronic submission of projects.
By means of a computer application, the excessive bureaucracy was reduced,
eliminating the submission of hundreds of documents related to eligible projects and
883
expenses. In the relationship between the project beneficiary and the Managing
Authority, an electronic communication is established that will streamline the
absorption process, but not without encountering difficulties or blocking stages in
the evolution process, thus replacing thousands of deposited bookshelves with
electronically uploaded files in an account for each project.
These security measures were initiated as a result of counteracting cyber
incidents, consisting of cyber attacks on calls for calls / submissions of European
projects through the computer application – by electronic mechanisms (bots) for
automatic completion of project content, violating thus the established rules of
deposit and thus not respecting the principle established for the contracting phase –
first come – first served. Simultaneous submission of projects is a violation of
applicable law, but also a form of cyber-fraud, which is why we tried to exploit the
vulnerabilities of open source technology used by the application – PostgreSQL.
Noting at the level of the institution, the emergence of the need for cyber security,
by securing the application, starting from the stage of transferring the hosting
location of computer equipment to a more secure data center specialized in the field.
These IT events created the premises for the transfer of the development of IT
services and applications for European funds from the private sector of expertise by
contracting on the basis of public tenders, in the public environment of
interinstitutional cooperation with the related specifics, based on protocol relations
established by law.
The management of the equipment that stores and manages information about the
submission, contracting, and implementation of projects financed from European
funds outlines a character of strategic objective, of national importance manifested
in this way through the well-defined collaboration between the institutions involved.
In order to develop and host computer applications, cooperation agreements will
be defined with the autonomous institutions that have attributions in the field of
information security in Romania.
Decisive transparency in the management process of the submission of projects
related to European funds, such as evaluation, contracting, and their implementation,
will always be much better, in electronic form, implicitly requiring a high degree of
protection and cyber security; only in this way will be reduced drastically and
beneficial the current high degree of excessive bureaucratization in public
administration. Transforming governance into an efficient, automated activity, in
which the result obtained prevails, especially in a sensitive area and with complex
implications such as that of European funds.
The critical IT infrastructure of national importance, dedicated to applications
with the role of managing European funds, is becoming more and more at the same
time a topic of interest for possible cyber attacks, especially since 2016 when the
attention of some organizations began to focus on government cyberspace. .
That is why, at the ministerial level, all the necessary resources have been
concentrated, creating the premises for strategies to prevent and combat any cyber
attacks, which could jeopardize the integrity of information such as European funds,
884
which have an impact on the country's economy, causing damage on the possible
interests of the country, stability, and development.
Thus, through financing programs, the guidelines were established in the future
developments of infrastructure protection through the acquisition of specific security
equipment. With the considerable contribution of state institutions working in the
field of cyber security, as well as through sources of external funding from European
funds, it was possible to develop a national system that includes all state institutions,
aiming to achieve prevention and protection against cyber threats.
Security is a priority; through specific European programs, the capacity of
operational cooperation is strengthened, with a desire for consensus on the values
that underpin the EU's internal security.
Mutual trust and the exchange of information will increase the preventive nature
of the actions of the authorities, thus establishing the Standing Committee on
Operational Cooperation in Internal Security, at national and EU level (European
Commission, 2021).
The system is a set of principles, rules, and forces which form an organized
whole, which aims to put order in a field of theoretical thinking, regulating the
classification of material in a field of science or making a practical activity work
properly. The purpose is pursued by complying with a set of rules and values.
The state is outlined, as a way of ensuring the political existence, by the
established order and the development of the community, the defense and guarantee
of the territorial integrity as well as of its autonomy.
National security is that state of balance, legality, economic, social, and political
stability which guarantees the existence and development of the sovereign, unitary,
indivisible, and independent state, through order, rights, and civil liberties.
National security leads to the realization of constantly evolving values, guided by
constitutional-democratic principles. The national interest becoming a fundamental
thesis in the applied foreign policy.
Security policy is represented in the long-term organization and ensures security
change and innovation.
Security strategies, thus succeeding in adopting measures that counteract threats
that evade the state of security.
A strong nation is built on common norms and values, goals, and aspirations, of
paramount importance to individual interests. Citizen protection is a vision, an
integral and important part of the National Strategy for National Defense.
Information and communication technology have a complex impact not only on
the economy and its efficiency, but also on all aspects of people's lives. For a
reinvention of governance in the information society, the following concepts have
been identified that should be met:
- increase the state's capacity to absorb European funds using new technologies;
- increase the capacity of government administrations in public policy, both at the
national and European level;
885
- e-democracy – the internet can increase democratic participation in government,

the citizen of the information society is active;
- the electronic citizen – the citizens of the new society / young people are attracted
in the modern technological fields being the key actors of the future governments,
the politics in the digital age is in continuous transformation;
- politics in electronic format – the manifestation of politics in digital form is
becoming more visible through the significant increase of online election
campaigns, the electronic state, and behavioural patterns;
- the electronic state – in the phenomenon of globalization fuelled by the digital
integration of the markets of the new economy, it will be desired to rethink and
redefine the concept of nation-state.
Thus, increasing the chance of creativity and innovation by profoundly
transforming the behaviours and profiles of citizens, from the reactive to the
proactive.
4. Methodology
The research was carried out at the level of the Ministry of European Investment
and Projects, with the main aim of creating scientific and technological excellence,
as well as gaining advantages in the field of security and resilience of systems,
services, and critical infrastructure of national importance, as well as increasing
cyber security culture in the central public administration and among contract users
or civil servants, with the possibility of establishing within the institutional
organization, at least 3 posts with specific tasks in the cyber field, in direct
collaboration with the Security structure of the Ministry and in cooperation
agreement National Cyber-int.
The period included in the analysis activity is between the years 2014-2022,
comprising two programming periods of non-reimbursable financing from European
funds, facilitated by the European Commission.
The two projects carried out by the Cyber-int National Center, to ensure cyber
security at national level, constituting a security umbrella, on the critical
infrastructure of national interest, which will be reinvented by the digital
transformation generated using emerging technologies, have produced a
considerable evolution. Emerging technologies and the integration of Machine
Learning or Artificial Intelligence functionalities, at the level of the Ministry of
European Investments and Projects, as a development measure through innovation,
having positive effects including on the development of the national economy by
increasing the absorption of European funds in a cyber secure environment.
The Ministry of Investment and European Projects regularly contracts the
services of a certificate authority to allow user authentication and control access to
various resources, especially in the application MySMIS2014, the first government
IT application with this level of security implemented since 2016. They can be
managed with HSM solutions and authentication tokens. Thus, an extra layer of
Security can be added by implementing a Dual Factor Authenticator system.
Authentication solutions, their management and monitoring, and even administrators
886
who may have various access privileges may also be useful. Access to the ministry's
resources will be secured and endpoints, mobile or immovable, must contain
advanced antivirus protection technologies.
Virtual Private Network traffic tunneling and Internet access monitoring are
performed through ICIN 54 MIPE – Cyber-int and STS. The encryption of the
storage spaces that manage the used applications is performed at STS by securely
hosting the equipment in the specially organized data center.
Critical systems must be completely separated from the rest of the network to
create an area independent of attacks that may enter the organization. This is the area
covered by the security equipment within ICIN 54 MIPE, which will benefit this
year from an upgrade of capabilities, through refurbishment. Access should be
granted only to people who use the system, and the connections will be encrypted by
technologies such as data diodes, zero-trust, etc. Updates are performed through
dedicated servers and well-defined policies to prevent access to the Internet
Windows Server Update Services (WSUS).

The first step in the use of emerging technologies by integrating Machine
Learning or Artificial Intelligence functionalities, at the level of the Ministry of
European Investments and Projects, was made within the projects financed from
non-reimbursable funds, as a measure of development through innovation, of a
critical infrastructure of national interest, by cooperation agreement with the
National Authority in the field of Cyber-intelligence – Cyber-int National Center
(Cloud Computing, Events, 2021). The security equipment used, offering advanced
management capabilities, to realize the prevention, detection, and investigation of
cyber security incidents, analyzing the risk generated by possible attacks, as well as
automatic remediation of threats.
Raising awareness will be achieved by informing users, which is the first measure
of protection against cyber-attacks. Human error can be avoided. This will close the
way for hacker attacks, through good regular information, constant emails, courses,
trainings, eliminating the possibility of further, much more serious problems,
especially regarding information and data belonging to the state (National
Cybersecurity Directorate, 2021).
In the near future, the public administration will evolve towards a different
approach to the use of technologies, being transposed into future strategies, the need
to use solutions in cloud, on-premises, or hybrid cloud environments, depending on
available budgets and advantages or disadvantages. To streamline the activity or in
the situation of permanent blocking of the procedures of new employees in the public
administration, the subcontracting of services that allow access to these technologies
is an efficient way to manage platforms, with a cost-benefit ratio for the benefit of
the public institution, will relieve the care of the use of internal resources.
Public administration services can be streamlined using advanced information
technology. The European Commission is trying to set its own example in this,
through the procedures and tools it uses in its day-to-day work and in its links with
887
Member States administrations and its own decentralized agencies, which are
marked by progress in computerization. The aim is to facilitate citizens' access to
public information through new computer applications, as well as to achieve better
communication between all levels of public administration across the Union, thanks
to the high-speed connection.
The development of the European Information Society involves a considerable
and ever-increasing financial effort, which cannot be fully assumed by the European
Union and the governments of the Member States. Experience has shown that the
private sector is best able to take risks in operating and developing new adaptable
markets and has the capital to make such investments.
Integrating Machine Learning or Artificial Intelligence functionalities, at the
level of the Ministry of European Investments and Projects, could be seen in Table
1 below, while security levels could be observed in Figure 1.
Table 1. Integrating machine learning and artificial intelligence functionalities,

at the level of the Ministry of European Investments and Projects
Automate
responses
Increasing
to detected Possible
Implementation Protected the degree Fixed
and security
period workstations of cyber vulnerabilities
remedied risks
protection
cyber
attacks
200
2014-2017 250 to 450 About 50% 75% 25%
Endpoints
1250
2020-2024 450 to 1700 About 75% 99% 1%
Endpoints
Source: Author’ own research.
Figure 1. Security Layers
Source: www.bitdefender.com.
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Figure 2. Centralized management of the antivirus solution update process

(Bitdefender MIPE, 2022)
Source: Central administration console – Bitdefender GravityZONE –

Ministry of European Investments and Projects.
Figure 3. Cloud computing and services – private cloud solution

(nextcloud MIPE, 2022)

889
Figure 4. Machine learning – cybersecurity incident investigation

(Bitdefender MIPE, 2022).

Figure 5. Machine learning – automatically blocked cyber threat investigation

(Bitdefender MIPE, 2022).

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Figure 6. Top 10 Vulnerabilities detected and blocked by the security solution


Figure 7. Malware detection status in the MIPE 2022 internal network


891
Figure 8. Network scheme of cyber protection equipment related to critical

infrastructure of national importance – ICIN – Țițeica
Source: The national system for the protection of IT/C infrastructures

of national interest against threats from cyberspace.
Figure 9. Cyber attacks automatically countered according

to the implemented security policies (Bitdefender MIPE, 2022).

