The European Journal of Applied Economics - Vol. 16 #1

journal.singidunum.ac.
rs
Vol. 16 Nº 1
Vol. 16 Nº 1
OCTOBER 2019
journal.singidunum.ac.rs
Population Age Structure Change Antecedents of mobile banking: Causal link between employment and
and Labour Productivity: Utaut model p. 20-29 renewable energy consumption:
Evidence from Tunisia p. 1-19 Evidence from Nigeria p. 30-40
Gold in investment portfolio from Defining the need for and proposing how Resultant Effect of Crisis-Driven
perspective of European investor to transform traditional into digital banks HR Strategies Applied During Current
2019
p. 41-58 with the support of information and Economic Crisis in Oman – An HR

mobile technologies. p. 59-76 Manager’s Perspective p. 77-98
Vol. 16 No. 1
w w w. j our na l.sing idunum.a c .rs

Vol. 16 No. 1
Publisher:
Singidunum University
E d it o r ia l B o a r d
Professor Milovan Stanišić, Singidunum University mstanisic@singidunum.ac.rs
Emeritus Professor Slobodan Unković, Singidunum University unkovic@singidunum.ac.rs
Professor Francesco Frangialli, UNWTO frangialli@gmail.com
Professor Gunther Friedl, Technische Universität München, München gunther.friedl@wi.tu-muenchen.de
Professor Karl Ennsfellner, IMC University of Applied Sciences, Krems karl.ennsfellner@fh-krems.ac.at
Professor Gyorgy Komaromi, International Business School, Budapest gyorgy@komaromi.net
Professor Vasile Dinu, University of Economic Studies, Bucharest dinu_cbz@yahoo.com
Professor Ada Mirela Tomescu, University of Oradea, Oradea ada.mirela.tomescu@gmail.com
Professor Radojko Lukić, University of Belgrade rlukic@ekof.bg.ac.rs
Professor Alexandar Angelus, Lincoln University angelus@lincolnuca.edu
Professor Nemanja Stanišić, Singidunum University nstanisic@singidunum.ac.rs
Professor Verka Jovanović, Singidunum University vjovanovic@singidunum.ac.rs
Professor Milan Milosavljević, Singidunum University mmilosavljevic@singidunum.ac.rs
Professor Olivera Nikolić, Singidunum University onikolic@singidunum.ac.rs
Professor Goranka Knežević, Singidunum University gknezevic@singidunum.ac.rs
Professor Mladen Veinović, Singidunum University mveinovic@singidunum.ac.rs
Professor Jovan Popesku, Singidunum University jpopesku@singidunum.ac.rs
Professor Zoran Jeremić, Singidunum University zjeremic@singidunum.ac.rs
Professor Vesselin Blagoev, Varna University of Management blagoev@vum.bg
Professor Michael Minkov, Varna University of Management minkov@iuc.bg
Associate Professor Christine Juen, Austrian Agency for International Mobility and Cooperation in Education, Science and Research, Wien chrisine.juen@oead.at
Associate Professor Anders Steene, Södertörn University, Stockholm/Hudinge anders.steene@sh.se
Associate Professor Ing. Miriam Jankalová, University of Zilina, Prague miriam.jankalova@fpedas.uniza.sk
Associate Professor Bálint Molnár,Corvinus University of Budapest, Budapest molnarba@inf.elte.hu
Associate Professor Vesna Spasić, Singidunum University vspasic@singidunum.ac.rs
Associate Professor Michael Bukohwo Esiefarienrhe, University of Agriculture, Dept. of Maths/Statistics, Markurdi esiefabukohwo@gmail.com
Associate Professor Goh Yen Nee, Graduate School of Business, Universiti Sains Malaysia yngoh@usm.my
Research Associate Professor Aleksandar Lebl, Research and Development Institute for Telecommunications and Electronics, Belgrade lebl@iritel.com
Roberto Micera, PhD, Researcher, National Research Council (CNR) Italy r.micera@iriss.cnr.it
Assistant Professor Patrick Ulrich, University of Bamberg patrick.ulrich@uni-bamberg.de
Assistant Professor Jerzy Ładysz, Wrocław University of Economics, Poland jerzy.ladysz@ue.wroc.pl
Assistant Professor Konstadinos Kutsikos, University of the Aegean, Chios kutsikos@aegean.gr
Assistant Professor Theodoros Stavrinoudis, University of Aegean, Chios tsta@aegean.gr
Assistant Professor Marcin Staniewski, University of Finance and Management, Warsaw staniewski@vizja.pl
Assistant Professor Gresi Sanje, İstanbul Bilgi Üniversitesi, Istanbul gresi.sanje@bilgi.edu.tr
Assistant Professor Michał Biernacki, Wrocław University of Economics, Poland michal.biernacki@ue.wroc.pl
Assistant Professor Piotr Luty, Wrocław University of Economics, Poland piotr.luty@ue.wroc.pl
Assistant Professor Blazenka Hadrovic Zekic, Faculty of Economics in Osijek, Croatia hadrovic@efos.hr
E d it o r ia l O f f ice
Editor in Chief: Professor Nemanja Stanišić, Singidunum University nstanisic@singidunum.ac.rs
Managing Editor: Associate Professor Gordana Dobrijević, Singidunum University gdobrijevic@singidunum.ac.rs
Technical Editor: Aleksandra Stojanović, Singidunum University astojanovic@singidunum.ac.rs
English Language Deputy Editor: Marijana Prodanović, Singidunum University mprodanovic@singidunum.ac.rs
Prepress: Jelena Petrović Design: Aleksandar Mihajlović
ISSN: 2406-2588
The European Journal of Applied Economics is published twice a year.
Contact us:
The European Journal of Applied Economics Access to full text articles:
32 Danijelova Street, 11010 Belgrade, Serbia The European Journal of Applied Economics (www.journal.singidunum.ac.rs),
Phone No. +381 11 3094046, +381 11 3093284 SCindeks (https://scindeks.ceon.rs/journaldetails.aspx?issn=2406-2588&lang=en).
Fax. +381 11 3093294
E-mail: journal@singidunum.ac.rs Copyright © 2019
Web: www.journal.singidunum.ac.rs Singidunum University, Belgrade
Printed by: Caligraph, Belgrade All rights reserved.
This is an open access journal which means that all content is freely available without charge to the user or his/her institution. Users are allowed to read, download, copy, distribute, print, search, or link to
the full texts of the articles in this journal without asking for prior permission from the publisher or the author. This is pursuant to the BOAI definition of open access.
CONTENTS
Population Age Structure Change and Labour Productivity:

1 - 19 Evidence from Tunisia
Olfa Frini, Khoutem Ben Jedidia
Antecedents of Mobile Banking: UTAUT Model

20 - 29
Jovana Savić, Aleksandra Pešterac
Causal Link between Employment and Renewable Energy

30 - 40 Consumption: Evidence from Nigeria
Mukhtar Wakil Lawan, Matthew Oladapo Gidigbi
Gold in Investment Portfolio from Perspective of European Investor

41 - 58
Tijana Šoja
De�ining the Need for and Proposing How to Transform Traditional

into Digital Banks with the Support of Information and Mobile
59 -76
Technologies
Mirko Sajić, Zlatko Bundalo, Dušanka Bundalo
Resultant Effect of Crisis-Driven HR Strategies Applied During

Current Economic Crisis in Oman – An HR Manager’s Perspective
77 - 98
Venkat Ram Raj Thumiki, Ana Jovancai Stakić, Rayaan Said Sulaiman Al
Barwani
III
EJAE 2019, 16(1): 1-19
ISSN 2406-2588
UDK: 331.101.6(611)
331.445:159.922.6
DOI: 10.5937/EJAE15-18209
Original paper/Originalni naučni rad
POPULATION AGE STRUCTURE CHANGE AND LABOUR PRODUCTIVITY:

EVIDENCE FROM TUNISIA
Olfa Frini*, Khoutem Ben Jedidia
University of Manouba,
Manouba, Tunisia
Abstract: Article info:

Relying on a macroeconomic view, this paper investigated the popula-
Received: July 11, 2018
tion ageing effect on the aggregate labour productivity. It examined the
Correction: September 19, 2018
effects of the labour force participation rate through three broad age
Accepted: November 19, 2018
ranges: young adulthood (15-29), prime age (30-49) and old age (50-
64). It computed the labour force participation rate by age considering
the working-age of the same age range. Using Tunisian data covering
the years 1965-2014, the cointegration method testified for a long-run
relationship with a progressive adjustment process towards equilibrium.
Unlike the conventional approach outcome, the age-productivity profile
in our study did not follow an inverted U-shape. Labour productiv- Keywords:
ity edged down for young workers, rose for the prime age adults, and population age structure change,
kept on rising for older people. Accordingly, population ageing did labour force participation rate,
not alter the Tunisian labour market performance. Thus, to achieve labour productivity,
better productivity gains and enhance the country’s economic growth, error correction model,
delaying the retirement age beyond 60 was advocated. Tunisia.
INTRODUCTION
Population ageing may be dramatic for the economy affecting the labour market features through
the slowdown of labour force population growth, and eventually causing its contraction (Cadiou et al.,
2002; Peng, 2006; Bloom & Sousa-Poza, 2013). The population ageing process influences the structure
and performance of the labour market in two ways: (1) directly−via the supply and demand of labour
and productivity, and (2) indirectly−via shifting the aggregate demand structure towards more services
and products for the elderly. Labour force ageing might influence workers’ mobility, employment,
productivity and, consequently, labour market performance and flexibility. Thus, it is understood that
the age-productivity profile is relevant for an ageing society. Several studies have focused on how the
1
*E-mail: frini.olfa@planet.tn
EJAE 2019  16 (1)  1-19
FRINI, O., JEDIDIA, K. B.  POPULATION AGE STRUCTURE CHANGE AND LABOUR PRODUCTIVITY: EVIDENCE FROM TUNISIA
individual’s productivity changes with age to reveal an inverted U-shaped profile as the aged are less
productive than the young (Haltivanger et al., 1999; Crépon et al., 2002). However, these individual
effects cannot be automatically assumed to apply collectively (Lindh & Malmberg, 1999; Chawla et
al., 2007; Brunow & Hirte, 2006, 2008; Van Ours & Stoeldraijer, 2010). It is difficult to systematically
conclude, at a macroeconomic level, that an ageing population may lower the aggregate productivity
and economic growth. Therefore, reviewing how the aggregate labour productivity changes with age
also remains an important hot issue.
Within this framework, this paper investigated the population ageing effects on the labour market
productivity from a macroeconomic perspective. To this end, and unlike previous studies which con-
centrated either on the total population (e.g. Barro & Sala-i-Martin, 1992 and Lindh & Malmberg, 1999),
or on the working-age population (Mankiw, Romer & Weil, 1992) or also on the employees (Brunow
& Hirte, 2006), we focused our empirical study on the labour force population. However, similar to
Frini and Ben Jedidia (2018), we assessed the labour force according to the age structure effect, taking
into account three age ranges: young adulthood (15-29 years), prime age (30-49), and old age (50-64).
Nevertheless, our novelty lies in the fact that we estimated the labour force participation rate by age,
defining it as a share of the labour force in the working-age population of the same age range.
Additionally, in order to predict the outcomes of the intended policy of postponing the retirement
age, we extended it to 65 years, instead of 60. This issue has been weakly addressed in the context of
Arab countries before. However, we limited our study to the Tunisian case for the years 1965-2014, as
it's well-advanced in population ageing.
To check the labour age-productivity profile, we applied the time series modelling approach using
the cointegration technique to find out about the long-run equilibrium relationship between the vari-
ables and the Error Correction Model, in order to capture the short-run adjustment mechanism. Our
methodology is rather standard, but is extensively used in macroeconomic analysis to check a dynamic
long-run relationship.
The remainder of the paper was organized as follows: Section 2 developed a literature review. Sec-
tion 3 depicted an overview of the demographic change and its consequences on the labour force age
structure. Section 4 specified the applied model for our estimations. Section 5 detailed the econometric
methodology and discussed the results before concluding and suggesting some policy recommenda-
tions in Section 6.
LITERATURE REVIEW
Demographic change modifies the population age distribution, the size of different age ranges of
the working-age population, and, consequently, the labour force age structure which, in the long-run,
may influence aggregate and age group-specific labour productivity (Dixon, 2003; Börsch-Supan,
2003; and Vodopivec & Arunatilake, 2008). There are microeconomic and macroeconomic effects of
ageing on labour productivity. However, to deal with some central macroeconomic issues about an
ageing labour force productivity, our major concern in this paper requires a good understanding at
the microeconomic level.
At this level, several studies, some of which are quoted in the table below, have displayed an inverted
U-shaped age productivity profile; rising as workers enter prime age, and then declining as they ap-
proach retirement.
2
EJAE 2019  16 (1)  1-19
Region/Country Productivity Age Productivity

Author
and Period Indicator Profile
Productivity increases with age in

Aubert and Crépon France the first part of working life, remains
Firm’s value added
(2004) 1994-2000 stable around 40-45 or uncertain
thereafter.
German The most promoting age group for

Bruno and Hirte The regional
growth is 45-55; those over 55 years
(2006) 2000 value-added
reduce it.
Crépon et al. France Productivity peaks at 25-34, and de-

Firm’s output
(2002) 1994-1997 creases for those aged over 50.
Haltiwanger et al. Productivity increases until 55, and

Maryland US Sales per employee
(1999) decreases slightly after.
Ilmakunnas and Finland Productivity peaks at around 40, and

Firm’s value added
Maliranta (2004) 1995-2003 decreases for those older.
Prskawetz et al.
Austria Firm’s value added Productivity peaks 30-49.
(2007)
Table 1. An Empirical Overview of Age-Productivity in an Inverted U-Shape.
This negative ageing impact may be explained by the introduction and swift development of the new
technologies (Bös & Weizsäcker, 1989). Older workers have difficulties adjusting to new ways of working,
which in return hampers their productivity. Additionally, they suffer from an ageing knowledge stock,
skill obsolescence (De Grip & Vanloo, 2002), declining cognitive abilities (notably by the age of 50, as
stressed by Verbaegen and Salthouse (1997), and qualifications depreciation. This age-related reduction
in cognitive abilities is an important cause of the age-related productivity decline (Skirbekk, 2003).
Moreover, the financial spurs to acquire new skills decline gradually with age, which lowers produc-
tivity. The recent study of Rožman et al. (2016) comparing older and younger employees in Slovenian
companies concludes that older workers are less productive, less motivated, and less innovative and
energetic. Moreover, the increase of health and infirmity incidences undermines labour productivity
(Tanner, 1997). In contrast, young workers demonstrate a better ability for learning new skills, and a
greater adaptability to new jobs.
This inverted U-shaped age-productivity profile is, however, not irrefutable and incontestable. Posi-
tive correlations between older workers and productivity were reached according to several studies
(table 2 below). As argued by both Disney (1996) and Dixon (2003), older workers may have a higher
average level of work experience, and a positive effect on productivity. They were consistently rated as
having more positive attitudes, being more reliable, and possessing better skills than average workers.
For instance, learning stimulates productivity as related to seniority (Aubert & Crépon, 2003). Fur-
thermore, older workers tend to have stable relationships with their employers, while young workers
tend to frequently change jobs and employers (Gregg &Wadsworth, 1999). The decline in voluntary
job mobility may reduce the turnover costs for employers, including recruitment and initial training
costs, which would have a favourable impact on overhead labour costs and profitability (Dixon, 2003).
In addition, the older workers’ contribution to firm-level productivity exceeds their contribution to
the wage bill, as revealed by Cardoso et al. (2011).
3
EJAE 2019  16 (1)  1-19
Region/Country Productivity Age Productivity

Author
and Period Indicator Profile
Portugal longitudinal
Cardoso et al. Share of total number Productivity increases until the age
employer-employee
(2011) of worker-hour range of 50-54
data 1986-2008
Germany employer-
Goebel & Zwick Productivity increases until age 55
employee data over Marginal productivity
(2009) and decreases slightly after that.
1997-2005
Older workers are more associated
Malmberg et al. Sweden Value added per
with higher productivity than young-
(2008) 1985-1996 employee
er ones.
A positive correlation exists between
the share of older employees and
Average labour
Mahlberg et al. Austria productivity, but no evidence for a
productivity across
(2013b) 2002-2005 significant relationship between the
industrial sectors
share of younger employees and pro-
ductivity was found.
Van Ours & Netherlands
Firm’s value added Increasing productivity up to age 57.
Stoeldraijer (2010) 2000-2005
Table 2. An Empirical Overview of Productive Older Workers
From the above brief review, we can deduce that there is no agreement about the ageing-productivity
nexus as related to the diversity of the required skills and individuals’ capacities. In fact, this relationship
depends on the nature of the work, education level, and physical demands. An age productivity profile
is not necessarily static, but depends on labour market requirements, as suggested by Skirbekk (2008).
Diminishing labour productivity at older ages seems to be particularly strong for work tasks where
physical abilities, learning, and the speed of carrying out tasks are needed. Nevertheless, for jobs where
experience and verbal abilities are important, older workers maintain a relatively high productivity level.
On the other hand, the empirical literature suggests that there might be differences in the age-
productivity profiles between/among sectors. For example, Aubert and Crépon (2006) conclude that
relative productivity increases until the age of 35 for French manufacturing, trading, and services
sectors. In trade, however, workers 40 to 59 are significantly more productive, and those between 45
and 54 are more productive than younger workers in services. Nevertheless, the authors showed that
there are no differences in manufacturing between older workers and the 35-39 group. Van Ours and
Stoeldraijer (2010) show significant differences in the age productivity patterns between sectors in the
Netherlands. However, Mahlberg’s and Prskawetz (2013b) study, dealing with mining, manufactur-
ing, and market-oriented services sectors in Austria, proves a positive correlation between the older
employees and productivity, but not a significant relationship with the younger ones.
Therefore, taking into account the fact that an ageing labour force differently influences productivity
according to sectors, the total impact of ageing will depend on the industrial structure of an economy
(Göbel & Zwick, 2012). Accordingly, it is hard to systematically conclude at a macroeconomic level
that ageing working population may lower the aggregate productivity and, consequently, the country’s
economic growth.
At the macroeconomic level, the ageing population effect is to reduce the relative size of labour
force as a share of the total population. From this viewpoint, labour becomes relatively scarce, while
capital becomes relatively more abundant. This engenders changes in the relative price of labour, and
leads to a higher capital intensity. This labour force change affects economic growth. In details, as per
4
EJAE 2019  16 (1)  1-19
capita output ( Y ) (where Y denotes the output and N is the total population) is a function of capital (K),
N
labour (L) and total factor productivity (A) as follows ( Y ) = A f ( L , K , L ) ; a change in total population
N N L N
(N) (in its size and structure) changes the labour (L) structure and subsequently affects growth output
L
(Bloom & Williamson, 1998). A decline in N induces an increase of both the labour force ratio ( ) and
K N L
capital intensity ( ) . Moreover, considering the working-age population (WAP), this labour ratio ( )
L L L WAP N
can be expressed as a multiplication of two components ( N ) = (WAP ) ( N ) (Mankiw et al., 1992; Barro
& Sala-I-Martin, 1995). Henceforth, per capita output expression becomes a function of the labour
L Y Y L WAP
force participation rate (WAP ); ( = (
N L WAP
)(
N
)) . This expression highlights the effects of the labour
force participation rate, and therefore of its age structure, on economic growth.
Additionally, the elderly share increase in the working-age population is likely to reduce the geo-
graphical mobility and the national migration, all things being equal (GreenWood, 1997). Reduced
voluntary mobility between/among jobs, as well as the older workers’ geographical mobility, may reduce
employment and productivity. It generally causes fewer matching people to jobs in which their skills may
be used efficiently to diminish disparities in economic performance across regions. Thus, these mobility
and flexibility issues may affect labour market performance, and therefore the economic dynamism.
A good deal of empirical evidence proved a positive effect of ageing working population on ag-
gregate productivity. For instance, using five-year data from the OECD countries 1950-1990, Lindh,
Malmberg (1999) demonstrated that the 50-64 age group has a positive influence on productivity
(defined as GDP/Worker), and that the above 65 contribute negatively, while younger age groups have
ambiguous effects. In addition, when estimated in the Tunisian context over the period 1965-2014,
Frini and Ben Jedidia (2018) found that productivity declines at a young age (15-29), and rises at old
age (50-64). However, the mechanism behind these age effects has not been resolved. The Tang and
Macleod (2006) study on Canadian provinces 1981-2001, however, revealed that older workers have a
modest negative impact on productivity.
TUNISIAN DEMOGRAPHIC CHANGE AND CONSEQUENCES ON LABOUR MARKET
Demographic Shifts and Age Structure Change1
A drastic demographic change has occurred in Tunisia following the decline of both mortality and
fertility rates. During the period 1966-2016, the mortality rate fell from 35-40% to a fairly constant
low rate of 5.5%. Fertility, which was close to eight children per woman in the early 60’s, has dropped
below the renewal threshold (2.05 children per woman) since 1999. However, a slight increase has been
recorded since 2010 to attain 2.4 children per woman in 2015. Life expectancy, which hardly exceeded
40 years in 1950, reached 75.4 years (78.1 years among women and 74.5 years among men) in 2016.
This demographic transition has brought a deep change in the population age structure toward an
irreversible ageing process. The age groups’ proportions of 0-4 and 5-14 have become less important.
Over 1966-2015, they shifted from respectively 18.6% to 8.5% and from 27.9% to 14.9%. In contrast, the
share of the working-age population 15-59 has increased from 48% to 64.4%. However, this noteworthy
change has affected the proportion of the over 60-year-olds, which has further increased by more than
two-fold to rise from 5.5% to 12.2%.
Accordingly, these demographic changes have brought about a change in the labour force size and
age structure. Meanwhile, the working-age population size growth declined from 2.5% to 1.7%, while
the growth rate of labour force went down from 1.8% during 2004-2009 to 0.8% during 2014-2017.
However, the labour force participation rate has increased from about 44.9% to 49.6% during 1966-
2014. Concurrently, the labour force average age rose progressively; the modal age evolved from the
1 Source of all quoted statistics is the Tunisian annual statistics of the National Institute of Statistics (NIS) from 1957-2016.
5
EJAE 2019  16 (1)  1-19
25-29-year-olds in 2004 to the 30-34-year-olds in 2014. During 1984-2014, the share of the young
labour force (15-29-year-olds) shrank significantly (from 49.8% to 30.3%), the prime-aged adults
share (30-49-year-olds) increased significantly (from 33.7% to 52.7%) and the share of the older labour
force (50-64-year-olds) rose slightly (16.5% to 17%). Consequently, the share of the young employed
population declined (from 35.6% to 29.7%) while that of both prime-aged adults and elderly increased
(respectively from 46.7% to 52.7% and from 17.6% to 17.6%). The employed population is becoming
older and older; the modal age has evolved from 20-24 to 30-34-year-olds. Likewise, the unemployed
are getting older; the modal age shifted from the 15-19-year-olds to 25-29-year-olds. In 2011, about
50% of the unemployed were 25-34-year-olds (34% for those between 25 and 29, and 16% who were
aged 30-34), and 38% were younger than 29 (10% were aged 15-19 and 28% were aged 25-29).
Labour Productivity Shift
Labour productivity is viewed to be below its potential level. As shown in diagram 1, the labour
productivity growth has evolved irregularly over the past fifty years. The long-term productivity growth
(over 1980-2010) has been estimated to be about 2.25%. In the post-revolutionary period 2011-2014, it
has reached its lowest levels due to the economic and social instability, which includes the low growth
and job creation, and the sit-ins that have crippled the productive units. In 2013, the productivity loss
was about -0.6%, as job creation was higher than economic growth (3.5% against 2.8%).2
Diagram 1. Tunisian labour productivity growth change (1962-2014)
MODEL AND DATA SPECIFICATION
Empirical model specification
The previous literature review has allowed us to build our aggregate labour productivity model that
refers to the augmented Solow model based on the work of Mankiw et al. (1992).
Labour productivity (Prod) can, generally, be calculated in several ways, such as the added value
per number of workers or per worked hours, or as a marginal productivity. For our, estimate, we used
the average labour productivity, as in the studies of Alexander (1993), Lindh and Malmberg (1999),
Wakeford (2004), Tang and Macleod (2006) and Frini and Ben Jedidia (2018), because the marginal
productivity or labour output per hour data are not available in Tunisia. It reflects labour productivity
in terms of personal capacities of workers or the intensity of their effort. Its change reflects the combined
effect of changes on both capital and technical efficiency, as well as the influence of economics of scale.
2 Data sources−the Tunisian Institute of Competitively and Quantitative Study (ITCQS) 2014.
6
EJAE 2019  16 (1)  1-19
In order to assess the influence of ageing on labour productivity, we estimated the labour force
age structure, as it is wholly economically involved in the labour market, which is not the case for the
working-age population. Unlike the previous works, we were interested in the labour force rate by age
structure to better capture the age effect over time. Different from the common definition of the labour
force participation rate by age as a ratio of the labour force of age range per the overall working-age
population (Mankiw, Romer & Weil, 1992) or per total population (e.g. Barro & Sala-i-Martin, 1992,
Lindh & Malmberg, 1999, Frini & Ben Jedidia, 2018) or per employees (Brunow & Hirte, 2006); we
defined it for an age range as a share of the labour force per working-age population within the same
age range. Explicitly, we distinguished three broad age ranges: young adulthood (15-29), prime-age
adults (30-49) and old age (50-64), as in Frini and Ben Jedidia (2018) study on the Tunisian case but
unlike them we reported to the working population of the same age range. Thus, we treated three la-
bour force participation rates: that of the young (YL), adults (PL) and elderly (AL) as illustrated below.
Labor force aged 15 − 29 Labor force aged 30 − 49 Labor force aged 50 − 64