892
6. Conclusions
According to Article 3, letter f, L51 / 91, “harm to the interests of the country, as
well as acts of destruction, degradation or rendering in a state of disuse blocking the
absorption of European funds. In that case, according to Article 11 letter b – the
direct beneficiary is the Minister of European Funds, who must be informed
immediately in order to avoid such possible threats to the objectives of national
strategic interest. (Information note of the Minister of European Funds 31.05.2018).
As a dimension of information, counter-intelligence and security, the threat that
consists in – blocking the absorption of European funds - falls within the provisions
of Chapter 3 related to the National Strategy for National Defense 2015-2019.
The persistence in the vulnerability regarding the blockade of the absorption of
European funds, being a real threat to the national security of Romania, due to the
socio-economic implications and the obligations assumed as a member of the
European Union, generates the need to capitalize the information for national
security. European Funds, as well as by taking the necessary measures to address the
shortcomings identified.
These data of national interest have an incidence in the current year – 2019,
leading mainly to a non-fulfilment of the conditions established in the relationship
with the European Commission, as an EU member state, of Romania.
As cyberattacks become more frequent, it is vital that organizations are
equipped with the most effective tools and knowledge to prevent, detect and respond
to cyber threats.
Thus, the identification and capitalization of these deficiencies, which constitute
information for national security, will be done gradually, due to the degree of
persistence manifested, as well as the permanent lack of sufficient and efficient
resources, endowed with the necessary training to manage the computer system.
Therefore, it is necessary to create a global framework for security and trust in
ICT. This strategic goal is aimed at creating scientific and technological excellence,
as well as gaining advantages in terms of security and resilience of systems, services,
and infrastructure, while meeting European privacy requirements (Regulation EU,
2016). The aim is to standardize networking and information security activities. The
emphasis will be placed on ICT research in the field of public administration
innovation, with a view to modernization and innovation, thus promoting an efficient
type of governance, offering new services to citizens and economic agents, with the
result of creating new public values.
Thus, making European citizenship a reality and providing support to citizens
through innovative government services and active participation in decision-making.
Everything happens thanks to a process called technology-based learning. The
technology used efficiently, safely, with positive results for society, involves
ensuring a high degree of security and awareness of the dangers of the virtual
environment. Specialized security equipment is the specific technologies that ensure
these activities without which the order and normality in electronic financial activity,
especially in the institutional field, would be seriously endangered by attacks,
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intentionally aimed at the government's online environment, especially in the

sensitive management of European funds.
Security solutions are needed, which bring real benefits to the institution once
they are configured according to the needs of secure operation. Easy-to-use, intuitive
management tools can optimize the time required to implement new policies, to
make a correct monitoring and alerting. Also, the collaboration with the National
Cyber-int Center offers stability and access to the necessary knowledge in the
activity of implementing these systems for ensuring cyber security. Unified and
integrated technologies offer a measurable advantage in results, benefiting from such
consoles and tools adapted to the level of expertise, in accordance with the strategies
built by the IT Security department. Cooperation with other institutions such as
National Cyber-int Center, participation in seminars and conferences in the field, is
an excellent tool for improvement, and especially a guide of good practices,
assimilated to adopt the best decisions for the public institution.
The budget allocated to innovation in public administration will create and
maintain such desirable stability, especially in critical areas, such as European
funds. In industry and economics, the role of robotics and process automation
will increase considerably, with changes related to technology bringing both
benefits and vulnerabilities, especially in cyberspace. It will practically create a
virtual parallel world, where the existence of the state, with everything it represents
must be protected, so the environment will be safe and secure even for the
individual. The consequences of competition in innovation produce major
transformations, including in society, simplifying the complex life of modern man
in the information society. Thus, constituting a national interest for the Government
Strategy, the areas such as attracting European funds and ensuring cyber security,
aiming at modernizing, and computerizing the public administration in Romania
(ENISA, 2021).
Thus, it is necessary to create a global framework of security and trust in ICT,
with an expansionist tendency toward process automation to achieve maximum
efficiency. This strategic goal is aimed at creating scientific and technological
excellence, as well as gaining advantages in terms of security and resilience of
systems, services, and critical infrastructure of national importance, as well as
increasing the degree of cyber security culture in the central public administration,
with the possibility of establishing within the institutional organization, at least 3
positions with specific attributions in the cybernetic field, in direct collaboration with
the Security Structure of the Ministry in question and in cooperation agreement with
the National Authority in the field of Cyber-intelligence, following designation by
SCND- Supreme Council of National Defense - Romanian Service of Information,
through the National Cyber-int Center.
In this way, an important stage in inter-institutional collaboration will be fulfilled,
to achieve the fundamental objectives of the country strategy, the field of funds
becoming critical infrastructure through the implications inherent in the national
economy, affecting all plans of society, from financial to economic, social-
educational, up to the political one, with all the necessary risks assumed. But most
894
importantly, the efficient management of infrastructure and applications for

European funds, having a special importance in the much-needed process of
increasing the quality of life, representing the first step towards knowledge,
innovation, and development.
References
[1] Bitdefender MIPE (2022). Central administration console – Bitdefender GravityZONE –
[2] Cloud Computing, Events (2021). October 6, 2021 at 11:19 am. Cloud Conference brings
new technologies to the forefront - (clubitc), https://www.clubitc.ro/2021/10/06/conferinta
-de-cloud-aduce-in-prim-plan-noile-tehnologii/.
[3] European Commission (2022). Jobs and the economy during the COVID-19 pandemic
https://ec.europa.eu/info/live-work-travel-eu/coronavirus-response/jobs-and-economy-
during-coronavirus-pandemic_ro.
[4] European Commission – Brussels, 3.3. (2021). One year since the outbreak of COVID-19:
fiscal policy response, https://ec.europa.eu/info/files/one-year-outbreak-covid-19-fiscal-
policy-response_en.
[5] European Information Society (2005). Publisher: Foundation for European Studies.
[6] Ministry of European Investments and Projects.
[7] National Cybersecurity Directorate (DNSC) (2021). September 30 - European
Cybersecurity Month – ECSM, https://cert.ro/citeste/comunicat-luna-europeana-a-securi
tatii-cibernetice-2021.
[8] Regulation EU (2016). / 679 – on the protection of individuals with regard to the
processing of personal data and on the free movement of such data and repealing Directive
95/46 / EC (General Data Protection Regulation).
[9] The European Union Agency for Cybersecurity (ENISA) (2021). September 13 -
Methodology for a Sectoral Cybersecurity Assessment, https://www.enisa.europa.eu/
publications/methodology-for-a-sectoral-cybersecurity-assessment.
[10] The European Union Agency for Cybersecurity (ENISA) (2020). April 15 - Advancing
Software Security in the EU, https://www.enisa.europa.eu/publications/advancing-soft
ware-security-through-the-eu-certification-framework.
[11] The national system for the protection of IT/C infrastructures of national interest against
threats from cyberspace, ICIN – Țițeica.
[12] www.bitdefender.com.
895

June 16-17, 2022
Irrationality in Decision Making –

an Experimental Economics Based Approach
Dragoș HURU1, Ana-Maria Iulia ŞANTA2*
DOI: 10.24789788367405072-083
Abstract
Economic decisions based on individual choices and individual behaviour can nowadays
be assessed considering a change of paradigm. Economists learn and teach the basic
principles of rational behaviour based on the homo economicus concept. But when assessing
real life situations from our economy and related decisions, one can find out that irrationality
is an important element determining our decisions. This triggers a change in re-evaluating
the theory and the principles which are the basis for decisions in an economic context. The
present paper deals with the subject of irrationality in decision making, presented based on
an experimental economics approach. The selfishness axiom, which is a theoretical model
explaining human behaviour in an economic context, is analysed, trying to raise questions
about the fact that according to this theory, individuals try to maximize their own material
gain. The present paper analyses to which extent such a behaviour can be induced by society,
by ethics, principles and values, by the economic, social and cultural environment. The paper
brings in question to what extent decision making is really based on rational models such as
the rational consumer model or rather on irrationality as a key-factor influencing decisions
in the economic environment. As a research method, strategic interaction based on
behavioural game theory is used in the present paper, such as the prisoner’s dilemma,
analysing the issue of cooperation and coordination. The findings of behavioural economics
are assessed using an interdisciplinary approach, as experimental economics brings together
assumptions from economics, sociology, psychology, anthropology as well as legal and
cultural aspects.
Keywords: irrationality, experimental economics, homo economicus, behavioural

game theory, the prisoner’s dilemma.
JEL Classification: A11, A13, C90, C91, C92, D01, D11, D12, D90, D91, F61,
I25, J01, J08, M14, M21.

© 2022 D. Huru, A.-M. I. Șanta, published by Sciendo. This work is licensed under the Creative Commons
1. Introduction
Experimental economics is a challenging field dealing with complex issues
of human behaviour. The scientific basis for studying human behaviour is
multidisciplinary, bringing together economics, psychology, sociology, and even
neuroscience and legal aspects. The common element of all these disciplines is the
model of individual human behaviour (Gintis, 2007).
The factors influencing individual human behaviour are researched by the field
of Experimental Economics, trying to find out to what extent predictions of
economic theory can be validated. Especially in this context, it is interesting to find
out to what extent pecuniary incentives play a role in economic decision-making.
According to research findings, it is actually the influence of non-pecuniary
incentives which determines economic decision-making of individuals. Trust and
reciprocity play a more important role than money as an incentive. This is a
hypothesis to be validated by Experimental Economics, and it is also subject of the
present paper. Ultimatum games highlight the above-mentioned aspects, by
emphasizing the role of psychological factors in the context of social interaction.
Economic decision-making is, in fact, a situation of social interaction with all related
components of learning and communicating (Morgan, 2005). The importance of trust
in this situation of social interaction is very high. In order to analyse the importance
of trust, it is relevant to research how trust can be built and what determines trust,
which is a research objective of the present paper. The formulated research
hypothesis underlines the fact that economic decision-making deviates from the
classical economic models based on rational decision making. There are also other
factors, mainly irrational factors that influence economic decision-making, which
are difficult to quantify.
Cultural influences can also play a role in economic decision-making. This is also
a research hypothesis to be examined in the present paper, in order to find out to
what extent cultural values may determine a specific type of economic decision-
making process. This research brings more clarity related to the question if cultural
factors or values such as equity or altruism may influence economic decision making
and if they may explain some deviations from classical economic prediction models
(Henrich et al., 2005).
Cultural factors are not necessarily rational decision-making factors. Again,
there is more than rational thinking that influences economic decision-making.
Values like equity, fairness, and altruism are important factors influencing economic
decision-making, and they deviate from the classical rational model focused on
pecuniary aspects and on profit maximization. This development is obvious in the
current business environment, in the producers’ behaviour. Today, producers do
not only focus on the main objective of profit maximization, but also consider as
well other factors such as corporate social responsibility. This is as well a field of
decision making showing that not only rational factors determine economic
decisions. There are values and moral criteria playing as well an important role in
economic decision making.
897
The present paper analyses the research hypothesis of irrationality in economic

decision making by reviewing the specific literature, leaving as well open space for
new experiments in order to validate the formulated research hypothesis. The present
paper is a theoretical article, a review article presenting important theoretical aspect
of Experimental Economics related to the subject of irrationality in decision making.
The main objective of the article is thus to summarize some aspects that are important
in the field of Experimental Economics, which is a new research field especially in
the Romanian academic context. A next step would be to organise based on the
studied theoretical background presented in the present article, an own experiment,
to design it and to perform an in-depth analysis of the elements that are presented in
this paper. The novelty and originality of the present article is represented by the fact
that for the moment there are no experiments performed in laboratories in the field
of Experimental Economics in Romania. The present paper also proposes a cross-
cultural perspective, which is also something new for the Romanian academic
research in this specific field.
2. Problem Statement (Literature Review)
2.1 Change of Paradigm in the Specific Literature

Studying the specific literature which is relevant for the present paper, a shift
of paradigm can be noticed. This shift of paradigm shows how the research field
developed and how perceptions related to the factors influencing economic
decision-making changed over time. The literature was selected considering the
criteria of reflecting the change of paradigm over time related to the research topic
and of underlining this development. Older literature as well as current literature was
chosen for reflecting the change of paradigm.
The “rational actor model” presented by Gintis is based on the fact that
individuals make decisions based on the information they have access to. The
“rational actor model” was developed by John von Neumann, Leonard Savage and
assumes that individuals can determine the logical and mathematical consequences
of their actions and choices. The principle of expected utility guides individuals in
their behaviour according to this model. The author refers to this model as the
“beliefs, preferences and constraints model” (“BPC”). The brain as a decision-
making organ has the most important role in the decision-making process, according
to this author. The author also speaks about the internalization of norms and values,
which happens in time based on cultural development and which influences the
decision-making process. The author uses as well the term “gene-culture evolution”
to explain the changes in decisions induced by cultural development of humans.
When a norm is internalized, it becomes a value that is observed. Such a value is, for
example, fairness, being honest. If the norm is internalized, an individual will be
honest or will try to be fair even if this is not in their own advantage, if they have no
payoffs. This kind of interaction is important in a social environment, where the
strategic interaction with other individuals and the response to actions of other
898
individuals are mentioned by the author under game theory (Gintis, 2007). More
detailed considerations about game theory will be analysed further in this paper.
The shift of paradigm is obvious in the literature, as former authors mentioned
competition situations as relying on rational decisions (McAfee et al., 1996). More
recent authors mention the importance of psychological factors, of beliefs and values
in decision-making (Gintis, 2007). Former authors mention rather Cournot-Nash-
equilibrium situations based on non-cooperative behaviour and on quantity as a
parameter in competition when describing economic issues on the market (Nash,
1950; Nash, 1951), while more recent authors, create models based on a Bertrand-
equilibrium, with competition in prices and quality (Nagurney, Wolf, 2013).
Human behaviour is explained in the literature by means of the “selfishness
axiom” (Henrich et al., 2005). The authors explain the concept of “selfishness
axiom”, meaning the fact that human behaviour is self-regarding (Henrich et al.,
2005). In recent years this theory has been reconsidered (Gintis, 2007), which is an
evidence of the shift of paradigm in this field. The literature states that the violations
of the selfishness axiom occur and that they are proven in conducted experiments
(Henrich et al., 2005). In recent years this theory has been reconsidered (Gintis,
2007), which is an evidence of the shift of paradigm in this field.
2.2 Game Theory in Experimental Economics

In Game Theory, there are players who are multiple decision makers. They have
information about the rules of the game, and they build their own strategies
according to the provided information and according to their beliefs and constraints.
For each strategy choice, the decision makers have to consider a certain payoff to the
players. Each player intends to maximize his preference function according to the
information he has, as well as to the beliefs he has, and to the constraints he faces
(Kreps, 1990; Gintis, 2005).
Behavioural game theorists explained in the specific literature that individuals are
not self-regarding in their actions and in their economic decision-making. They care
about the payoff of other players as well. They care about honesty and decency and
guide their decisions after these values (Fehr, Gächter, 2002; Gintis et al., 2005;
Gneezy, 2005; Wood, 2003). The authors specify also that individuals care about
power, self-esteem, and behaving morally and consider these parameters in their
economic decisions (Bowles, Gintis 2005; Gintis 2003; Wood 2003).