YL = ; PL = ; AL = ;
Population aged 15 − 29 Population aged 30 − 49 Population aged 50 − 64
Together, these measurements reflect most of the age structure variation to allow the identification
of distinct age effects. The age ranges that are not related to the labour market were considered as a
reference age range. It should be noted that we considered 65 as the retirement age instead of 60 in
order to foresee the impact of the retirement age delay as suggested by the government. Additionally,
to make sure that the elderly who continue to work are not likely to be the most productive and those
who have left are not the least productive, we undertook a robustness test by estimating a model with
older workers aged 50-59. As we got the same result, we assumed that age retirement postponement
would not artificially raise productivity.
Furthermore, as we were rather interested in labour productivity as a whole, we did not distinguish
the labour force rate by gender.
In determining our economic variables, we estimated the influence of education, trade openness,
investment, wage, and unemployment. By estimating the influence of education (E), we looked at a
part of the human capital effect on productivity growth, the stock or accumulation of knowledge effect,
and through the age distribution we looked at the other part, the transfer and implementation of new
knowledge, through training or accumulated experience. We especially considered the enrolment rate
at secondary education, for three reasons: (1) The unavailability of education level data for employees
for all the period of study, (2) The enrolment rate data are only available for the population 5-11-year-
olds, which is not suitable for our case study, and (3) The secondary level gives the most statistically
significant result. We therefore chose it in order to win a freedom degree and overcome the multicol-
linearity problem. This is consistent with a labour market specificity characterized by a low human
capital of employees.3
As in Lindh and Malmberg (1999), we considered trade openness (OP) to look into technology
diffusion effect on productivity as stressed by literature.
Following Mankiw et al. (1992), we appraised the long-run gain in productivity of the capital ac-
cumulation (K) by considering the gross fixed capital formation (GFCF) at constant domestic prices.
In addition, we looked at the long-run dynamics relationship between labour productivity and
wages, since it has been constantly a salient economic and legal concern. As a measure, we used the
guaranteed industrial minimum wage (for the 40-hour regime) (W).
3 The average number of years−study of employees has evolved from 1.6 to 7.5 years during 1965-2014.
7
EJAE 2019  16 (1)  1-19
Furthermore, because of the ambivalence relative to the connection between productivity growth and
employment, we estimated the unemployment rate (U) in order to specify its nature for the Tunisian
case (e.g. Blanchard et al., 1995; Gordon, 1997).
Finally, the baseline estimation equation takes the following form:
α + θ1YLt + θ2 PLt + θ3 ALt + θ 4 Et + θ5OPt + θ6Wt + θ7 K t + β8U t + Zt

Prodt =
Where, zt is the error term.

In order to refine our empirical analysis, we estimated another model (model 2) with a time vari-
able (DATE) to find out the effect of the structural changes that occurred after the revolution on the
14th of January 2011.
Data Construction
Our annual time series were gathered from the National Institution of Statistics (NIS) and the Tu-
nisian Institute of Competitively and Quantitative Study (ITCQS) data sources. Since their databases
started after 1960 and were not up to date for at least two years, the longest possible time series covers
the period 1965-2014. Moreover, these institutes could not provide a full series for all our variables.
For this reason, we constructed our series for the labour force participation rate according to the three
relevant age ranges and for education enrolment rate by level. For labour force participation rate by
age range, we firstly calculated the size of the labour force and the size of the working-age population
corresponding to each age range considered. Then, we divided the labour force population per working-
age population for each age range.
For education, we reconsidered our data series computed in our previous published empirical work
(as indicated in the Appendix) (Frini & Muller, 2012). For trade openness, and as generally defined, we
divided the sum of import and export by the GDP per capita at constant domestic prices.
The GFCF per capita at constant price measuring the capital accumulation (K) was computed by dividing
the GFCF per capita at current price per the consumption price index (base 1990) to avoid the prices effects.
Finally, we defined DATE as a dummy time variable equal to one if upper to 2010 and zero otherwise.
All variables are stated in logarithm so that the coefficients are interpreted as elasticities. Their pri-
mary statistical characteristics are displayed in Table 3 (in the Appendix). The model specification does
not exhibit either correlation or multicollinearity problems as proved by the several check tests.4 Also,
it does not lead to a heteroskedasticity issue, as the homoskedasticity is not rejected by the results of
ARCH test (P-value of 0.65 for model 1 and of 0.49 for model 2). Likewise, this estimate does not imply
a non-normal error as the Jarque-Berra test on the estimated residual does not reject the normality
(P-value is of 0.986 for model 1 and of 0.856 for model 2).
ECONOMETRIC METHODOLOGY AND ESTIMATION RESULTS
Before performing our time series estimation, we tested the reliability of our time series data by
testing the unit roots existence. The results of the Augmented Dickey-Fuller and of Philip-Perron tests
4 The Durbin-Watson test is inconclusive, as the test statistic value lies between dL and dU for the reference model (dL
=1.20<DW=1.687< dU=1.93). As Durbin-Watson test is not powerful in a statistical acceptance, we applied the Breusch
Godfrey test, which presents a probability greater than 10 % (p-value of 0.17 for model 1) and a low R2. Thus, we did not
reject the null hypothesis of non-autocorrelated errors and consequently the model is free of autocorrelation. The same
evidence is observed for model 2.
8
EJAE 2019  16 (1)  1-19
used (Table 4, in the Appendix) ascertain that all the variables are integrated I (1). A cointegration VAR
model, which required the variables be integrated of the same order, is then appropriate.5
Cointegration Estimation
Johansen and Jesulius (1990) maximum eigenvalue test was used to determine the cointegration
ranks. We chose the model with no trend in the cointegration relation and the presence of a constant
in the VEC, since such long-run equilibrium relationship between series does not have trends. The lag
one was used referring to the VAR lag order selection by the Akaike information criterion. It was found
that the maximum Eigen value test result (Table 5 in the Appendix) rejects the null hypothesis of no
cointegration relationship at one percent level.6 There is a unique cointegration equation binding the
variables together in a long-run equilibrium relationship characterized by a common trend.
Prod =
0.755 − 0.780YL + 0.577 PL + 1.06 AL + 0.604 E + 0.386OP − 0.115W + 0.227 K + 0.308U + Zt
11.15 3.09  5.14  10.32 4.34  12.51 8.31 7.40
Where, zt is the error term. T-statistics are presented in parentheses.