As the present paper is a theoretical review article, its main objective is to
summarize some important general theoretical aspects of Experimental Economics
which are relevant when trying to design an experiment on the topic of irrationality
in decision making. The research field of Experimental Economics is a new one at
international level and thus it is new as well for Romanian research. In a first step,
some general aspects that are important for Experimental Economics are
summarized in the present paper, in order to raise awareness regarding this
899
interesting research field. In the next step, an own experiment will be designed
by the authors and will be implemented as soon as the needed infrastructure will be
in place, meaning a laboratory permitting to perform experiments in this field. In
order to be able to design the experiment, some general theoretical knowledge is
needed. Starting with this theoretical, general basis, a specific experiment will be
designed in order to analyse the presented aspects in the Romanian environment, in
a detailed manner. This will permit some conclusions regarding the specific context
of Romania. Such an approach has a high degree of novelty in the Romanian
academic context.
4. Methodology
The present paper is a review article and therefore it considers important opinions
of authors expressed in the specific literature related to the researched subject. Books
on the research topic as well as scientific articles (Science Direct, Elsevier) have
been consulted. The selection criteria for the review of the specific literature were to
find experiments which are important for some general aspects of Experimental
Economics on the topic of irrationality in decision making and that would help to
design an own experiment of the authors, once the needed infrastructure will be
provided. After studying relevant conclusions of experiments performed worldwide,
an experiment in a Romanian laboratory could be designed in order to formulate own
research results applied to the Romanian environment. This is why some general
aspects of the attitude related to gains and losses have been selected when studying
the relevant literature. The cross-cultural component was also an important selection
criterion. Experiments from the United States of America, as well from Japan have
been presented in the present paper. Values like trust and reciprocity have been
analysed in these international experiments. They will also be analysed in a further
research step in the Romanian environment, after designing an experiment in a
Romanian laboratory, which would be a future research step of the authors of the
present paper. For the literature review, those authors were selected, who have
research results that could be interesting to study in the Romania environment. Some
aspects to be studied, like the importance of trust and reciprocity in decision-making,
were mentioned in the present research. They will be implemented in a future
research step, and they will be included in an own experiment, with a practical
application on the Romanian environment.
The use of qualitative research methods is economics in encouraged, an aspect
that has been considered in the present paper (Carlsson, 2018). This is why a
qualitative research approach was selected for the present paper.
The novelty of Experimental Economics is underlined, and the change of
paradigm brought by the development of this new field of economics is pointed out
in the present paper. The paper presents theoretical models that appear in the
researched literature, such as the “rational actor model” and the selfishness axiom,
which is a theoretical model explaining human behaviour in an economic context.
Furthermore, the paper analyses the importance of Game Theory related to the
subject of irrationality in economic decision-making. Some specific examples and
900
case studies illustrating the application of Game Theory in competition situations are
presented in the present paper. Metadata available in studies and research articles is
also interpreted and evaluated.
Ultimatum Games are analysed in order to validate some research hypotheses of
Experimental Economics, for example, the research hypothesis that individuals react
differently to sharing gains than to sharing losses. Experiments concluded in the
United States of America but as well at international kevel including countries like
Japan are given as practical examples of experiments. The cross-cultural dimension
is considered in this research paper.
The paper has a multidisciplinary approach, considering elements of economics
(especially advanced microeconomics), psychology, sociology, and neuroscience as
the field of Experimental Economics is one with interdisciplinary dimensions.
In the next phase, an own experiment will be designed in order to validate the
expressed research hypothesis.
5. Findings ̶ Results and Discussions
5.1 Perceptions of Gains and Losses – a Cross-cultural Perspective

The results of an experiment conducted in the United States of America show that
people behave differently when they have to divide losses than when they have to
divide gains (Nancy Buchan et al. in Morgan, 2005). This is a research finding based
on an experiment conducted in the United States of America. People try to avoid
losses, and therefore, as shown in the experiment, people act differently when they
have to decide to divide losses than if they have to divide gains. In the conducted
experiment, the amount demanded and the amount offered are higher under losses
than under gains. A consequence of this research finding is that there are differences
between bargaining over losses compared to bargaining over gains. Individuals
demand and offer more in ultimatum bargaining in order to avoid losses as much as
possible (Morgan, 2005). This is an important research finding for industries dealing
with losses, such as the insurance industry, for example. The consulted experiment
was performed in the United States of America, but the literature states that this type
of behaviour may be generalized, as suggested by the work of Roth, Prasnikar,
Okuna-Fujiwara and Zamir (1991) and later Henrich et al. (2001;Morgan, 2005, p.
19). Fairness matters, as well as an important factor related to bargaining over losses
and over gains. The principle of profit maximization is thus applied differently,
depending on the context of bargaining with losses or with gains (Morgan, 2005).
5.2 Psychological Factors in Decision-making

Assumptions in Economics are currently being reconsidered based on evidence
from psychology and neuroscience. In this context, the field of Experimental
Economics offers the opportunity to test a certain research hypothesis in a laboratory
in order to validate it. A shift of paradigm from the classical model of rational
behaviourism, based on the rational self-interest model, towards other models, based
901
on findings in psychology and neuroscience. A research question related to this

subject is why people make irrational choices. In order to answer such a question,
findings from economics, psychology, and neuroscience have to be considered.
Market anomalies, which are deviations from classical rational models, may be
explained by means of irrational choices of individuals (Hilton, D. in Lewis, 2008).
Cultural beliefs and values, such as fairness and trust, also play an important role in
decision-making. These may be learned values influenced by society and culture.
5.3 Irrationality and Game Theory

Game theory predictions are based on the assumption that agents decide based on
rational thinking and that they try to achieve Nash equilibria. The evidence from
experiments shows that this hypothesis is falsified. Game theory assumptions are
based on the idea that agents decide on a self-regarding basis. Another aspect which
is problematic in Game theory is the assumption that individuals have a symmetrical
access to information, which is not true in real life situations (Gintis, 2005). In real
life situations, individuals do not necessarily seek situations representing a Nash-
equilibrium (Gintis, 2007).
The payoffs in game theory are monetary payoffs representing utilities. Players
try to maximize their payoffs based on a rational behaviour, acting according to their
knowledge and beliefs. In other words, they try to achieve the best possible result in
the given circumstances (Gintis, 2007). What happens in reality and which falsifies
the assumptions of game theory is the fact that individuals decide based on other
criteria than the monetary payoffs, such as trust or fairness or other values they have
been educated to apply or to comply with. Sometimes this type of behaviour does
not represent the best monetary payoff obeying the profit maximization rule, but due
to education and culture, it is considered to be the best way to act.
5.4 Prisoner’s Dilemma and Other Dilemmas

An example related to Game Theory is the Prisoner’s Dilemma, illustrating the
behaviour of cooperation respectively non-cooperation of two rational individuals.
The fact that in a situation in which it would be more advantageous to cooperate, the
two individuals participating in a crime do not cooperate and decide to betray each
other is not rational from the point of view of Game Theory. But it happens in real
life, due to psychological, perhaps irrational factors. It happens as well on the market,
especially in oligopolies.
Besides the Prisoner’s Dilemma, the literature also mentions the Volunteer
Dilemma. This dilemma refers to a person waiting for others to intervene and to bear
the cost of this intervention. The person waiting for help has the role of a bystander.
The bystander would in such a situation intervene only if he knew that nobody else
would intervene (Gintis, 2007).
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5.5 Possible Research Impact and Research Limitations

The future research impact of the present paper is important, as it represents the
basis for future research. The authors intend to improve their research and to develop
an own experiment in the laboratory based on this theoretical research. Such a
practical research in Experimental Economics would have an important impact on
future research, as it would contribute to the development of a new research area.
Experimental Economics is a field of great interest and it would be very important
to further develop this field in Romania, with the possibility to design own
experiments and to study some general aspects applied in the Romanian
environment. It would represent an important step in Romanian economic research.
It would also place the Romanian research in the context of international research.
Possible limitations of the present research may appear as the field is so new that
there were no laboratory experiments performed until now in the field of
Experimental Economics, so that it is difficult to have the needed infrastructure and
the expertise to organise such experiments. Other possible limitations of the present
research paper may be represented by the fact that at the moment it is difficult to
organize and design an own laboratory experiment, so that at the moment the paper
is a review article. When designing and organizing an experiment will be possible,
the present research will be the basis for such a practical research, with applied
research findings from a laboratory experiment analysing aspects from the Romanian
environment with relevance for Experimental Economics.
6. Conclusions
Irrationality in decision-making is a fact to be observed in the specific literature
as well as in real-life situations. Individuals’ behaviour is determined by factors that
are beyond rational thinking, such as psychological factors, non-monetary
incentives, values and beliefs, education, and culture. This shift of paradigm from
rational behavioural models to new models, considering research findings of
psychology and neuroscience, is studied by the field of Experimental Economics,
which is a new, developing field of research with a high potential of development.
The present paper studies research findings of the specific literature regarding
irrationality in decision-making from an Experimental Economics-based approach.
The research results of the present paper may be developed in further research that
would for sure be very useful, given the dynamics of this field.
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[3] Fehr, E., Gächter, S., Kirchsteiger, G. (1997). Reciprocity as a contract enforcement
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904

June 16-17, 2022
Hydrocarbons Price Subsidy and Poverty in Cameroon

Adele Micheline NGO BILONG1*,
Tasha FOPI TAGHA2, Philemon NTANG3
DOI: 10.24789788367405072-084
Abstract
Subsidies for petroleum products increasingly burden the state budget and prove
ineffective in reducing poverty. However, their removal could also harm the well-being of
poor or vulnerable households. In this work, we analyse the impact of subsidy abolition on
poverty using a computable general equilibrium model.
The main results of this work show that the removal of subsidies does not benefit
households. The poverty rate increases by 0.6 points in urban areas and 1.7 points in rural
areas after the removal of subsidies. Direct transfers to the poor eased the shock, but do not
help reduce poverty. The other poverty indices, in this case the depth and severity of poverty,
have experienced the same trends. However, when these measures are accompanied by an
improvement in public services by increasing government spending, the poverty indices
improve or remain at their baseline levels.
Keywords: Subsidies, Computable General Equilibrium Model, Micro-simulation,

Cameroon.
JEL Classification: C68.
1. Introduction
Many countries often use public price subsidies to meet several objectives
depending on the nature of the products. The first is the stabilization of the price
level in the domestic market and the guarantee of an adequate supply of certain basic
products. The second is the protection of existing and infant industries with the aim
of maintaining a remunerative price level in certain disadvantaged regions.
The practice of subsidies has been applied in Cameroon since the twentieth
century, and they are put in place in order to protect the purchasing power of citizens,
to guarantee the supply of the market with basic products, as well as to support the
1 The University of Maroua, Kaele, Cameroon, [email protected].