The long-run empirical evidence testified that the aggregate labour productivity in Tunisia is influ-
enced by both economic and demographic factors. Even though we used a dissimilar measurement
of labour force participation rate per age range compared to previous studies on Tunisia particularly
Frini and Ben Jedidia (2018), we found the same evidence. Age structure impact on productivity is
significant and non-monotonic. In Tunisia, productivity edges down at young age it increases for the
prime age adult, and rises more toward the end of one’s career. Thus, the overall age-productivity
profile does not follow an inverted U-shape. In line with Dixon (2003), Cardoso et al. (2011), and Gö-
bel and Zwick (2013), older workers are found to be productive. The aggregate labour productivity is
positively affected by both prime-aged adult and old age. Better yet, the gains of labour productivity are
rather boosted by the elder range of the labour force. The older workers seem to have been efficiently
adapted to technological changes since they have experienced greater growth in tasks with an intense
use of cognitive abilities (Autor et al., 2003). They have skills and capacities based on experience that
many youngsters lack. Therefore, the older labourers may have higher average levels of work experi-
ence and positive effect on productivity thanks to skills and capacities. Such a result is consistent with
the Tunisian productive system specificity, characterized mainly by the service sector, which does not
require a high technological development. This is in line with Skirbekk (2003) conclusion stating that
job performance increases when experience and verbal abilities are important.
However, analogous to Mahlberg et al. (2013a) findings, young workers weaken the labour produc-
tivity level. Although young workers have capabilities to become accustomed to technical progress, they
require time to acquire the high skill (learning and training). Some years of experience are required to
highlight the educational skills and gain significant education return. This fact is amplified by the low
synergy between the educational system outcomes and the labour market needs.
Consequently, this empirical evidence shows an increasing productivity with age, which enables us
to predict that labour productivity will not be adversely altered by the ageing process.
5 The cointegration technique is, however, built in a linear context. This linearity characteristic is considered restrictive
insofar, as it implies a single long-run equilibrium and a symmetric adjustment to long-run target by the error correction
model.
6 For model 2, two cointegration vectors were found. However, it exhibited the same results (note 2 in the Appendix).
9
EJAE 2019  16 (1)  1-19
The findings related to the economic variables are, generally, in coherence with the theoretical ex-
pectations. Results display increasing returns of education on productivity. A potential productivity
gain is embodied in the workers who accumulated human capital as emphasized by the human capital
theory. Education is likely to raise workers productivity by providing useful knowledge and skills and
the workers become more receptive to the new production processes. Thus, a higher educational at-
tainment should help to maintain productivity as the labour force ages.
Furthermore, investment infers long-run gains in productivity. Capital accumulation improves the
labour productivity, as it provides more capital per unit of labour, facilitates the effective use of new
and powerful technologies, and raises workers productivity. Moreover, it could be pinpointed that the
advent of new technology in the long-run, in turn, replaces labour and increases productivity.
Thereby, contrary to Mankiw et al. (1992), results of the empirical evidence point out a small weight
of the physical capital but a large weight of human capital in explaining the output per worker variation.
In agreement with Alcala’s and Ciccone (2004) interpretations, these potential productivity gains
through physical and human capital accumulation are, also, reinforced by trade openness. Trade open-
ness stimulates productivity in an environment of international competition thanks to technology
transfer, gains stemming from economies of scale, and knowledge flows between countries.
Additionally, similar to Gordon’s (1997) study results, there is a link between labour productivity
and unemployment. A less volatile and more persistent positive correlation between productivity and
unemployment was found as in Uhlig’s (2006) work. Such a result confirms the neoclassical view, sug-
gesting that a decline in labour demand increases productivity given the technical progress and wage
setting. Nevertheless, the wage policy is likely to decrease productivity. This may be due to the Tuni-
sian policy of “low wages”, which promotes the rotation of the workforce and, consequently, presents
a negative influence on the labour productivity in the long-run. Therefore, a reconsideration of the
level of the minimum guaranteed wage of the industrial sector should be achieved in order to motivate
workers to be more productive.
Interestingly, over the long-run, the structural and political change leads to a positive effect on
productivity evolution (model 2).
Estimation Vector Error Correction
Thanks to the Vector Error Correction model, we estimated the diffusion speed of the labour force
ageing on labour productivity by examining the adjustment mechanisms of the long-run relationships
across variables (Engle & Granger, 1987). The results (Tables 6 and 7 in the Appendix) show that the
error correction term derived from the long-run cointegration relationship is highly significant and
negative in the productivity equation. The short-run productivity evolution tends to join the long-run
equilibrium. The adjustment towards equilibrium is swift, with a coefficient of -0.468 for model 1 and
of -0.535 for model 2. In the short-run, the labour productivity is independent of its lagged value, of
labour age structure, and of the economic factors. Unlike the long-run, a negative short-run effect of
the change brought about by the revolution of January 2011 was observed (Model 2). Such a finding
denotes the dramatic economic situation resulting from the sit-ins and strikes that occurred in the
productive sectors (mining industry).
In addition, we noted that only the lagged education variable influences labour productivity with
an instantaneous negative effect. Education development did not efficiently contribute to the short-
run labour productivity growth process owing to three major raisons. Firstly, the Tunisian productive
system is characterized by a low−educated labour force. With few education years, the labour force
requires a long time to acquire the necessary skill and experience to be productive. Secondly, the
10
EJAE 2019  16 (1)  1-19
educational system is inconsistent with the labour market requirement. As noted by Frini and Muller
(2012), there is a low synergy between the educational system and labour market needs. Thirdly, the
inability of the labour market to absorb the skilled labour force as revealed by the high unemployment
rate of highly educated.7
Overall, this determinism between demographic, economic and productivity variables does not occur
overnight but progressively; it is a long-run process. Consequently, labour productivity improvement
requires a structural change in both labour force and economic conditions. Indeed, time is required
for workers to adapt and acquire new skills and consequently to improve his productivity.
CONCLUSION
This paper underscored the population ageing impact on labour productivity in a macroeconomic
perspective. It depicted the age-productivity profile in the Tunisian labour market by assessing the
effects of three broad age ranges of the labour force participation rate of young adulthood, prime age
and old age over the period 1965-2014.
The achieved findings pointed out that labour productivity is boosted thanks to economic factors
(education, trade openness, capital accumulation and unemployment rate). But the appealing result
is that productivity is, also, affected by demographic factors. Changes in the relative size of different
age ranges have a noteworthy impact on the aggregate labour productivity. The results confirmed a
strong long-run equilibrium relationship between labour productivity and labour force age structure.
Interestingly, opposite to the widespread belief, older workers were consistently rated as having a
more positive attitude, being more reliable, and displaying greater skills than young workers. Thus, the
age-productivity profile does not follow an inverted U-shape. Productivity declines for young workers
and rises when they enter the prime-adult age and go up further toward the end of their career. In this
respect, ageing does not seem to lead to a low performance for the Tunisian labour market.
Nevertheless, the unfavourable scenario may come true with the arrival of the “baby-boom genera-
tion” to the retirement age after about a decade, if policy-makers do not manage the situation. If the
Tunisian government does not respond appropriately to these demographic changes, it will face the
risk that labour supply will shrink and labour productivity may not grow as quickly as needed to boost
economic growth and increase living standards.
Finally, policies that affect labour market regulation and wage setting practices, retirement, pension
rules, health care system, training, and education will be particularly critical for improving labour
productivity. In light of our results, it appears that the retirement age delay beyond 60 years-old, as
suggested by the government, is advised to gain more in labour productivity and enhance economic
growth. Moreover, to keep a higher productivity level, older workers should be engaged only in jobs
where experience and verbal ability are needed, and develop incentives for their training. Firms will
have no choice but to expand their training programs to invest more in older employees and reorient
the programs to meet the needs of those workers and strengthen the effectiveness of the professional
training system. Similarly, policy-makers should invest in the workers’ healthcare, and foster work
environments in order to promptly take advantage of an ageing labour force, and enhance a continued
productive participation of older workers.
7 Over 1966-2014, the graduates' unemployment rate has increased from 0.8% to 33.1%.
11
EJAE 2019  16 (1)  1-19
REFERENCES
Alcala, F., & Ciccone, A. (2004). Trade and Productivity. Quarterly Journal of Economics, 119(2), 613-646.
DOI:10.1162/0033553041382139
Alexander, C. O. (1993). The changing relationship between productivity, wages and unemployment in the UK.
Oxford Bulletin of Economics and Statistics, 55(1), 87-102. DOI:10.1111/j.1468-0084.1993.mp55001005.x
Aubert, P., & Crépon B. (2003). La productivité des salariés âgés : une tentative d’estimation. Economie et statis-
tique, 368, 95-119.
Aubert, P., & Crépon B. (2004). Les salariés âgés sont-ils moins productifs ? Gérontologie et société, 27(111)
DOI:10.3917/gs.111.0095
Aubert, P., & Crépon, B. (2006). Age, wage and productivity: Firm-level evidence, Discussion Paper INSEE, Paris.
Retrieved September 30, 2018, from https://pdfs.semanticscholar.org/53c8/bbcc61640227635def7cb5d-
8778dc734e102.pdf
Autor, D., Levy, F., & Murnane, R. J. (2003). The Skill Content of Recent Technological Change: An Empirical
Exploration. Quarterly Journal of Economics, 18(4), 1279-1333. DOI:10.3386/w8337
Barro, R., & Sala-i-Martin, J. X. (1992). Convergence. Journal of Political Economy, 100(2), 223-251.
Barro, R., & Sala-i-Martin, J. X. (1995). Technological Diffusion, Convergence, and Growth. NBER Working Paper
No. 5151.
Blanchard, O., Solow, R., & Wilson, B.A. (1995). Productivity and Unemployment. Mimeo: Massachusetts Insti-
tute of Technology.
Bloom, D.E., & Sousa-Poza, A. (2013). Ageing and Productivity: Introduction. PGDA Working Paper 98. Re-
trieved September 30, 2018, from https://cdn1.sph.harvard.edu/wp-content/uploads/sites/1288/2013/10/
PGDA_WP_98.pdf
Bloom, D.E., & Williamson, J. (1998). Demographic Transitions and Economic Miracles in Emerging Asia. World
Bank Economic Review, 12, 419-56.
Börsch-Supan, A. (2003). Labour Market Effects of Population Aging. Labour, 17(1), 5-44. DOI:10.1111/1467-
9914.17.specialissue.2
Bös, D., & von Weizsäcker, R. K. (1989). Economic consequences of an aging population. European Economic
Review, 33(2-3), 345-354. DOI:10.1016/0014-2921(89)90112-8
Brunow, S., & Hirte, G. (2006). Age structure and regional economic growth. Review of Regional Research, 26(1),
3-23.
Brunow, S., & Hirte, G. (2008). The Age Pattern of Human Capital and Regional Productivity. Dresden Discus-
sion Paper in Economics, No. 01/08, Technische Universität Dresden, Faculty of Business and Economics,
Department of Economics.
Cadiou, L., Genet, J., & Guérin, J. L. (2002). Évolutions démographiques et marché du travail: des liens complexes
parfois contradictoires. Economie et statistique, 355(1), 139-156.
Cardoso, A.R., Guimaraes, P., & Varejão, J. (2011). Are older workers worthy of their pay? An empirical investiga-
tion of age-productivity and age-wage nexuses. De Economist, 159, 95-111. DOI:10.1007/s10645-011-9163-8
Chawla, M., Betcherman, G., & Banerji, A. (2012). From Red to Gray: The «Third Transition» of Aging Populations
in Eastern Europe and the Former Soviet Union. Washington, DC: World Bank.
Crépon, B., Deniau, N., & Pérez-Duarte S. (2002). Wages, Productivity, and Worker Characteristics: A French
Perspective. Mimeo. INSEE.
De Grip, A., & Van Loo, J. (2002). The economics of skills obsolescence: A review, in A. de Grip, J. van Loo, K.
Mayhew (Ed.), Economics of skills obsolescence: Theoretical innovations and empirical applications (pp.
1-26). Bingley: Emerald Group Publishing Limited.
Disney, R. (1996). Can we afford to grow older? A perspective on the economics of aging. Cambridge, MA: MIT Press.
12
EJAE 2019  16 (1)  1-19
Dixon, S. (2003). Implications of population ageing for the labour Market. Labour Market Division, Office for
National Statistics. Labour Market trends.
Engle, R. F., & Granger, C. W. J. (1987). Co-integration and Error Correction: Representation, Estimation, and
Testing. Econometrica, 55(2), 251-276.
Frini, O., & Ben Jedidia, K. (2018). The age structure change of population and labour productivity impact.
Economics Bulletin, 38(4), 1831-1844.
Frini, O., & Muller, C. (2012). Demographic Transition, Education and Economic Growth in Tunisia. Economic
Systems, 36(3), 351-371. DOI:10.1016/j.ecosys.2012.04.002
Göbel, C., & Zwick, T. (2009). Age and productivity - evidence from linked employer employee data. ZEW - Centre
for European Economic Research Discussion Paper No. 09-020. DOI:10.2139/ssrn.1431878
Göbel, C., & Zwick, T. (2012). Age and Productivity: Sector Differences. De Economist, 160(1), 35-57. DOI:10.1007/
s10645-011-9173-6
Göbel, C., & Zwick, T. (2013). Are Personnel Measures Effective in Increasing Productivity of Old Workers?
Labour Economic, 22(C), 80-93.
Gordon, R. J. (1997). Is there a trade-off between unemployment and productivity growth? In D. Snower and
G. de la Dehesa (Ed.), Unemployment policy: Government options for the labour market (pp. 433-463).
Cambridge: Cambridge University Press.
Greenwood, M. (1997). Internal migration in developed countries. In M. R. Rosenzweig and O. Stark (Ed.),
Handbook of population and family economics (pp. 647-720). Amsterdam: Elsevier.
Gregg, P., & Wadsworth, J. (1999). Job tenure, 1975-1998. In P. Gregg and J. Wadsworth (Ed.), The state of work-
ing Britain (pp. 109-126). New York: Manchaster University Press.
Haltivanger, J. C., Lane, J. I., & Spletzer, J. R. (1999). Productivity Differences Across Employers. The Roles of
Employer Size, Age and Human Capital. American Economic Review Papers and Proceedings, 89(2), 94-98.
Ilmakunnas, P., Maliranta, M. & Vainiomäki, J. (2004). The roles of employer and employee characteristics for plant
productivity. Journal of Productivity Analysis, 21(3), 249-276. DOI:10.1023/B:PROD.0000022093.59352.5e
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration - with ap-
plications to money demand. Oxford Bulletin of Economics and Statistics, 52(2), 169-210. DOI:10.1111
/j.1468-0084.1990.mp52002003.x
Lindh, T., & Malmberg, B. (1999). Age structure effects and growth in the OECD, 1950-1990. Journal of Popula-
tion Economics, 12(3), 431-449.
Mahlberg, B., Freund, I., & Prskawetz, A. (2013a). Ageing, productivity and wages in Austria: Sector level evi-
dence. Empirica, 40(4), 561-584.
Mahlberg, B., Inga, F., Cuaresma, J-C., & Prskawetz, L. (2013b). Ageing, productivity and wages in Austria.
Labour Economics, 22, 5-15. DOI:10.1016/j.labeco.2012.09.005
Malmberg, B., Lindh,T. & Halvarsson, M. (2008). Productivity consequences of workforce ageing - Stagnation
or a Horndal effect? In A. Prskawetz, D. Bloom, and W. Lutz (Ed.), Population Aging, Human Capital
Accumulation and Productivity Growth, Population and Development Review (pp. 238-256). New York:
Population Council.
Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A contribution to the empirics of economic growth. The Quar-
terly Journal of Economics, 107(2), 407-437.
Peng, X. (2006). Macroeconomic Consequences of Population Ageing in China-A Computable General Equilib-
rium Analysis. Journal of Population Research, 30(4), 12-22.
Prskawetz, A., Mahlberg, B., & Skirbekk. V. (2007). Firm Productivity, Workforce Age and Educational Structure
in Austrian industries in 2001. In R. Clark, N. Ogawa and A. Mason (Ed.), Population Aging, Intergenera-
tional Transfers and the Macroeconomy (pp. 38-66). Cheltenham: Edward Elgar Publishing.
Rožman, M., Treven,T., & Cancer, V. (2016). Stereotypes of older employees compared to younger employees
in Slovanian companies. Management, 21(1), 165-179.
13
EJAE 2019  16 (1)  1-19
Skirbekk, V. (2003). Age and individual productivity: a literature survey. Vienna Yearbook of Population Research,
2, 133-153.
Skirbekk, V. (2008). Age and Productivity Capacity: Descriptions, Causes and Policy Options. Ageing Horizons,
8, 4-12.
Tang, J., & MacLeod, C. (2006). Labour force ageing and productivity performance in Canada. Canadian Journal
of Economics, 39(2), 582-603.
Tanner, S. (1997). The dynamics of retirement behaviour. In The Dynamics of Retirement: Analyses of the Re-
tirement Surveys. R. Disney, E. Grundy, and P. Johnson (Ed.), Department of Social Security Research
Report No. 72. London: Stationery Office.
Uhlig, H. (2006). Regional Labor Markets, Network Externalities and Migration: The Case of German Reunifica-
tion. American Economic Review Papers & Proceedings, 96(2), 383-387.
Van Ours, J. C., & Stoeldraijer, L. (2010). Age, Wage and Productivity. Bonn: IZA.
Verhaeghen, P., & Salthouse, T. A. (1997). Meta-Analyses of Age-Cognition Relations in Adulthood: Estimates
of Linear and Nonlinear Age Effects and Structural Models. Psychological Bulletin, 122(3), 231-249.
Vodopivec, M., & Arunatilake, N. (2008). Population aging and the labor market: the case of Srilanka. Retrieved
September 30, 2018, from http://siteresources.worldbank.org/SOCIALPROTECTION/Resources/SP-
Discussion-papers/Labor-Market-DP/0821.pdf
Wakeford, J. (2004). The productivity-wage relationship in South Africa: an empirical investigation. Development
Southern Africa, 21(1), 109-132.
14
EJAE 2019  16 (1)  1-19
APPENDIX
PROD YL PL AL K OP E W U
Mean 8.649 3.847 4.060 3.791 8.015 4.307 3.664 4.350 2.726
Median 8.650 3.847 4.074 3.792 8.071 4.419 3.710 4.677 2.747
Maximum 9.280 3.956 4.188 3.933 8.787 4.738 4.254 5.615 2.923
Minimum 7.854 3.668 3.854 3.682 7.006 3.459 2.737 2.578 2.517
Std. Dev. 0.392 0.061 0.083 0.070 0.506 0.330 0.491 1.001 0.074
Observations 50 50 50 50 50 50 50 50 50
Table 3. Descriptive Statistics Variables
The Probability value of the unit roots tests (P-value)

Augmented Dickey Fuller (ADF) Phillips Perron (PP)
Model Model (1) Model (2) Model (3) Model (1) Model (2) Model (3)
Level
Prod 1.000 0.479 0.496 1.000 0.577 0.516
YL 0.518 0.241 0.025 0.833 0.049 0.005
PL 0.999 0.999 0.049 0.987 0.265 0.049
AL 0.335 0.761 0.452 0.376 0.761 0.239
E 0.986 0.752 0.980 0.999 0.381 0.815
W 0.995 0.273 0.987 0.999 0.432 0.968
K 0.961 0.236 0.157 0.981 0.661 0.607
OP 0.970 0.146 0.384 0.973 0.125 0.535
U 0.421 0.033 0.654 0.660 0.033 0.081
First difference (∆)
Prod 0.117 0.000 0.000 0.000 0.000 0.000
YL 0.000 0.018 0.048 0.000 0.003 0.008
PL 0.000 0.000 0.000 0.000 0.000 0.000
AL 0.000 0.000 0.001 0.000 0.000 0.000
E 0.026 0.001 0.008 0.000 0.001 0.008
W 0.029 0.011 0.018 0.002 0.000 0.001
K 0.000 0.004 0.020 0.000 0.004 0.018
OP 0.000 0.000 0.000 0.000 0.000 0.000
U 0.000 0.000 0.000 0.000 0.000 0.000
Table 4. Unit Root Tests*

k
*Model (1) with no intercept and no deterministic trend: ΔX =
t
( ρ − 1) X
t −1
+ ∑ θ ΔX
j t−j t
+ε
j
k
Model (2) with intercept and no deterministic trend: ∆Xt = ( ρ − 1) Xt −1 + υ + ∑θ j ∆Xt − j + εt
j
k
Model (3) with intercept and deterministic trend: ∆Xt = ( ρ − 1) Xt −1 + λ + δt + ∑ θ j∆Xt − j + εt
j
Both the ADF and the PP tests take the unit root as the null hypothesis H0: ρ =1. This null hypoth-
esis is tested against the one side alternative H1 ρ <0.
15
EJAE 2019  16 (1)  1-19
Base regression: Model 1 Model 2