2
The University of Maroua, Kaele, Cameroon, [email protected].
3 The University of Maroua, Maroua, Cameroon, [email protected].
© 2022 A.M. Ngo Bilong, T. Fopi Tagha, P. Ntang, published by Sciendo. This work is licensed under the Creative
development of certain sectors, in particular the oil and gas sector. According to data
collected in the database of the Hydrocarbon Price Stabilization Fund (HPSF), the
overall cost of the subsidies amounts to 1523 708 652 820 FCFA over the period
2008-2019, and the government budget amounted to about 41069 billion FCFA over
the same period. It therefore appears from the above that the cost of petroleum
products subsidies in Cameroon is considerable compared to its budget over the same
period probably for the benefit of consumers who represent households and whose
objective is to contribute to the eradication of poverty. Although Cameroon makes a
considerable profit from subsidizing hydrocarbons, amounting to 292 164 992 450
FCFA over a period of 2014-2017. Likewise, according to the World Bank in its
economic books, Cameroon's subsidies for petroleum products at the pump reached
a sum of FCFA 450 billion in 2014, i.e., about 3% of gross domestic product (GDP)
from the country. This sum according to the World Bank is in clear increase of 30
billion FCFA compared to 2013 which it peaked at 420 billion according to the
Cameroonian government. However, according to the financial institution, it is only
220 billion FCFA that would have been planned for that year (2014 budget), i.e., a
little less than 50% of the sum necessary to support the subsidies. Furthermore, the
International Monetary Fund (IMF) suggested to the government to remove the
subsidies because, according to them, said subsidies benefit the rich more than the
poor. Therefore, it is the starting point of a stormy (interesting) national debate
around the subsidy of petroleum products. A posture not shared by civil society and
even employer organisation such as the Cameroon Inter-Patronal Grouping best
known under its French acronym as GICAM, which made the removal of the subsidy
conditional on the implementation of certain accompanying measures clearly
proposed to the government. However, the removal of subsidies on petroleum
products would have a significant adverse impact on low-income populations, since
they spend more of their income on energy than the rich. Thus, an increase in the
prices of petroleum products would lower the standard of living of the poor, thus
affecting the well-being of the various categories of the population.
Nowadays, several studies have been conducted around the world to precisely
study the effectiveness of subsidies or also to determine the impact of their removal,
particularly on poverty and inequalities.
Many economists focused on the study and analysis of the issue to measure the
effectiveness of these subsidies or to determine the impact of their removal, as well
as compensatory measures to alleviate the effect of removal.
Among the first, Audet (2007) and Soile (2015) analysed the utility and
effectiveness of subsidies in Egypt and fuel subsidies in Nigeria, respectively. These
authors have come to converging results, concluding that these subsidies do not
benefit the poor especially and there is a great outflow to the rich. Therefore,
subsidies do not have a systematic effect on poverty reduction (Audet, 2007).
The subsidy reform sparked the interest of another group of researchers who
analysed the impact of the subsidy removal. These studies focused on reforms related
906
to energy and fuel subsidies, in particular poverty, government spending, prices, and
the environment. These authors used different approaches in different countries to
measure the effect of these reforms.
The first method consists of the estimation of income by proxy means (PMT)
using an appropriate econometric model. This method is widely used because it relies
on easily observable characteristics correlated with income and poverty. Household
consumption is often used among its characteristics. However, this method remains
incomplete, since it only takes into account a single sector while ignoring the others.
This approach was used by Bibi (2002) who showed that although the poor benefit
from subsidies, the leakage to the non-poor is considerable. He also stressed that
there are no products consumed exclusively by the poor. Thus, targeting these
products is not an effective policy against poverty. In contrast, targeted transfers
have a more effective impact on poverty than these subsidies.
The second approach is that of input-output models, which were also used in the
analysis of subsidies on petroleum products in China (Jiang, 2013) and Morocco
(Bentour, 2016). These models offer a possibility to simulate the effect of shocks on
the output of a particular industry or the expenditure of a given good or service on
the rest of the economy. On the contrary, the major limitation of this approach is the
lack of a price adjustment mechanism that would ensure a balance between supply
and demand. The authors simulated the effect of removing these subsidies on the
general price level. They effectively resulted in an increase in the general price level
as a result of this policy.
Moreover, in the United States, Choi (2016) proceeded in a similar manner to
approximate the effect of reusing the gasoline tax in subsidizing biofuels on
the environment.
Finally, computable general equilibrium models (MCEGs) represent a more
complete approach than the previous ones. They have demonstrated their power and
utility in the evaluation of economic policies on poverty (Decaluwé, 1999). They
make it possible to analyse the effect of income redistribution; they also trace the
mechanisms of resource allocation between agents, which represents an important
channel for the assessment of poverty. However, with a representative household,
these models do not provide information on the effects of the policy within each
group of households and, therefore, on poor households. A first way to capture the
variance difference between groups of households is to subdivide the household
agent into several categories according to the income level. This is the case of
Widodo (2012) who considered eight household categories to analyse the effect of
the removal of fuel subsidies in Indonesia on government spending. They concluded
that the distribution of household, industries, and state income would be affected and
that the impact of the reallocation of subsidies is less than the total removal of
subsidies. At the same time, Siddig (2014) for their part studied the impact of the
removal of the subsidy on imported oil on poverty in Nigeria by considering twelve
categories of households. They concluded that this policy had a positive impact on
the GDP. On the other hand, it negatively affected household income. They
907
suggested that a replacement policy, such as direct transfers to poor households,

could alleviate the effect.
In addition, a more refined approach of the so-called micro-simulation MCEGs
consists in considering a multitude (thousands) of types of households instead of a
few categories as before, often those resulting from surveys on household
expenditure (Savard, 2004). This method guarantees a certain homogeneity within
each group of households. Thus, it allows for inter-group and intra-group analyses
and comparisons. Dartanto (2013) used this method to approximate the effect of the
removal of fuel subsidies on fiscal balance and poverty in Indonesia.

Many studies that have dealt with the problem of subsidies in Africa have looked
a lot at the ineffectiveness of subsidies based on household surveys, highlighting the
leak to the rich. Although this method shows that the poor do not fully benefit from
these subsidies, it does not measure the effect of poverty in their absence. On the
other hand, the input-output modelling used by Bentour (2016) does not make it
possible to determine the incidence on poverty because this modelling does not
consider household income. Based on this fact, our analysis would like to answer the
question: What is the effect of a simulation of the removal of subsidies on petroleum
products?
Therefore, this paper contributes to the literature in two ways. First, it examines
the impact of subsidy abolition on poverty using a computable general equilibrium
model. Second, this study assesses the effects of abolition of subsidies on petroleum
products in the particular case of Cameroon.
4. Research Methods
Computable general equilibrium models aim to simulate the impact of public
policies on a given economy by using a set of equations that define the behaviour of
supply and demand in several markets. Since the 1980s, several authors have
attempted to use MCEGs in the evaluation of economic policies on income
distribution and poverty (Abdelkhalek, 2009; Adelman, 1979; Annabi, 2013;
Decaluwé, 1999; Dervis, 1982; Morrisson, 1991).
4.1 The Household Model

The microeconomic model of households is derived from the theory of the
consumer who maximizes his utility while respecting his budget constraint. The
household problem retains a simple formulation. Indeed, a household h has
preferences for consuming several products which are translated by its utility
function 𝑢ℎ (𝑞ℎ𝑑) where 𝑞ℎ𝑑 is the vector of product requested by household h.
Household income is made up of wages, capital income and comes from other
sources such as transfers. The household problem is given by the following
expression: Maxuh qhd ( )
908
p d qhd = sLh +  j r j K hj + mH
where:
p d : Price vectors of products demanded by the household;
s : Wage rate;
Lh : Labor offered by household h;
K hj : Capital of branch j detained by household h;
r j : Capital turnover of branch j;
m H : other sources of revenue.
Thus, following the change in prices caused by the simulation, the variation
in household well-being is measured by the variation in its indirect utility
𝑣ℎ (𝑝𝑑, 𝑠, r j , m H ). This is obtained by differentiating the equation with respect to
the prices and by applying the Envelope Theorem in the neighbourhood of an
optimum. The change in household well-being (gh) is given by the monetary value
of the change in utility:
du  d d dpid  ds drj
gh = = − i  pi qih d  + sLh +  jr j K hj
 mh  pi  s rj
Where 𝑣𝑚ℎ is the marginal utility of the income and 𝑝𝑖𝑑 is the price of product i
demanded by the household. This formulation is nothing more than a weighted
average of changes in the prices of products and factors that will be used as a measure
of the change in household well-being. Thus, the income of the household h after
simulation of the shock is calculated by summing its former income with 𝑔ℎ. Since
the poverty line is calculated relative to expenditure and often income data is poorly
measured, 𝑔ℎ will be added to the total household expenditure to analyse poverty.
Moreover, the most widely used poverty indices are those constructed by Foster
(1984), denoted FGTα, where α corresponds to the degree of poverty aversion. When
α = 0, the index measures the incidence of poverty, when α = 1, it is the depth of
poverty index, and if α = 2 the index measures the severity of poverty.

FGT =
1 J
 z −(y )
Nz  j
j
Where J is the subgroup of individuals whose income is below the poverty line z,
N is the total number of individuals in the sample, and yj is the income of individual
j (see Cockburn 2002). Again, the total hill should be used for the calculation of these
indices instead of the household income.
4.2 Description of the Household Survey Data

The data that will be used for the construction of the microeconomic model of the
household come from the national surveys on household income and living standards
909
conducted by the National Institute of Satistics (NIS) in 1996, 2001, 2007 and the
last one in 2014.
5. Findings
In this section, we will present the results of our economic analyses. Therefore,
in its first part we present the macroeconomic and sectoral results and in the second
part we present the microeconomic presentations of households and poverty result.
The main simulation in the context of this work is to remove the subsidies applied to
petroleum products. This consists of resetting the subsidy rates for these products to
zero.
Three scenarios will be simulated for this purpose. In a first scenario, the
subsidies will be dismantled for the product without any replacement measures. In
the second scenario, along with the removal of subsidies, transfers to poor urban and
rural households by the state will be doubled. Finally, in the third scenario, a 9%
increase in total government consumption would be simulated at the same time as
the measures simulated in scenario 2. In this last scenario, the amount injected into
the economy is equal to the base amount of subsidies.
5.1 Macroeconomic and Sectoral Presentations

The removal of subsidies is not without effect. Table 1 presents the variation of
the main macroeconomic indicators following the simulation of the three scenarios 4.
Table 1. % variation in main macroeconomic aggregates
Variables Benchmark Scenario 1 Scenario 2 Scenario 3
Government Revenu 261 869 3.76 3.70 6.11
Scenarios
Government Saving 413119 16.61 12.78 -6.42
Government Consumption 134 042 0 0 9
Poor urban 10 246 -2.39 3.85 8.8
Non-poor urban 447 071 -3.18 -3.19 0.76
Households Revenu
Poor rural 6075 -2.78 10.31 13.75
Non-poor rural 145 788 -3.07 -3.08 0.39
Poor urban 5 155 -2.35 4.3 9.22
Non-poor urban 338 856 -3.29 -3.3 0.7
Households Consumption
Poor rural 5 215 -2.75 10.57 14.03
Non-poor rural 102 119 -3.09 -3.09 0.38
Poor urban 4 444 -2.35 4.3 9.22
Non-poor urban 20 645 -3.29 -3.3 0.7
Poor rural 752 -2.75 10.57 14.03
Non-poor rural 39 614 -3.09 -3.09 0.38
Firms Revenu 322 430 -3.41 -3.42 -0.51
Household savings
Firms saving 117 479 -4.97 -5.02 -2.2
Total investment 261 075 -0.24 -0,83 -4.19
Gross domestic product 713 211 -1.53 -1,56 1.16
Wage rate 1 -2.86 -2,88 2.54
Price index at consumption 1 -1.16 -1,11 1.94
Source: Author.
4 Values are millions of FCFA.
910
The first component affected is government income, which increased in the three
scenarios by 3.8%, 3.7%, and 6.1%, respectively. Since the subsidies are counted as
negative income for the government, their removal consequently generates a positive
impact which has benefited public savings which increased by 16.6% in scenario
1 and 12.8% in scenario 2. However, in scenario 3, savings fell by 6.4% due, in
particular, to the increase in total government consumption expenditure.
On the other hand, households are also the agents directly confronted with this
policy. The removal of subsidies without any replacement measures negatively
affected their income as well as their consumption and savings. In this scenario, both
poor and non-poor households in both areas saw their income decrease from 2.4%
to 3.2% depending on the category. However, in scenario 2 the government transfer
granted to poor households benefited them to increase their income and
consumption, respectively, by 3.9% and 4.3% for urban residents and 10.3% and
10.6% for rural people. Finally, scenario 3 is beneficial for all categories of
households. The incomes of the non-poor increased by 9% for urban households and
14% for rural households. As for the income of non-poor households, it stabilized at
its initial level. However, companies did not take advantage of this policy, and their
income and savings declined from their initial levels.
The gross domestic product fell slightly in the first two scenarios, particularly
because of the drop in household consumption and total investment. On the other
hand, in scenario 3 it recorded an increase of 1.2%, which is generated by the
increase in government spending.
At the sectoral level, Table 2 shows the variation in value added for each branch.
The branches most affected are those that have suffered the shock directly, namely
the food and tobacco industry and petroleum refining. Their added values fell by
nearly 2.2% and 2.1%, respectively, in the first two scenarios. As a result, road and
maritime transport, which are major consumers of petroleum products, also saw their
added value decrease in the three scenarios. On the other hand, non-market
production benefited from this drop in subsidies, in particular, thanks to the gain
generated for the State.
In fact, the added values of the public administration and security branch, as well
as the education and health branch, increased by 1.4% and 1.7% respectively in the
first two scenarios and by 4.9% and 3.9% respectively in the third scenario.
Table 2. Variation in added value by branch in%5