H0: r or fewer H0: r or fewer
cointegration Eigen Value P-value** cointegration Eigen Value P-value**
vectors vectors
None* 0.823 0.000 None * 0.679 0.029
At most 1 0.654 0.068 At most 1 * 0.618 0.049
At most 2 0.561 0.217 At most 2 0.525 0.141
At most 3 0.527 0.133 At most 3 0.496 0.065
At most 4 0.486 0.082 At most 4* 0.449 0.036
At most 5 0.331 0.387 At most 5 0.260 0.328
At most 6 0.290 0.198 At most 6 0.229 0.093
At most 7 0.150 0.395 At most 7* 0.111 0.017
At most 8 0.068 0.065
Table 5. Maximum Eigenvalue Test
Max-eigenvalue test indicates 1 cointegrating eqn (s) at the 0.05 level for model 1
Max-eigenvalue test indicates 2 cointegrating eqn (s) at the 0.05 level for model 2
*denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
D(Prod) D(YL) D(PL) D(AL) D(E) D(W) D(K) D(OP) D(U)

Error -0.468 -0.160 -0.019 0.202 -0.113 -0.066 0.306 1.082 0.381
Correction
term ECT1 (-3.595) (-2.132) (-0.156) (2.149) (-0.765) (-0.233) (0.891) (2.636) (1.246)
Regressors 0.041 0.166 0.093 -0.034 0.030 -0.232 0.082 -0.167 -0.171
D(Prod (-1)) (0.280) (1.967) (0.663) (-0.329) (0.186) (-0.726) (0.213) (-0.362) (-0.499)
0.360 0.403 0.084 0.038 0.120 -0.165 0.242 -0.054 0.037
D(YL(-1)) (1.650) (3.193) (0.404) (0.381) (0.487) (-0.347) (0.419) (-0.079) (0.072)
-0.175 0.205 -0.431 0.482 -0.314 0.147 -0.158 0.397 -0.224
D(PL(-1)) (-0.832) (1.679) (-2.135) (3.158) (-1.315) (0.320) (-0.284) (0.596) (-0.452)
-0.430 0.223 -0.308 0.106 -0.088 -0.534 -0.158 0.189 0.061
D(AL(-1)) (-1.868) (1.674) (-1.400) (0.635) (-0.339) (-1.064) (-0.284) (0.261) (0.114)
-0.666 -0.001 0.068 -0.042 0.410 -0.038 0.045 0.660 0.224
D(E(-1)) (-4.481) (-0.014) (0.478) (-0.390) (2.432) (-0.117) (0.312) (1.408) (0.642)
-0.060 -0.023 -0.090 0.086 0.036 0.346 -0.029 -0.229 -0.006
D(W(-1)) (-0.872) (-0.577) (1.373) (1.737) (0.406) (2.304) (-0.160) (-1.053) (-0.037)
-0.078 -0.031 -0.039 -0.003 -0.027 0.213 0.494 0.071 0.049
D(K(-1)) (-1.222) (-0.845) (-0.650) (-0.070) (-0.371) (1.525) (2.920) (0.353) (0.327)
0.038 -0.015 0.033 0.026 -0.007 0.102 0.266 0.256 0.186
D(OP(-1)) (0.716) (-0.481) (0.649) (0.669) (-1.144) (0.867) (1.864) (1.504) (1.468)
-0.034 -0.029 0.014 0.011 -0.014 0.023 0.089 0.200 -0.075
D(U(-1)) (-0.491) (-0.717) (0.215) (0.223) (-0.181) (0.151) (0.486) (0.907) (-0.458)
0.053 0.001 0.009 -0.009 0.016 0.035 0.008 0.010 -0.006
C (6.297) (-0.369) (1.213) (-1.554) (1.730) (1.910) (0.390) (0.373) (-0.317)
R2 0.484 0.480 0.184 0.363 0.400 0.306 0.370 0.214 0.103
Table 6. Vector Error Correction base regression: Model 1
Notes: Students’ t is in parentheses.
16
EJAE 2019  16 (1)  1-19
Note2: Model (2)

First cointegration equation Model 2
0.659 − 0.565 YL + 0.494 PL + 0.70 AL + 0.620 E − 0.143 W + 0.202 K + 0.043OP + 0.3176U + 0.074 DATE + Zt
Prod =
6.58  2.72  3.56  11.41 5.79  10.95 9.38 3.01 3.36 
D D D D D D D D D D
(Prod) (YL) (PL) (AL) (E) (W) (K) (OP) (U) (DATE)
Error
Correc- -0.535 -0.151 -0.110 0.154 0.054 -0.019 0.212 1.026 0.447 1.294
tion term (-4.500) (-2.008) (-0.901) (1.621) (0.379) (-0.069) (0.615) (2.491) (1.485) (1.875)
ECT1
Regressors 0.0182 0.148 0.123 0.004 -0.046 -0.258 0.145 -0.045 -0.162 -0.615
D(Prod (0.138) (1.780) (0.913) (0.038) (-0.297) (-0.826) (0.381) (-0.100) (-0.490) (-0.807)
(-1)) 0.079 (0.336) 0.0173 0.124 0.323 0.396 0.217 0.371
0.107 -0.194
(0.375) (2.495) (0.079) (0.732) (0.421) (-0.385) (0.524) (0.539) (0.403) (0.301)
D(YL(-1))
-0.307 0.194 -0.499 0.501 -0.293 0.137 -0.190 0.470 -0.179 0.218
(-1.523) (1.514) (-2.402) (3.102) (-1.216) (0.287) (-0.324) (0.673) (-0.350) (0.186)
D(PL(-1))
-0.419 0.235 -0.316 0.102 -0.107 -0.543 0.015 0.103 0.018 -0.150
D(AL(-1)) (-1.959) (1.735) (-1.436) (0.597) (-0.421) (-1.067) (0.024) (0.139) (0.034) (-0.120)
-0.644 0.027 0.018 -0.090 0.497 -0.011 0.024 0.467 0.193 0.208
D(E(-1)) (-5.019) (0.339) (0.143) (-0.880) (3.241) (-0.038) (0.065) (1.049) (0.594) (0.279)
-0.051 -0.020 -0.089 0.084 0.034 0.346 -0.033 -0.248 -0.014 -0.152
D(W(-1)) (-0.812) (-0.497) (-1.358) (1.645) (0.448) (2.275) (-0.183) (-1.120) (-0.090) (-0.411)
-0.061 -0.020 -0.052 -0.021 0.001 0.223 0.462 -0.002 0.034 0.215
D(K(-1)) (-1.072) (-0.563) (-0.888) (-0.471) (0.017) (1.647) (2.804) (-0.011) (0.238) (0.652)
0.019 -0.018 0.020 0.021 -0.038 0.111 0.262 0.283 0.213 0.493
D(OP(-1)) (0.913)
(0.379) (-0.575) (0.389) (0.523) (-0.633) (1.761) (1.589) (1.639) (1.651)
0.179 -0.019 0.078 -0.097 0.218 0.136 0.111 0.145 0.011 -0.203
D(U(-1))
(1.493) (-0.250) (0.631) (-1.016) (1.525) (0.480) (0.320) (0.351) (0.037) (-0.292)
-0.108 -0.003 -0.038 0.050 -0.104 -0.053 -0.019 0.017 -0.041 0.143
D(DATE
(-1)) (-2.090) (-0.104) (-0.709) (1.200) (-1.676) (-0.430) (-0.126) (0.095) (-0.311) (0.475)
0.056 -0.002 0.0125 -0.009 0.016 0.035 0.011 0.013 -0.005 0.016
C (7.078) (-0.458) (1.525) (-1.494) (1.709) (1.889) (0.512) (0.489) (-0.261) (0.363)
R2 0.568 0.476 0.208 0.347 0.441 0.309 0.365 0.207 0.127 0.137
Table 7. Vector Error Correction: Model 2

Notes: Students’ t is in parentheses.
17
EJAE 2019  16 (1)  1-19
18
EJAE 2019  16 (1)  1-19
PROMENE U STAROSNOJ STRUKTURI POPULACIJE I RADNA

PRODUKTIVNOST: PRIMER TUNISA
Rezime:
Oslanjajući se na makroekonomsku perspektivu, ovaj rad analizira
uticaj starosne dobi populacije na produktivnost u poslu. U vezi sa
tim, posmatrani su efekti nivoa učešća radne snage kroz tri starosne
grupe – pripadnici mlađe populacije (15-29 godina), oni koji su dosegli
punu zrelost (30-49 godina), starija populacija (50-64 godina). Nivo
učešća radne snage – a po osnovu godina, posmatran je na način da se
porede radno aktivni pripadnici iste starosne dobi. Koristeći podatke
iz Tunisa, koji se odnose na vremenski okvir 1965-2014. godine, metod
kointegracije je potvrdio dugoročni odnos sa procesom progresivnog
prilagođavanja, na putu ka uspostavljanju ravnoteže. Za razliku od
ishoda do kojih dovodi konvencionalni pristup, profil produktivnosti
zasnovan na parametru starosne dobi, nije dobio obrnuti U-oblik. Radna Ključne reči:
produktivnost smanjivala se kada su u pitanju mladi radnici, rasla za promene u starosnoj strukturi
one u zrelom dobu, te nastavila da raste – kada su u pitanju pripadnici populacije,
starije populacije. U skladu sa tim, starenje populacije nije uticalo na nivo učešća radne snage,
učinak u okvirima tržišta rada u Tunisu. Otuda, kako bi se pospešila radna produktivnost,
produktivnost, ali i unapredio ekonomski rast zemlje, preporučljivo je model korigovanja greške,
odlaganje penzionisanja populacije nakon šezdesete godine. Tunis.
19
EJAE 2019, 16(1): 20-29
ISSN 2406-2588
UDK: 336.71:[621.395.721.5:004.77
336.717:336.745
DOI: 10.5937/EJAE15-19381
ANTECEDENTS OF MOBILE BANKING:

UTAUT MODEL
Jovana Savić*, Aleksandra Pešterac
Faculty of Economics, University of Kragujevac, PhD students