Branch Benchmark Scenario 1 Scenario 2 Scenario 3
Agriculture 10 271 -0.13 -0.12 -0.25
Peach (fishing) 6 124 -1.92 -1.81 -1.27
Extraction Industry 15 910 -1.4 -1.48 -2.67
Tobacco and alimentary
33 962 -2.24 -2.2 -2.02
Industry
5 Benchmark values are in millions of FCFA.
911
Branch Benchmark Scenario 1 Scenario 2 Scenario 3

Leather and textile
18 080 1.85 1.9 -2.54
Industry
Cheimical and semi-
chemical 15 319 0.98 1.01 -0.69
Industry
Mechanical, metallurgical
21 866 0.62 0.5 -2.33
and electrical Industry
Other production
19 939 -0.54 -0.6 -2.37
industries
Oil refining 1 102 -2.12 -1.95 -1.89
Water and Energy 18 747 -0.39 -0,33 -0.62
Public works 48 270 0.2 -0.01 -2.46
Commerce 70 789 -0.89 -0.92 -0.26
Hotels and restaurants 16 981 0.17 0.2 -0.19
Railway Transport 2 062 -1 -0.44 -0.34
Road Transport 97 438 -2.43 -2.3 -2.12
Air Transport 27 689 0.14 0.15 -1.31
Maritime Transport 6 369 -3.57 -3.38 -3.67
Other transports 2 631 -1.42 -1.35 -0.97
Posts et
22 042 -0.15 -0.1 -0.21
telecommunications
Insurance and financial
29 478 -0.33 -0.26 -0.55
activities
Real estate, rental and
rendered services to 85 331 0.02 0.02 -0.3
companies
Public administartion and
60 208 1.37 1.39 4.93
social security
Education, health and
62 129 1.7 1.77 3.86
social action
Other non financial
96 425 -0.18 -0.12 -0.42
services
Source: Author.
The market prices of products have experienced slight decreases following the
simulation of the first two scenarios except for the price of petroleum products,
which recorded a relatively large increase (+ 18%). This increase is due, in particular,
to the large share of subsidies allocated to these products. Transport prices were also
affected by the shock. The price variation is shown in Table 3.
912
Table 3. Market price variation per product and capital turnover per branch in %
Market price Capital turnover
Branch Benchmark
Scenario Scenario Scenario Scenario Scenario Scenario
1 2 3 1 2 3
Agriculture 1 -3.67 -3.6 -0.68 -4.98 -4.89 -1.69
Peach (fishing) 1 -2.96 -2.81 3.44 -7.95 -7.69 -1.03
Extraction Industry 1 -3.26 -3.42 -3.52 -10.94 -11.39 -13.21

Tobacco and
1 -0.63 -0.54 3.25 -14.38 -14.19 -8.45
alimentary Industry
Leather and textile
1 -0.84 -0.81 0.65 0.99 1.06 -2.88
Industry
Cheimical and
semi-chemical 1 -0.96 -0.97 0.12 0.18 0.24 0.33
Industry
Mechanical,
metallurgical
1 -0.35 -0.4 -0.05 -1.13 -1.48 -4.1
and electrical
industry
Other production
1 -0.27 -0.32 0.7 -4.4 -4.62 -4.53
industries
Oil refining 1 17.88 17.82 18.18 -10.1 -9.55 -4.3
Water and Energy 1 -1.79 -1.71 1.31 -4.33 -4.11 0.11
Public works 1 -0.77 -1.12 -1.77 -2.03 -2.93 -7.78
Commerce 1 -3.18 -3.25 2.24 -5.95 -6.08 1.6

Hotels and
1 -1.58 -1.51 1.93 -1.98 -1.86 1.51
restaurants
Railway Transport 1 -2.04 -1.9 2.68 -4.47 -4.19 1.45
Road Transport 1 -0.11 0 3.81 -10.29 -9.95 -4.35
Air Transport 1 1 1.08 -0.02 -2.24 -2.23 -3.28
Maritime Transport 1 3.12 3.29 12.64 -9.78 -9.44 -4.97
Other transports 1 -1.28 -1.26 3.55 -4.52 -4.46 1.33

Posts et
1 -2.96 -2.81 1.72 -3.66 -3.44 1.33
telecommunications
Insurance and
1 -3.23 -3.13 1.29 -3.86 -3.67 0.79
financial activities
Real estate, rental and
rendered services to 1 -2.78 -2.8 0.11 -2.66 -2.67 -0.36
companies
Public administration
1 -1.6 -1.61 3.07 -1.4 -1.39 8.09
and social security
Education, health and
1 -2.4 -2.4 3.16 -0.86 -0.79 7.34
social action
Other non financial
1 -2.74 -2.62 1.37 -3.67 -3.4 0.56
services
Source: Author.
5.2 Microeconomic Presentations of Households and Poverty

In order to calculate the well-being of households which depends on the variation
in the prices of the products consumed and of the factors, price indices of the
913
Laspeyres-Paasche type are calculated from the prices generated by the MCEG since
the types of product present in the database are more aggregated than the products
existing in the SAM.
The analysis of Table 4 which presents the main poverty indices, shows that the
removal of subsidies would have a negative impact on the well-being of households.
As we could see in the three scenarios, the policy accentuated poverty contrary to
the results obtained from the MCEG. This confirms the limits of the representative
agent approach in the analysis of poverty.
Table 4. Poverty index values in %

Scenario Urbain Rural Total
Benchmark 4.8 14.7 8.9
Scenario 1 5.4 16.4 9.9
FGT0
Scenario 2 5.2 16.4 9.8
Scenario 3 4.3 15,4 89
Scenario 1 1.1 4 2.3
FGT1
Scenario 2 1 3.8 2.1
Scenario 3 0.7 0.4 1.8
Scenario 1 0.5 1,8 1
FGT2
Scenario 2 0.5 1.7 1
Scenario 3 0.2 1.2 0.6
Source: Author.
Indeed, the incidence of poverty increased by 0.6 points in urban areas for the
first scenario. Direct transfers to poor households did not contribute to poverty
reduction, but the magnitude was smaller compared to their absence. However, when
these transfers are accompanied by improved public services by increasing
government consumption, the effect was positive, poverty fell by 0.5 point. On the
other hand, in rural areas, the incidence of poverty increased by 1.7 points for the
first two scenarios and 0.7 points for the third. The depth of poverty measured by
FGT1 also showed an increase of 0.3 points in urban areas and 0.6 points in rural
areas for the first scenario. Here again, transfers to households can ease the shock
but have not helped reduce poverty. Scenario 3 just manages to stabilize the poverty
depth index at its initial level.
Finally, the last index which measures the severity of poverty also saw an increase
of 0.3 points in urban areas and 0.6 points in rural areas. The policies initiated in
scenario 3 made it possible to maintain this indicator at its base level.
914
The variation in average expenditure per person (Table 5) also reflects the decline
in household well-being caused by the removal of subsidies despite direct transfers
to poor households. However, the policies simulated in the third scenario are
beneficial to the poor.
Table 5. Average variation of expenses per person in %
Urban Rural National
Scenario
Non-Poor Poor Non-Poor Poor Non-Poor Poor
Benchmark 14 438 3 180 8 553 2 739 12 156 2 877
Scenario 1 -1.6 -4.07 -1.8 -1.6 -1.5 -2.42
Scenario 2 -1.8 -1.79 -1.96 0.06 -1.68 -0.62
Scenario 3 -1.04 0.7 -1.66 1.4 -1.07 0.72
Source: Author.
6. Conclusions
The objective of this paper was to analyse the impact of the removal of petroleum
product subsidies on poverty, using the general equilibrium modelling approach. In
this work, three scenarios were simulated. The first is to eliminate subsidies without
any other countermeasures. In the second scenario, a direct transfer to poor
households was also simulated along with the removal of subsidies. The third
scenario follows the second with a 9% increase in total government spending. The
main results of this work have shown that removing subsidies does not benefit
households. The poverty rate increased by 0.6 points in urban areas and 1.7 points in
rural areas. Direct transfers to the poor eased the shock but did not reduce poverty.
The other poverty indices, in this case, the depth and severity of poverty have seen
the same trends. However, when these measures are accompanied by an
improvement in public services by increasing state expenditure, the poverty indices
can fall or at least remain at the initial state.
In conclusion, removing subsidies is not an easy task. Despite its positive effect
on the state budget, it is not without effect on poor and vulnerable households. In
order to counter this negative effect, the state must intervene not only with direct
transfers to the poor but also with policies to stimulate demand.
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916

June 16-17, 2022
IoT Security in the Context of Digital Organizations

Nicolae-Gabriel VASILESCU1
DOI: 10.24789788367405072-085
Abstract
The main goal of this paper is to identify security issues related to the use of IoT devices
in a private or public organization and to propose innovative solutions to solve the problems
found. The paper also contains an analysis of the current context and how the part of
innovation within a company can be impacted both in terms of overall image and punctuality
in the process of finding new solutions by affecting or vulnerabilities that may be exposed
through components in the sphere of IoT. The issue of money and how it can create huge
losses due to security breaches or possible cyberattacks on the components used at the IoT
level is another important aspect that appeared from the analysis performed in this paper. In
the end, the analysis performed and the solutions found bring a high yield related to the
innovation process within the specialized centers within the private or public companies.
Keywords: IoT, security, innovation, vulnerabilities.
JEL Classification: O36.
1. Introduction
In recent years, both in the sphere of private organizations and public institutions,
there has been an ascending trend in the use of smart devices or technology based on
the Internet of Things regarding the digitization process. This is due to the need to
automate many processes that were previously performed manually.
The Internet of Things, abbreviated as IoT, is for many people a real infrastructure
that connects millions of new smart devices that communicate with each other or on
the Internet and share data, often sensitive, as explained by Berte and Clara (2018).
The current emphasis is on innovation, with many companies forming dedicated
teams for this process. It creates a good image from the outside in this context,
attracting new employees who want to develop and find new and smart solutions.
The IoT component has an important role in all this setting, helps to significantly
improve the results and facilitates the work that the user does to collect information
and data that is sensitive.
© 2022 N.-G. Vasilescu, published by Sciendo. This work is licensed under the Creative Commons Attribution 4.0
License.
In most cases, the use of Internet of Things components is encouraged, especially

when it comes to modernizing the public system or innovating in private companies,
but a big problem in this regard is at the level of IoT security. Various types of attacks
can occur here that can produce the loss of sensitive information, huge loss of money,
and destruction of the public image.
There is a need to protect these components that facilitate the daily data collection
process, through various means, periodic testing by dedicated people, or their
improvement by upgrading to the latest technologies in the field that certainly come
high compared to previous versions.
The digitization process at the organization level helps people who use the
services offered by companies or public organizations to improve their quality of
life, but in addition to this, they also need the protection of personal data. In this case,
the security issues that may arise from the use of applications and smart devices
are a real problem, and many funds are being made available to dedicated companies
to solve them.
In addition to the technology that is advancing day by day, problems can arise
from within digital organizations by exposing data, and there can also be malicious
people from outside who want to find out sensitive information or create a wrong
image for users. The same problem arises in the case of public organizations, on
which cyberattacks can occur in order to access valuable information belonging to
the state.
As shown by Velsberg et al. (2020), the digitization of the state level using the
Internet of Things is done by combining technologies, people, and organizations,
with more emphasis on the desire for a modern action that is first done manually on
the use of appropriate technologies. Most of the time, the whole process of building
smart processes in both public and private organizations is postponed, or they are
not discussed as real problems and of immediate impact, they are put at the end of
the list of priorities.
Digitization in education has grown in recent years due to the need to automate
the learning process, make it easier using smart devices and applications based on
IoT technology add value, but also make this activity more interactive and beneficial
for both teachers and students, as Stroe (2021) researched.
The integration of IoT components emphasizes the dimensions of efficiency,
effectiveness, transparency and collaboration. In other words, security issues may
occur if one of the 4 features is not met.
At the level of the public sector, Kankanhalli et al. (2019) identified the
challenges that appear in the implementation and adoption of these technologies in
order to transform the state system into a high-performance one, emphasizing the
degree of responsibility, fairness, and ethics within. Employees working to provide
intelligent solutions in the public domain must have the three characteristics in the
process of creating and building a digital and innovative environment. IoT security
has no value if the elements discussed above are not checked.
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Roman-Castro et al. (2018) point out that in recent years both the public and
private sectors have continued to explore different paradigms and areas of
application that involve connecting all these objects. Moreover, this IoT domain
continues to evolve, and its security capabilities must keep up with the same trend.
One of the main factors that lead to distrust of using IoT as a secure source is
realizing that IoT objects can become their own adversary. This is because web hosts
can in some cases be owned by malicious parties or are remotely controlled by
exploiting vulnerabilities.
As AboBakr et al. (2017) explained, we meet different technologies inside IoT
systems: sensors, 3G, 4G, NFC, RIFD used in the transfer of private data, extremely
sensitive and very large in volume. Users who are using these technologies need to
consider a number of issues, including the possibility of cyberattacks, ethical and
legal issues that are shaping the health of IoT applications.
Miniaturization issue is another problem encountered, going to the nano size level
in the case of IoT devices. The process of controlling their quality, data traffic, and
security at the bottom point is becoming more difficult.
Also, the IoT globalization brings problems because sensitive data is transmitted
from the countries where smart devices are used in the country that offers those
services, the medical services are an example.
Tankard (2015) has shown that the main security issues regarding IoT
applications are: allowing the use of weak passwords, access to some sensitive
information from the huge amount that is transmitted from and to the applications
used, the data sent is not encrypted, cross-issues site scripting at the level of web
interfaces, and software updates that are not encrypted when downloaded. The
solution of the security challenges consists of treating in a special way the following
5 processes according to Figure 1.
Figure 1. Issues currently in place for securing the IoT

80%
70%
60%
50%
40%
30%
20%
10%
0%
Authentication/Authorisation System Monitoring
Encryption of communication Security evaluation prior to production
Network segmentation
Source: SANS Institute.
919
These problems in the context of digitization are common and harm to users
because the confidentiality of their own data is not ensured.
As can be seen in the paper written by Oser et al. (2020), another IoT security
approach is to make users to be aware of the risks and problems that arise when
using these smart devices. Users should know what risks they face if they do not
follow a certain requirement, such as the current standard for setting passwords at
the application level.
Sestino et al. (2020) explain that digitization eases the connection between
technology and management for users, but there are still some question marks
about the potential of the IoT domain, which has created a disorganized high level
of knowledge.
The opportunities and challenges that arise when integrating IoT into the
digitalization of companies or public organizations are closely related to the security
side and the trust or understanding of smart applications.

The analysis is based on the identification of security issues at the IoT level in
the context of the digitization of private and public organizations. Infrastructure
problems can occur, such as how applications are connected to sensors, internet
access in a certain area, weather conditions, and other important issues. Also, at the
level of applications or smart devices we find many security breaches, which allow
different types of attacks to access sensitive information inside. The user's awareness
of the components of IoT security contributes to the avoidance of problems that may
arise; an example is the need to use strong passwords to avoid breaking them. If the
application user is aware of what to use and how to use it properly, many of the
attacks and problems can be attenuated.
The current vulnerabilities in the IoT area are another point of interest as it helps
to create real solutions in applications that help to digitize public organizations or
the private environment.
Another important aspect is how the end user or the citizen can be helped in the
case of public organizations in order to avoid the security problems that may occur
without him realizing them. What are the ways in which he learns to properly use
digital applications and devices that optimize his effort in solving certain tasks,
payments, signing documents, or other operations in that case?
Given the security issues identified, users need an application to check how
vulnerable an IoT-based application is to the current issues in this area and to make
them aware that the use of IoT components involves a risk when they do not know
the real problems and how their data may reach into a public image or in possession
of malicious people.
4. Research Methods
Starting from the current situation regarding the security of IoT applications
and devices in the context of digitalization of private and public organizations,
920
an essential aspect is that of teaching users about security breaches that can lead to
finding their own sensitive information, control, and the identification by another
person of the actions performed by the citizen or by a simple user.
It is important that the user does not offer himself the possibility of an attack on
his own data, to have strong passwords, to ensure that the documents are signed and
saved securely, and all processes are safe and in accordance with the law.
Because this need to know about security issues in smart apps was identified,
a prototype app is needed to help users and inform them of vulnerabilities in
state-owned or private IoT-based applications they use.
From the collection of vulnerabilities found by Rytel et al. (2020) and currently
available for smart devices and applications, a division will be made according to
the degree of risk to which a user may be exposed, the problems with major risk will
be signaled in the application with red color. In their case, it is chosen not to use that
IoT-based application provided by the public or the private digital organization until
it is fixed, with the necessary explanations regarding the losses that may occur.
There will be problems with medium risk, and in this case they will be indicated
with yellow color. In this case, depending on the severity of the situation, it is
possible to choose or not to use the application. The positive scenario is one in which
no issues are detected, and this is marked with green.
This model aims to identify new vulnerabilities in IoT-based applications or
devices every time and to check if the applications needed by users are experiencing
these problems or not. Each time these vulnerabilities will be updated, and from each
application test, the user will know if he encountered by those problems as shown
in Figure 2.
Figure 2. Testing IoT security breaches
Source: Own figure.
921
In addition, all identified security breaches will have explanations so that it is

known exactly what the implications of using an application are.
Another advantage is that information can be addressed to the relevant digital
organizations or state institutions either to upgrade the IoT components used to the
final versions or to fix the identified security issues.
As Pocatilu et al. (2020) shows, CVSS (Common Vulnerability Score System) is
a standard found in companies to identify vulnerabilities in IoT-based devices and
applications. This score helps users to know the security level of smart applications
used, and at the time of their use, there are no problems related to the stealing of
personal data.
5. Findings
The expected results are based on two directions, the first one is related to the
public or private applications based on IoT technology that are checking if the
vulnerabilities currently exist or have not upgraded to the latest version that solves
the detected problem, and the second one is based on users' understanding and
awareness of the current problems and how they can suffer data loss, which
ultimately leads to huge loss of money and destruction of personal image.
It is quite useful for users of smart applications, as a result of digitization, to have
data in safe and the safe use of various resources exposed by private or public
organizations, without data loss or control of other entities on the steps taken.
Taking into account the CVSS, the user will know the security level of the smart
application he is using and whether he can use it or not, receiving recommendations
that will make him make the right decision.
6. Conclusions
Given the need to protect the data of citizens or users of applications based on
IoT technology in the digital age, an application is needed to check the current
vulnerabilities in the applications provided and also to expose the consequences that
may occur and how can the cyberattacks exist due to unresolved issues.
With the expansion of all IoT-based applications and smart devices in the current
digitalization situation, a lot of security problems arise, with users being exposed
both cyberattacks and personal data exposure without realizing it.
Depending on the severity of the problems identified, the user may decide to
continue using IoT-based applications until the issues are resolved. In the context of
digitization, we must be careful to protect data, to prevent, and combat security
problems that may occur in the life cycle of an application or a device.
The need to build an application based on the prototype described above was
noticed to help users to identify vulnerabilities, making them aware of existing
security issues in terms of IoT-based devices and applications. People who use these
components should also see what issues are being addressed by certain upgrades.
922
Acknowledgment
References
[1] AboBakr, A., Azer, M.A. (2017). IoT ethics challenges and legal issues, 12th International
Conference on Computer Engineering and Systems, pp. 233-237.
[2] Berte, B.R., Clara, S. (2018). Defining the IoT, De Gruyter, pp. 118-129.
[3] Kankanhalli, A., Charalabidis, Y., Mellouli, S. (2019). IoT and AI for Smart Government:
A Research Agenda, Government Information Quarterly, 36(2), pp. 304-309.
[4] Oser, P., Feger, S., Wozniak, P.W., Karolus, J., Spagnuelo, D., Gupta, A., Luders, S.,
Schmidt, A., Kargl, F. (2020). SAFER: Development and Evaluation of an IoT Device
Risk, Proc. ACM Interact. Mob. Wearable Ubiquitous Technol., 4(3).
[5] Pocatilu, P., Zamfiroiu, A., Apostol, V. (2020). Automated Analysis of Topics on
Security, Informatics and Control, pp. 459-469.
[6] Rytel, M.F., Felkner, A., Janiszewski, M. (2020). Towards a Safer Internet of Things A
Survey of IoT, Sensors, pp. 1-26.
[7] Roman-Castro, R., Lopez, J., Gritzalis, S. (2018). Evolution and Trends in IoT Security,
Computer, 51(7), pp. 16-25.
[8] Sestino, A., Prete, M.I., Piper, L., Guido, G. (2020). Internet of Things and Big Data as
enablers for business digitalization strategies, Technovation, 98.
[9] Stroe, A.C. (2021). Teachers’ Perspective on Integration of Mobile Solutions in
Romanian, Informatica Economică, pp. 75-88.
[10] Tankard, C. (2015). The security issues of the Internet of Things, Computer Fraud &
Security, 2015(9), pp. 11-14.
[11] Velsberg, O., Westergren, U.H., Jonsson, K. (2020). Exploring smartness in public sector
innovation - creating smart public services with the Internet of Things, European Journal
of Information Systems, 29(4), pp. 350-368.
923

June 16-17, 2022
A Study on Cognitive and Behavioural Dissonance

in a Group Setting
Daniela VÎRJAN1*, Alina Ștefania CHENIC2,
Vlad-Valentin VÎRJAN3, Alin Ioan CREȚU4
DOI: 10.24789788367405072-086
Abstract
Within a group, if the majority supports a particular idea or value judgment,
those who have different opinions and perspectives or disagree with the idea tend
to conform to the majority opinion in order to be accepted by the group. The power
of the group has become decisive in terms of bias in consumption and choice, so
along with advertisements and publicity, we are influenced by the people in the
group who already consume those goods (phones, sports shoes, designer clothes,
etc.); otherwise you feel alienated and rejected. The present research is based on
Solomon Asch's experiment and starts from the hypothesis that people tend to
conform to group norms precisely in order not to be rejected by their peers, even if
their personal beliefs and standards are different. We conducted an experimental
study among first-year students at the Academy of Economic Studies, applying
Solomon Asch's experiment. The results of the experiment confirmed Solomon
Asch's hypothesis that when we succumb to peer pressure, an identity shift occurs,
and judgment distortion is manifested. Very often our choices are influenced by
peer power or peer group influence, the causes being related to conformity and
fear of being judged, criticized, and marginalized.
Keywords: cognitive dissonance, conformity, normative social influence.
JEL classification: B55, C91, C92.