Kragujevac, Serbia

The development of modern information and communication tech-
Received: November 1, 2018
nologies enabled banks to rely on mobile banking as an important
Correction: November 15, 2018
distribution channel in their businesses. Given that investments in the
Accepted: December 10, 2018
development of mobile banking systems are extremely high, knowledge
of which factors affect the intentions of individuals to use mobile bank-
ing services can be of great importance. For this purpose, empirical
research was conducted and 313 respondents were surveyed in the
territory of Sumadija, Central Serbia. The collected primary data were
analyzed using the statistical software SPSS v. 20. To examine the fac-
tors in the work, the UTAUT model (Unified Theory of Acceptance and
Use of Technology) was used. The results of empirical research indicate
that all components of the UTAUT model have statistically significant
influence on intention to use mobile banking, with performance ex-
pectancy singled out as the most important antecedent, while effort Keywords:
expectancy has the weakest impact. The paper confirms the success of modern technologies,
the UTAUT model for testing mobile banking antecedents, and gains mobile banking,
new insights regarding the intention of using mobile banking in Serbia intention to use mobile banking,
that can serve for managerial purposes. UTAUT model.
INTRODUCTION
The rapid development of modern information technology and an increase in the number of mo-
bile users have caused the emergence of a new trend in banking operations, known as mobile banking.
Mobile banking was developed as an extension of Internet banking, and is based on the use of modern
mobile technology to provide clients with various banking and financial services (Yao & Zhong, 2011).
On the other hand, mobile banking is a part of mobile commerce, and can therefore be defined as the
evolution of the e-commerce paradigm from fixed line networks to wireless data networks (Samudra
20
*E-mail: jsavic@kg.ac.rs
EJAE 2019  16 (1)  20-29
SAVIĆ, J., PEŠTERAC, A.  ANTECEDENTS OF MOBILE BANKING: UTAUT MODEL
& Phadtare, 2012, p. 51). Using the benefits of mobile devices, mobile banking allows clients to con-
duct banking transactions at any time and from any place. Activities that can be performed by mobile
banking include paying bills, transferring money, finding ATM locations, information inquiry, account
management, etc. (Afshan & Sharif, 2016).
Providing quality and diverse mobile banking services to clients is a priority for today’s banks.
However, since mobile banking implies the development of complex systems that require very high
investments, for the banking sector it is particularly important to learn about the factors that influence
the intentions of clients to use mobile banking services, as it can help them when deciding on invest-
ments in mobile banking. As mobile banking is a trend in the banking industry that is still developing,
especially in the territory of Serbia, the number of mobile banking users is still small (Yao & Zhong,
2011; Alalwan et al., 2017). Stated reasons for this include mistrust in the security of service delivery,
risks, the danger of fraud, lack of awareness, and technical issues during the realization of banking
transactions (Sanader, 2014; Bhatt & Bhatt, 2016). In this regard, it is concluded that new research
on the antecedents of mobile banking is necessary in order to provide the banking sector with better
and more complete information that can serve as a good basis for making optimal business decisions.
Starting from the abovementioned, the paper presents the results of the empirical research conducted
in order to identify key antecedents behind the intentions of clients in the territory of Sumadija, Cen-
tral Serbia, to use mobile banking services. The UTAUT model was used as the initial research model,
which has become very popular in research literature for testing the process of adopting technology,
but which, to the authors' knowledge, was not used too much in the research of domestic authors
when it comes to segment of mobile banking. Therefore, the contribution of the work is also reflected
in the practical testing of the UTAUT model in this segment, apart from the knowledge related to the
antecedents of mobile banking.
LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT
Understanding the factors that influence technology acceptance has become the subject of research
for a large number of authors. For these purposes, based on psychological and sociological theories,
many models have been developed, where the most widely used was the technology acceptance model.
Using the foundations of research by authors in the field of technology acceptance, Venkatesh et
al. (2003) developed the UTAUT model (Unified Theory of Acceptance and Use of Technology). The
UTAUT model was created as a result of the integration of eight models used in previous research to
explain the process of adopting technology, such as The Theory of Reasoned Action, The Technology
Acceptance Model, The Motivational Model, The Theory of Planned Behavior, The Combined Theory
of Planned Behavior/Technology Acceptance Model, The Model of Personal Computer Utilization, The
Diffusion of Innovation Theory and Social Cognitive Theory (Samudra & Phadtare, 2012). The UTAUT
model has attracted the attention of a large number of researchers and the success of its application
has been confirmed in plenty of empirical research (Venkatesh et al., 2003, 2012; Venkatesh & Zhang
2010; Yu, 2012; Alkhunaizan & Love, 2012; Baptista & Oliveira, 2015). Its importance is reflected in
not only allowing to analyze the most important antecedents of technology use, but also in allowing
the analysis of moderators that amplify or constrain the effects of core determinants (Yu, 2012). The
UTAUT model includes four constructs: performance expectancy, effort expectancy, social influence,
and facilitating conditions (Venkatesh et al., 2011). In addition, the UTAUT model includes gender,
age, experience and voluntariness of use as moderating factors, which explain the behavioral differences
of different groups of people (Min et al., 2008).
Performance expectancy is defined as the degree to which using a technology will provide benefits
to consumers in performing certain activities (Adapted from: Venkatesh et al., 2003). Performance
21
EJAE 2019  16 (1)  20-29
expectancy actually measures the degree to which a person believes that using mobile banking services
will help them in performing banking transactions (Adapted from: Tarhini et al., 2016). Oliveira et
al. (2014) and Sarfaraz (2017) have come to the conclusion that performance expectancy has a total
effect on behavioral intentions towards mobile banking. Baptista & Oliveira (2015) and Basri (2018)
have empirically shown that mobile banking users believe that performance expectancy is one of the
most important antecedents of behavioral intention. In this regard, the following hypothesis will be
tested in this paper:
H1: Performance expectancy has a statistically significant effect on behavioral intention to use mobile
banking services.
The second construct which builds UTAUT model is effort expectancy. Venkatesh et al. (2003,
p. 450) define effort expectancy as the degree of ease associated with the use of the system. The easier
the mobile banking is to use, the greater the likelihood that clients will use it to conduct their banking
transactions. In their research, Bankole et al. (2011), exploring the antecedents of mobile banking in
Nigeria, have proven that the effort expectancy has a positive impact on the behavioral intention to
use mobile banking services. Bhatiasevi (2016) came to the same conclusion in his research conducted
to identify the factors leading to the adoption of mobile banking in Thailand, as did Albashrawi et al.
(2017) by observing a sample of U.S. bank clients. Starting from the above, one can assume the following:
H2: Effort expectancy has a statistically significant effect on behavioral intention to use mobile bank-
ing services.
The following construct refers to social influence. Social influence refers to the degree to which an
individual perceives that important others believe he or she should use the new system (Venkatesh
et al., 2003, p. 451), and is particularly important in the early stages of new technology development
when most users do not have experience or information about technology, and therefore rely on public
opinion (Marinkovic & Kalinic, 2017). In fact, it concerns the influence of people from the immedi-
ate surroundings of the individual (family, friends, superiors) on his or her perceptions and behavior
related to a certain activity. Many studies have confirmed that social influence is directly related to the
intention of an individual to use mobile banking services (Bhatiasevi, 2015; Tan & Leby Lau, 2016).
Moreover, in some research this factor has been singled out as the most significant when it comes to
the intention of using mobile banking (Venkatesh & Zhang 2010; Yu, 2012). On the basis of the above
results, the hypothesis is posed:
H3: Social influence has a statistically significant effect on behavioral intention to use mobile banking
services.
The last, but not the least important construct are facilitating conditions. Facilitating conditions are
defined as the degree to which an individual believes that an organizational and technical infrastructure
exists to support the use of the system (Venkatesh et al., 2003, p. 453). Since the use of mobile banking
services requires the availability of appropriate resources, knowledge, and technology infrastructure, it
is logical to assume that of these conditions a considerable extent depends the intention of an individual
to use mobile banking. This assumption was empirically proven by Zhou et al. (2010), Witeepanich
et al. (2013), as well as Afshan & Sharif (2016). Consequently, the following hypothesis will be tested
in the paper:
H4: Facilitating conditions have a statistically significant effect on behavioral intention to use mobile
banking services.
22
EJAE 2019  16 (1)  20-29
RESEARCH METHODOLOGY
The conducted empirical research is based on the primary data collected on the territory of Sumadija,
Central Serbia, by interviewing 313 respondents with different demographic characteristics. The ques-
tionnaire technique was used to collect data, and was distributed to respondents personally and online
in the period from August 17, 2018 until September 10, 2018.1 The questionnaire includes 18 statements
measured on the seven-point Likert scale related to the antecedents of mobile banking according to the
UTAUT model and intention to use mobile banking services, where respondents rounded out a score
of 1 (I absolutely disagree) to 7 (I absolutely agree) to express their agreement with given statements.
Statements are taken from relevant domestic and foreign literature, and are grouped in five variables.
Along with statements, the questionnaire includes four questions related to respondent data.
The analysis of the collected primary data was performed using the statistical software SPSS v. 20,
where the descriptive statistical analysis for sample structure (Table 1), reliability analysis by calculat-
ing Cronbach’s alpha coefficient and correlation analysis were conducted. Starting from the work of
Venkatesh et al. (2003), who used multiple regression in their research to examine the impact of con-
structs on behavior intentions, the same analysis was carried out in this paper, also using SPSS v. 20.
Demographic characteristics Number Percentage

Female 180 57.5%
Gender
Male 133 42.5%
18-24 69 22%
25-44 158 50.5%
Age
45-54 60 19.2%
55 and more 26 8.3%
Secondary education 95 30.4%
Level of education Higher education 59 18.8%
University degree 159 50.8%
Employee 153 48.9%
Unemployee 81 25.9%
Working status
Student 67 21.4%
Pensioner 12 3.8%
Table 1. Sample structure
Source: Authors
Based on the results obtained, it is evidenced that the majority of the sample are female respond-
ents (57.5%), while men represent 42.5% of the sample. Respondents are predominantly aged 25 to
44 years (50.5% of the sample), the percentage of respondents aged 18 to 24 (22%) and 45 and 54
years (19.2%) is approximately equal, while the smallest percentage of respondents are those aged 55
and up (8.3%). More than half of the sample includes respondents who have obtained a university
degree (50.8%), followed by those with secondary education (30.4%) and the smallest amount being
1 Raw data used for analysis are available at the following URL address: https://data.mendeley.com/datasets/dhh4mmw3f3/1/
files/95d39de7-22ad-4b3e-945f de84a4f3329e/Antecedents%20of%20mobile%20banking%20%20UTAUT%20model.
xlsx?dl=1.
23
EJAE 2019  16 (1)  20-29
those with higher education (formal education between secondary education and university degree)
(18.8%). When it comes to working status, as the last demographic characteristic, the sample has the
highest number of employed respondents (48.9%), followed by unemployed respondents (25.9%),
with fewer students (21.4%), and pensioners representing the smallest group (3.8%).
RESEARCH RESULTS
The reliability analysis was performed to test the reliability of the UTAUT variables, as well as the
intention to use, i.e., the dependent variable. The results of the analysis are shown in Table 2:
Variable Cronbach’s Alpha

Performance expectancy 0.895
Effort expectancy 0.954
Social influence 0.954
Facilitating conditions 0.937
Intention to use 0.973
Table 2. Reliability analysis