3 Bucharest University of Economic Studies, Bucharest, Romania, vladvirjan18stud.ase.ro.
© 2022 D. Vîrjan, A.Ș. Chenic, V.-V. Vîrjan, A.I. Crețu, published by Sciendo. This work is licensed under the
1. Introduction
Cognitive dissonance is a mental conflict that occurs when a person's beliefs,
behaviours, and actions do not align or are contradictory. When people have
contradictory beliefs or their actions contradict their beliefs, then discomfort arises,
translated into feelings of unease, tension, frustration, confusion, distrust.
Inconsistency between beliefs, actions, and behaviours causes uncomfortable
psychological tension - called cognitive dissonance. Cognitive dissonance is not
automatic, does not manifest itself to the same degree from one individual to
another, and depends on the degree of tolerance and acceptance of inconsistency.
When discomfort, frustration, and anxiety arise, people want to reduce dissonance
by trying to maintain consistency between thoughts, feelings, and behaviours, and
this is called the "cognitive consistency principle" (Festinger, 1957) in literature.
Cognitive dissonance has a mental and psychological cause that can apply to
any field of activity, where logical confusion arises. This concept has its origins in
social psychology, but over time it has been explained in various other fields,
where decision-making, behavioural, and motivational processes occur. In
economics, the concept appears in consumer theory, in the formation of
preferences for making a purchase decision, or in any decision-making process
involving a choice, whether economic or otherwise. Cognitive dissonance can
occur both before and after the choice. Uzma and Nasreen, 2012, argue that if
consumers are well informed before purchasing a good and are satisfied with the
choice made, then cognitive dissonance is diminished; however, if a consumer is
manipulated through marketing techniques or psychological methods in order to
purchase a good, then cognitive dissonance increases.
Jean Jacques Rousseau (2003) stated that "man is born free but lives everywhere
in chains", freedom is an illusion, most decisions are made by copying and
imitating, the reptilian brain learns by association and repetition, and very often the
consumer does not choose on principles of economic efficiency, but on emotions,
when the limbic system acts. The human brain is an organ that likes comfort, it
feels reassured when a situation or an event is familiar, and when unmanageable
things arise, or things which do not fit with certain beliefs or ideas, then a
discomfort appears translated into anxiety and mental tension which generates
maladaptive, irrational actions. An example of this was the outbreak of the COVID
19 pandemic. Because of conflicting information coming from the authorities, as
well as the divided opinions of experts, the promotion of ideas about possible
conspiracies, some people were very upset, frightened, and, in order to reduce that
mental tension, they acted in accordance with the decision of the majority group,
even if they did not believe in that decision. Our minds have a tendency to simplify
and very often we make decisions based on trust, we tend to look to others for
some confirmation, and we act without much consideration of assumptions.
In the economics literature, to determine whether a choice is efficient, the
opportunity cost is calculated, i.e. the cost of choice or the price of sacrifice.
Opportunity cost tells us to choose the alternative that, at the time of choice, brings
the most benefits and whose effect/effort ratio is over unity. Some people take the
925
cost of choice into account and have the principle of economic efficiency in mind,
while others choose on psychosocial or relational criteria, ignoring the principle of
economic utility. We buy to be fashionable, for appearance, to create a false idea of
who and what we are, for social prestige, to demonstrate financial power, out of a
desire to belong to a certain interest group, and the list goes on. Peer group
opinions, preferences, and choices weigh quite heavily and can influence individual
decisions, especially among teenagers, as they have a developing personality and
the phenomenon of imitation is very strong. The notion of conformity arises, the
desire to conform to a standard, not to stand out from the norm, because there is a
mental fear of being judged and rejected, especially by the peer group and then by
others. For example, how do you think a teenager who is 2 metres tall will feel in a
group where the average height is 1.60 metres? Obviously, he will not think he is
special, but will see this physical aspect as a defect, wanting to be like the others.
To give an example from the field of economics, after the 2008 crisis, economic
agents invested in cryptocurrencies, although many were reluctant and said that it
was stupid, an aberration. Yet, because certain groups invested when it was a
niche phenomenon, the losses were high but the rewards were even higher, so in
2010-2011 it became a mass phenomenon and then the risk profile increased a lot.
Basically, many people invested on the emotional impulse of winning groups – if
your friend, neighbour, colleague invested and won handsomely, then I was
confident that if I invested in Bitcoin, for example, I would win, too. When we
make a decision, in this case an investment, very often we anchor ourselves in what
we have read or heard from other people whom we appreciate or give credit to.
That idea is implemented in the mind, and we no longer pass the actions through
the filter of our mind, but act on the emotional impulse of the group.
Very often we are stuck in certain ideas, beliefs, values that are passed down
from generation to generation, and when we come into contact with other beliefs,
values, and conceptions then we defend ourselves and try to find evidence to
support those beliefs, as acceptance could create a very uncomfortable feeling
called cognitive dissonance. Of course, cognitive dissonance can cause some
people to change their behaviour so that their actions align with their beliefs. In this
way, it gives people the opportunity to examine their values and actions and gain
cognitive consistency.
Solomon Asch (1951) conducted a groundbreaking exploration of conformity
and confirmed the hypothesis that people tend to publicly conform to the majority
opinion in order to be accepted by the group, even if they disagree with that
opinion. Festinger (1957) started from the idea that, in order to confirm the
predictions of cognitive dissonance theory, people need to maintain consistency
between thoughts, feelings, and behaviours, while inconsistency between beliefs or
behaviours causes uncomfortable psychological tension, called cognitive
dissonance. In this sense, people will try to change or add one of the inconsistent
elements to reduce the dissonance. Festinger et al. (1956) argued that, in order to
926
reduce cognitive dissonance in a conflict situation, the individual may turn to his or
her peers to look for possible consonant elements in the form of mutual support.
Clémence (1996) said that this theory explains how a subject determined to
perform a behaviour contrary to his beliefs transforms his opinions in the direction
of that behaviour. Cooper and Mackie (1983) studied the relationship between
group apartness and the reduction of cognitive dissonance, concluding that subjects
would not change a position central to their social definition, but would modify an
"associated" cognition, a less central opinion in affirming their own identity in
order to reduce cognitive dissonance. Turner et al. (1987) developed the self-
categorization theory which refers to how we view ourselves and how we interpret
our own actions. Neculau (2003) argued that cognitive dissonance involves
attitudinal change because change cannot be conceived as a self-value, it must be
justified and motivated, and very often people do not let go of stereotypes and
habits, even if they declare a desire for transformation. According to Doise et al.
(1996), there is cognitive dissonance when, out of two elements that are presented
together, one implies the negation of the other, and this incompatibility is not
logical but psychological. Turner and Pratkanis (1998) tried to replicate Asch's
experiment to see if the same experiment would work similarly with another
generation. The experiment worked, so the percentage of conformists was almost
identical to that identified by Asch, including those who seemed creative,
rebellious, or rallied to the incorrect answers. Aronson and Pratkanis (1993)
addressed how the social world determined attitudes and beliefs and how, in turn,
those individual beliefs affected the social world.
The research method is based on an experiment to verify or confirm a
hypothesis which is the result deduced from a theory, namely Solomon Asch's
1951 experiment on conformity at Swarthmore College, Pennsylvania, in which a
subject was placed in a group of seven people who were presented to him as
volunteers, but who were, in fact, Asch's accomplices, acting according to a
predetermined scenario. The group was shown two boards, one with a single line
drawn on it and three lines of varying lengths on the other, only one of the same
length as the first board. The subjects had to say which of the lines on the right-
hand sheet was equal to the line on the left-hand sheet (see Figure 1).
Figure 1. Asch's compliance experiment
Source: One of the pairs of plates used in Asch's compliance experiments,

available at https://en.wikipedia.org/wiki/Asch_conformity_experiments.
927
The findings of Asch's experiment were as follows: people could choose the
correct line 99% of the time if judgments were individual; 25% of subjects
remained independent throughout the test and did not change their judgments to
align with those of the group; when accomplices answered incorrectly, subjects
answered incorrectly 33% of the time; 75% of subjects answered incorrectly at
least once (Cooper, Mackie, 1983).
Based on Asch's research hypotheses, we made 6 boards similar in terms of the
way they are solved, but differentiated in terms of the placement and size of the
lines (see Figure 2). The subjects in the experimental group had to answer orally
and identify the line that is identical to the standard line. The subject was asked
last after most of the accomplices had already spoken. The researcher, through
manipulation techniques and by changing independent variables, aims to test the
perception mechanisms and behaviours of the subjects.
Figure 2. Work sheets (1-6)
Sheet no. 1 Sheet no.2
1 2 3 1 2 3
Sheet no. 3 Sheet no.4.
1 2 3 1 2 3
Sheet no. 5 Sheet no.6
1 2 3 1 2 3
Source: The 6 plates made and used by the authors of this experiment
to demonstrate the phenomenon of conformity within a group.
928
3.1 Design of the Experiment

We used two groups of subjects, one group representing the control group, these
being the researcher's accomplices, and the experimental group. The control group
was given specific tasks by the researcher as to how the experiment would be
conducted. These represented the independent variables, and the dependent
variables represented the behaviours or processes being acted upon. At the end of
the experiment, we conducted an interview with each control group and the
subjects who participated in the experiment to find out some information in terms
of how they reacted, what they thought, what they felt, what their emotions and
feelings were during and after the experiment.
3.2 Sample and Experimental Situation

General population: all first-year students from the Faculty of Management at
the Bucharest Academy of Economic Studies who wished to participate in this
experiment.
Sampling frame: first-year students who voluntarily enrolled in this
experiment.
Sample: 56 subjects, aged between 19 and 23 years, of which 38 female
subjects and 18 male subjects, 85% from urban and 15% from rural areas.
The type of sampling is simple randomized; probability sampling is done by
random draw. The control group consisted of 24 subjects divided into 4 control
groups and the experimental group consisted of 32 subjects, of which 8 participated
in Sample 1 and 24 subjects in the other samples (Sample 2, 3, 4, 5, 6, 7).
Research limitations: All students involved in the experiment, whether they
were part of the control group, or the experimental group knew each other, so it
was basically a group formed by members who shared more than strictly academic
relationships, friendship, sympathy, and trust.
Future directions: to carry out this experiment once at the beginning of the year
and then at the end year to see what the differences are in terms of cognitive
dissonance between a new group (group members do not know each other) and an
already formed group; applying this experiment in economic choice theory.
4. Research Results
Exhibit 1. Individual test - this test aimed to test one of the tenets of Asch's
research hypothesis, namely when people are not influenced by certain stimuli and
pass through the filter of their mind a given situation, cognitive dissonance is
greatly reduced. 8 subjects took part in this test. They were asked individually
which answers were correct by showing them the 6 boards. The result was as
expected; the subjects answered correctly to all the boards, thus testing Asch's
hypothesis (see Tables 1-4).
929
Table 1. Control group 1

S5/P6
Sample RC/P1 S1/P2 S2/P3 S3/P4 S4/P5 S6/P7/poz.2
scris
I 3 1 3-3-3 3-1-3 3-3-3 3-3-1 3-1-1
II 2 2 2-2-2 2-3-2 2-1-3 2-2-2 2-3-2
III 3 3 3-3-3 3-2-2 3-3-3 3-1-3 3-2-3
IV 3 3 3-1-3 3-2-2 3-3-3 3-2-3 3-2-3
V 2 2 2-3-3 2-3-3 2-2-3 2-2-2 2-3-2
VI 2 2 2-3-3 2-3-2 2-2-2 2-2-2 2-3-2
Source: Summary of the results obtained after applying the 7 samples to the first
control group together with the first experimental group.
Sample RC/P1 S1/P2 S2/P3 S3/P4 S4/P5 S5/P6 S6/P7/poz.2
scris
I 3 3 3-3-1 3-1-1 3-3-3 3-3-3 3-1-3
II 2 2 2-2-2 2-3-3 2-2-2 2-2-2 2-3-2
III 3 3 3-3-3 3-2-2 3-3-3 3-1-1 3-2-3
IV 3 3 3-1-3 3-2-2 3-1-3 3-2-3 3-2-3
V 2 2 2-3-3 2-3-3 2-2-2 2-2-2 2-3-2
VI 2 2 2-3-1 2-3-3 2-3-2 2-2-2 2-3-2
Source: Summary of the results obtained after applying the 7 samples to the second
control group together with the second experimental group.

Sample RC/P1 S1/P2 S2/P3 S3/P4 S4/P5 S5/P6 S6/P7 /poz.2
scris
I 3 3 3-3-3 3-1-1 3-3-1 3-3-1 3-1-1
II 2 2 2-2-2 2-3-2 2-2-2 2-2-2 2-3-2
III 3 3 3-3-3 3-2-3 3-3-3 3-1-3 3-2-3
IV 3 3 3-1-1 3-2-3 3-3-3 3-2-3 3-2-3
V 2 2 2-3-3 2-3-3 2-2-3 2-2-2 2-3-2
VI 2 2 2-3-3 2-3-2 2-3-2 2-2-2 2-3-2
Source: Summary of the results obtained from the application of the 7 samples
to the third control group together with the third experimental group.

Sample RC/P1 S1/P2 S2/P3 S3/P4 S4/P5 S5/P6 S6/P7/poz.2
scris
I 3 1 3-3-1 3-1-1 3-3-3 3-3-3 3-1-3
II 2 2 2-2-2 2-3-3 2-1-1 2-2-2 2-3-2
III 3 3 3-3-3 3-2-2 3-3-3 3-1-3 3-2-3
IV 3 3 3-1-3 3-2-3 3-3-3 3-2-3 3-2-3
V 2 2 2-3-1 2-3-3 2-2-2 2-2-2 2-3-2
VI 2 2 2-3-3 2-3-3 2-2-3 2-2-2 2-3-2
Note: RC - correct answer; S1...S6 subjects; P1...P7 -probes; Poz.2 - position 2
in the group.
Source: Summary of the results obtained from the application of the 7 samples
to the fourth control group together with the fourth experimental group.
Exhibit 2. The experimenter together with the subjects in the control groups
decided to correctly answer all the cards presented. This variable was replicated for
the 4 control groups, each testing 6 subjects from the experimental group, which
showed the fidelity of the experiment because the same results were obtained.
930
Internal validity was ensured, removing any factors that might have influenced the
outcome of the choice in a different direction. One subject in the first group and
one in the fourth control group was wrong, so 92.85% of them answered correctly,
explaining that at the beginning they felt some uncertainty, mistrust, fear of getting
it wrong and felt the need to say something else. Although they realised that the
correct version was the one the others had pointed out, they got the first one wrong
and then answered correctly (see Tables 1-4).
Exhibit 3. The experimenter changed the independent variable and the rules, then
agreed with the accomplices that on the first three boards the answers were correct,
then on the next three boards the answers were intentionally wrong. The subject
was intentionally the last to answer. In this test, the subjects were a little confused
when the answers were intentionally wrong, and even at the beginning some gave
the correct answer. In the last boards, the subjects in the control group intentionally
gave the wrong answer, while 33.3% of the subjects in the experimental group
gave the accomplices' version. Basically, the result of this test verifies another of
Asch's hypotheses, namely that when the accomplices got it wrong, the subjects got
it wrong too, in a proportion close to that in the experiment conducted 71 years ago
(see Tables 1-4).
Exhibit 4. The experimenter changed the independent variable and agreed with the
accomplices to give wrong answers to all the boards, but to say those variants that
are closest to the correct variant. In this test, they were totally confused, they took a
few extra seconds to think about what answer to give, and yet more than half ,
about 58.33% of the subjects, gave the accomplices' answer, even if they did not
totally agree with their answer (see Tables 1-4).
Exhibit 5. The experimenter grouped two subjects from the control group in pairs
so that two of them answered correctly and the others incorrectly. In this test, the
confusion was even greater, and when the subject was asked which line most
closely matched the standard line, the subject was much more attentive and most of
the answers were correct, a proportion of 75% of the subjects, which shows us once
again that when confusion arises, one automatically tries to find the solution that
reduces psychological tension (see Tables 1-4).
Exhibit 6. The experimenter introduced a new independent variable; i.e., the

subject was no longer asked orally which variant was correct, but was asked to
write down the variant considered correct. The control group orally pointed out the
correct variants for plates 1, 2, 5, 6 and the wrong variants for plates 3, 4. In this
test, very few people made mistakes, almost the same percentage as in test 2. As
the subject did not have to say the answer out loud and did not have to show the
answer, they concentrated on the task and got 87.5% of the answers correct without
considering the opinions of others (see Tables 1-4).
931
Exhibit 7. The researcher aimed to see if the position of the manipulated subject
influenced distortion and confusion. It was no longer placed in the last group, but
in position number 2 while the conditions of the experiment remained as in trial 3.
The results of trial 3 showed that 58.33% gave the accomplice response, under the
condition that the manipulated subject was in the last position, with the change of
the naive subject's position. They were less influenced, which showed that the
group influence decreased to 12.5%, meaning that the position is important within
a group, as Asch stated "maximum conformity is reached when we have three
accomplices and one naive subject" – the more isolated the naive subject is, the
more indifferent he is and detachment occurs (see Tables 1-4).
Cognitive dissonance may be one of the causes of the great economic crises that
have occurred over time, recalling the Great Depression of 1929, the financial
crisis of 2008 and the pandemic crisis unleashed at the end of 2019. The crisis of
2007-2008 started in the United States and quickly spread to the global economy
due to trade, banking, and financial interdependencies between countries around
the world. The crisis in America was based on speculative behaviour, generated by
a phenomenon of imitation, in which if one product is more desired than another,
demand for that product increases because it can be resold at a higher price, and
then all investors or economic agents will be interested in buying it. Banks in
America gave out cheap mortgages on a massive scale, which caused prices on the
housing market to rise (supply did not keep up with demand), the increase in price
did not justify the real value of the property, and a speculative bubble was created,
where nothing could explain the increase in price. In order to curb the speculative
bubble, the Federal Reserve Board (FED) raised interest rates from 2005 onward,
increasing the cost of loans already granted, and many borrowers sold their
properties to the banks, which in turn auctioned them off, causing a sharp fall in
prices and, on the other hand, a loss of financial and banking resources as
economic agents panicked and withdrew their savings, causing massive losses and
hence the chain of bank failures.
In the speculative bubble, prices rise artificially, the asset is disconnected from
its real value and it is only a matter of time before it collapses, causing massive
losses. The consequences are the result of mimetic behaviour and self-fulfilling
prophecy, so many economic agents or investors will imitate the behaviour of other
economic agents, banking on the fact that they can buy cheap and sell high. The
imitation operation of buying and selling contributes to the increase in price, and
this happens through simple imitation.
The entry into quarantine at the beginning of March 2020, due to the COVID-19
pandemic, generated panic among the population, leading to compulsive and
frantic behaviour in purchasing excess food and non-food products, causing an
imbalance in the supply and stock chain, and accentuating certain discrepancies
between those who stocked up because no limitation was imposed on the quantity
purchased and those who did not react to the first impulse. This phenomenon
generated a rapid and unjustified increase in prices, so that overnight for certain
products prices increased by 100% or more, practically entering a speculative
932
bubble that generated increased inflation, increased unemployment, decreased

production, increased inequality in income redistribution, and those most affected
were those with low and fixed incomes and those who were caught in a
discontinuity of economic activity.
Another example of cognitive dissonance and mimetic behaviour is the sudden
and overnight increase in fuel prices, so at the beginning of March 2022, after a
rumour appeared that the price of fuel would reach 11 lei/litre, huge queues formed
at all gas stations in the country, Romanians panicked and on the phenomenon of
imitation all car owners bought gasoline and diesel, some even made reserves, and
according to the law of supply and demand, the price rose rapidly (at a petrol
station in Beiuș the price at the pump was 11.1 lei/litre), and this increase was not
only due to the rise in world oil prices and the practice of anti-competitive
techniques, but also to the phenomenon of conformity and panic which led to a
speculative bubble.
The examples could go on, and the results of our research can be interpreted in
any aspect of our lives, professional, social, cultural, sporting, religious, political,
etc.
5. Psycho-neural Explanations in Cognitive Dissonance

5.1 Why Does Cognitive Dissonance Occur?
The human brain is made up of 3 cortical structures that have been formed and
evolved over millions of years. The three structures are the limbic brain, the
reptilian brain and the neocortex, while the first two have been formed over
millions of years and deal with survival, the neocortex has been formed over
thousands of years and deals with logic, reasoning, the ability to use words,
anticipating and planning for the future, etc. (see Figure 3). The problem is that
when the limbic system is not quiet, the neocortex does not work, so the
uniqueness of the human is given by the neocortex. It follows that the human mind
can only trigger stress through thought, because either we think in the past or in the
future, while the past cannot be changed and the future is uncertain. Stress
substances induce stress hormones from the brain into the body, which produce
imbalances, and this is how our own thoughts can make us sick. Thought becomes
experience on a mental level as we feel the emotion of that experience, and from
there we will also behave appropriately.
Figure 3. Reptilian brain, limbic brain and neocortex
Source: https://medium.com/brand-solutions/how-to-be-more-successful-by-using-
reptilian-and-limbic-hot-buttons-71c64de9b366.
933
At the end of the experiment, we conducted an interview with each of the four
control groups and the subjects who participated in the experiment. We wanted to
find out what their thoughts, beliefs, emotions, feelings, and behaviours were
before and after the experiment. A thought begets an emotion, and an emotion
begets a certain behaviour.
Table 5. Thoughts - emotions - behaviours when cognitive dissonance occurs
Thoughts Emotions Behaviour
I'm going to be ashamed Anxiety, regrets Avoidance, adjournment
I will be criticized, judged Insecurity, irritation, Excessive cognitive control
anger
I will be stigmatized Fear, panic Conformity, frost or flight
I'm going to be fooled Guilt, regret Behave differently than you
would like
I will be excluded from the Fear, nervousness Indifference, non-participation
group
Source: Aspects resulting from discussions with participants
after the end of the experiment.
5.2 Issues Arising from Discussions with Participants in the Experiment

In Table 5, we caught some aspects related to the thoughts, emotions and
behaviours of the subjects when they were asked why they had acted in one way
and not the other. The subjects' answers were in line with the features we found in
Table 5. The vast majority of the subjects felt uneasy, a mental discomfort that
came from the thought that they would be laughed at, judged, or criticized, and as
such some of the subjects said the wrong option, being influenced by the group's
decision while following less their own opinions and opinions.
6. Conclusions
The experiment was carried out among the members of a group formed for
about a year. They had developed certain relations, ranging from peer relations to
friendship relations, including sympathy, appreciation, and love. When a group is
in formation, at first, when there is no cohesion, the group is heterogeneous, so the
members of that group act and react differently depending on the personality,
character, and temperament of each. When among the members of a group more
personal relationships appear, the group becomes more homogeneous and its
cohesion increases. Any external stimulus no longer has the same effect as in the
beginning, when the group members did not know each other. People are easy to
manipulate when they trust something or someone. If 10 people share the same
opinion about something, you will end up agreeing with them, even if you initially
had a different opinion. There is a pressure on the cognitive level and the pressure
is optimal when there is unanimity, not just a majority, because in the absence of
unanimity, people find their courage and free will. We are often less resistant to the
pressure of complying than we might think.
934
The results of our research can be applied to any decision-making and choice
process, especially when we are talking about members of a group based on certain
common interests, objectives, and goals, so members will react as one voice,
manifesting the phenomenon of conformity and mimicry, in order not to be judged,
marginalized, or excluded. This experiment can be applied to any aspect of our
lives, professional, social, cultural, sporting, political, religious, etc. If we take the
political side, when we have to express our right to vote for a particular political
party, very often we are influenced by the group of friends or followers of a
political party, and less by relevant and sustainable programmes and projects.
Organising fundraising campaigns to help certain vulnerable or disadvantaged
sections of the population, the power of example, compassion, and empathy will
lead to mimetic behaviour, being influenced by the limbic system and less by the
logical, rational one. Attending an artistic event, for example, the Neversea Festival
in Constanta, Romania, being considered the largest music festival on the beach, if
the first edition in 2017 was attended by more than 130,000 people, this year 2022,
the number of spectators has doubled. Practically this phenomenon has spread with
great speed among young people, where the phenomenon of imitation is the one
that prevails, an increasing number participated.
In this sense, our research is original because it explains that our decisions, and
here we refer to any aspect of our lives, are influenced by a series of internal and
external factors, internal ones related to our physiological, biological and
psychological structure, and external ones related to our environment and
especially to the group of influence. As the saying goes, "tell me who you are
friends with, so I know who you are and how you think!"
The discrepancy between what we want and what happens is one of the root
causes of cognitive dissonance. To reduce this dissonance, we make some
recommendations: we need to have realistic expectations of our goals and of the
resources we have at our disposal; try to live in the present, here and now, and not
let ourselves fall prey to the past or the future; manage stressful situations so as not
to generate fears and anxieties; put everything through the filter of our mind; be
very well informed when we have to make a decision, whether it is to buy, produce
or take any action from a possible range; not to disregard the positive and
emphasise the negative; avoid "all or nothing"; avoid putting labels and making
value judgements on the actions of others; avoid generalisation, amplification and
personalisation, etc.
References
[1] Asch, S. (1956). Independence and Compliance Studies: I. A minority of one against a
unanimous majority". Psychological monographs: general and applied, 70(9), pp. 1-70,
doi:10.1037 / h0093718 Enciclopedie site:ewikiro.top.
[2] Aronson, E., Pratkanis, AR (1993). Psihologie Socială Psiholog, (Vol. 2). Edward Elgar
Pub.
[3] Clémence, A. (1996). Cognitive dissonance theories, taken from Neculau A. (coord.),
Social Psychology, Contemporary aspects, Polirom Publishing House, Iași. pp. 95-108.
935
[4] Cooper, J., Mackie, D. (1983). Cognitive dissonance in an intergroup context, Journal
of Personality and Social Psychology.
[5] Doise, W., Deschamp, J.C., Mugny (1996). Experimental social psychology, chapter 14
"Cognitive dissonance", pp. 205-224, Polirom Publishing House, Iași, Romania.
[6] Festinger, L. (1957). A theory of Cognitive Dissonance, Stanford University Press,
Stanford, C.A.
[7] Festinger, L., Rieckeb, H, W., Schachter, S. (1956). When prophecy fails, Minneapolis,
Minn, University of Minnesota, Press.
[8] https://en.wikipedia.org/wiki/Asch_conformity_experiments.
[9] https://medium.com/brand-solutions/how-to-be-more-successful-by-using-reptilian-and-
limbic-hot-buttons-71c64de9b366.
[10] Neculau, A. (coord.) (2003). Handbook of Social Psychology, Polirom Publishing
House, Iași.
[11] Rousseau, J.J. (2003), Contractul social, Antet Revoluțion Publishing House
[12] Turner, J.C., Hogg Michael, A., Oakes Penelope, J., Reicher Stephen, D., Wetherell
Margret, S. (1987). Rediscovering the social group: a theory of self-categorization,
Cambrige, M.A., SUA, Basil Blackwell.
[13] Turner, M.E., Pratkanis, A.R. (1998). A model for maintaining social identity of
groupthink. Organisational behaviour and human decision-making, 73(2-3), p. 21.
[14] Uzma, H., Nasreen, R. (2012). IOSR Journal of Business and Management (IOSRJBM)
ISSN: 2278-487X, 1(4), July-Aug. 2012, pp. 07-12.
936

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Fostering Recovery through Metaverse Business Modelling

Edited by: Alina Mihaela Dima

Proceedings of the 5th International Conference

Copyright © 2022 Sciendo

© 2022 Author(s), published by Sciendo. This work is licensed

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