Source: Authors
Table 2 gives the values of the Cronbach’s Alpha reliability coefficient. Since all the values obtained
are greater than 0.7, it is concluded that all observed variables are reliable, with the highest reliability
of the variable intention to use, with performance expectancy being the variable with the lowest degree
of reliability.
The correlation analysis determines the degree of linear dependence between the variables of the
research expressed as the value of the Pearson correlation coefficient. The values of this coefficient
are shown in Table 3:
Performance Effort Social Facilitating Intention

expectancy expectancy influence conditions to use
Performance expectancy 1 0.815** 0.527** 0.668** 0.754**
Effort expectancy 0.815** 1 0.555** 0.755** 0.749**
Social influence 0.527** 0.555** 1 0.706** 0.709**
Facilitating conditions 0.668** 0.755** 0.706** 1 0.764**
Intention to use 0.754** 0.749** 0.709** 0.764** 1
** Correlation is significant at the 0.01 level
Table 3. Correlation analysis
Source: Authors
The results of the correlation analysis indicate that there is a statistically significant correlation, with
a probability of 99%, among all pairs of variables. A strong correlation exists between the majority of
variables (performance expectancy and effort expectancy, performance expectancy and facilitating
conditions, performance expectancy and intention to use, effort expectancy and facilitating conditions,
24
EJAE 2019  16 (1)  20-29
effort expectancy and intention to use, social influence and facilitating conditions, social influence
and intention to use, facilitating conditions and intention to use), while a moderate correlation occurs
between the variables of performance expectancy and social influence, and between effort expectancy
and social influence.
Regression analysis is carried out to test the set of research hypotheses that relate to the impact of
independent variables (variables of the UTAUT model) on the dependent variable Intention to use.
The results of this analysis are shown in Table 4:
Independent variable β Sig VIF

Performance expectancy 0.328 0.000 3.060
Effort expectancy 0.149 0.010 3.910
Social influence 0.296 0.000 2.017
Facilitating conditions 0.224 0.000 3.236
Rsquare (R2)=0.740; F=218.862 (p<0.05)
Table 4. Multiple regression analysis (dependent variable Intention to use)
Source: Authors
Based on the value of the VIF coefficient, it can be seen that the data are suitable for carrying out
multiple regression analysis (VIF less than 5). The value of the Rsquare determination coefficient in-
dicates that 74% of the variability of the dependent variable intention to use is explained by the given
regression model. Sig value from the third column of the table shows that all independent UTAUT model
variables have a statistically significant effect on the clients’ intention to use mobile banking services,
with the strongest impact of the variable performance expectancy (β = 0.328, p<0.05), followed by the
variable social influence (β = 0.296, p<0.05), followed by facilitating conditions (β = 0.224, p<0.05),
with the weakest effect being that of effort expectancy (β = 0.149, p<0.05).
CONCLUSIONS
The aim of the conducted research is to identify the key antecedents of the intention of clients to use
mobile banking services, emphasizing the components of the UTAUT model and their influence on
intention to use mobile banking. Research hypotheses were tested using a multiple regression analysis,
whose results indicate that all four components of the UTAUT model (performance expectancy, effort
expectancy, social influence, and facilitating conditions) determine intention to use mobile bank-
ing, and it is therefore concluded that all the tested hypotheses have been proven. The performance
expectancy has been highlighted as the strongest antecedent, which is consistent with the results of
previous research (Baptista & Oliveira, 2015; Basri, 2018), while the weakest antecedent is that of effort
expectancy. The significance of the conducted research is based on the fact that its results enable us to
gain new relevant knowledge of mobile banking antecedents, a good starting point for future research
has been created and the UTAUT model has been practically tested in this segment. On the basis of
the obtained results, bank managements can make optimal business decisions related to investments
in the development of mobile banking. Research limitations relate to a small sample of respondents,
with a sample limited to clients in Central Serbia, and neglecting the moderator’s effects when it comes
to the demographic characteristics of the respondents. Furthermore, the multiple regression analysis
is used for testing the relationships of independent and dependent variables. It is therefore recom-
mended to increase the sample of respondents for future papers, since results cannot be generalized,
25
EJAE 2019  16 (1)  20-29
as the sample structure does not represent the Serbian average, from demographic and educational
point of view. For future research, it might be desirable to include demographic characteristics, such
as gender and age, in the research model in order to examine their moderator effect. When it comes to
testing relationships between variables, the SEM (Structural Equation Modeling) approach would be
more appropriate for analysis, since multiple regression analysis has limitations, such as the use of a
small number of indicators, omission of measurement errors, one or more independent variables are
included in the analysis but only one dependent variable etc. (Jeon, 2015). It is desirable to conduct a
t-test or one-way Anova, in order to obtain more precise results when considering the demographic
characteristics of the respondents. In addition, future research may rely on an extended version of
the research model, by adding variables such as trust, perceived risk, dimensions of national culture,
and so on. The banks are recommended to put the greatest emphasis on the performances that clients
expect when it comes to mobile banking to, during the promotion of their services take into account
the social influences to which their target markets are exposed, and to use those influences to make a
more convincing promotional message. It is also necessary to provide good technical infrastructure
and support, in order for clients to use mobile banking services without any difficulties. Finally, as ef-
fort expectancy has proven to be an important antecedent of the intention to use mobile banking, it
is recommended to let clients know about the availability of the appropriate instructions or info lines
for free calls to inform themselves about the correct way to access and use the mobile banking system.
REFERENCES
Afshan, S., & Sharif, A. (2016). Acceptance of mobile banking framework in Pakistan. Telematics and Informatics,
33(2), 370-387. DOI:10.1016/j.tele.2015.09.005
Alalwan, A. A., Dwivedi, Y. K., & Rana, N. P. (2017). Factors influencing adoption of mobile banking by Jordanian
bank customers: Extending UTAUT2 with trust. International Journal of Information Management, 37(3),
99-110. DOI:10.1016/j.ijinfomgt.2017.01.002
Albashrawi, M., Kartal, H., Oztekin, A., & Motiwalla, L. (2017). The Impact of Subjective and Objective Experi-
ence on Mobile Banking Usage: An Analytical Approach. In Proceedings of the 50th Hawaii International
Conference on System Sciences. HICSS Conference Office. 4-7 January 2017 (pp.1161-1170). DOI:10.24251/
hicss.2017.137
Alkhunaizan, A., & Love, S. (2012). What drives mobile commerce?, An empirical evaluation of the revised
UTAUT model. International Journal of Management and Marketing Academy, 2(1), 82-99.
Bankole, F. O., Bankole, O. O., & Brown, I. (2011). Mobile Banking Adoption in Nigeria. The Electronic Journal
of Information Systems in Developing Countries, 47(1), 1-23. DOI:10.1002/j.1681-4835.2011.tb00330.x
Baptista, G., & Oliveira, T. (2015). Understanding mobile banking: The unified theory of acceptance and use of
technology combined with cultural moderators. Computers in Human Behavior, 50, 418-430. DOI:10.1016/j.
chb.2015.04.024
Basri, S. (2018). Determinants of adoption of mobile banking: evidence from rural Karnataka in India. Interna-
tional Journal of Trade and Global Markets, 11(1/2), 77-86. DOI:10.1504/ijtgm.2018.092490
Bhatiasevi, V. (2016). An extended UTAUT model to explain the adoption of mobile banking. Information De-
velopment, 32(4), 799-814. DOI:10.1177/0266666915570764
Bhatt, A., & Bhatt, S. (2016). Factors Affecting Customer‘s Adoption of Mobile Banking Services. Journal of
Internet Banking and Commerce, 21(1), 1-22.
Jeon, J. (2015). The strengths and limitations of the statistical modeling of complex social phenomenon: Focusing
on SEM, path analysis, or multiple regression models. International Journal of Social, Behavioral, Edu-
cational, Economic, Business and Industrial Engineering, 9(5), 1559-1567. DOI:10.5281/zenodo.1105869
26
EJAE 2019  16 (1)  20-29
Marinkovic, V., & Kalinic, Z. (2017). Antecedents of customer satisfaction in mobile commerce: exploring the
moderating effect of customization. Online Information Review, 41(2), 138-154. DOI:10.1108/oir-11-
2015-0364
Min, Q., Ji, S., & Qu, G. (2008). Mobile commerce user acceptance study in China: A revised UTAUT model.
Tsinghua Science and Technology, 13(3), 257-264. DOI:10.1016/s1007-0214(08)70042-7
Oliveira, T., Faria, M., Thomas, M.A., & Popovič, A. (2014). Extending the understanding of mobile banking
adoption: When UTAUT meets TTF and ITM. International Journal of Information Management, 34(5),
689-703. DOI:10.1016/j.ijinfomgt.2014.06.004
Samudra, M.S., & Phadtare, M. (2012). Factors Influencing the Adoption of Mobile Banking with Special Refer-
ence to Pune City. ASCI Journal of Management, 42(1), 51-65. DOI:10.12691/jbms-6-1-2
Sanader, D. (2014). Mobile banking: New trend in thecontemporary banking sector. Bankarstvo, 43(5), 86-109.
DOI:10.5937/bankarstvo1405086s
Sarfaraz, J. (2017). Unified Theory of Acceptance and Use of Technology (UTAUT) Model-Mobile Banking.
Journal of Internet Banking and Commerce, 22(3), 1-20.
Tarhini, A., El-Masri, M., Ali, M., & Serrano, A. (2016). Extending the UTAUT model to understand the cus-
tomers’ acceptance and use of internet banking in Lebanon. Information Technology and People, 29(4),
830-849. DOI:10.1108/itp-02-2014-0034
Tan, E., & Leby, L. J. (2016). Behavioural intention to adopt mobile banking among the millennial generation.
Young Consumers, 17(1), 18-31. DOI:10.1108/yc-07-2015-00537
Venkatesh, V., Morris, G.M., Davis, B.G., & Davis, D.F. (2003). User Acceptance of Information Technology:
Toward a Unified View. MIS Quarterly, 27(3), 425-478. DOI:10.2307/30036540
Venkatesh, V., & Zhang, X. (2010). Unified Theory of Acceptance and Use of Technology: U.S. Vs. China. Jour-
nal of Global Information Technology Management, 13(1), 5-27. DOI:10.1080/1097198x.2010.10856507
Venkatesh, V., Thong, J.Y.L., Chan, F. K. Y., Hu, P. J. H., & Brown, S. A. (2011). Extending the two-stage informa-
tion systems continuance model: incorporating UTAUT predictors and the role of context. Information
Systems Journal, 21(6), 527-555. DOI:10.1111/j.1365-2575.2011.00373.x
Venkatesh, V., Thong, J. Y. L., & Xu, X. (2012). Consumer Acceptance and Use of Information Technology:
Extending the Unified Theory of Acceptance and Use of Technology. MIS Quarterly, 36(1), 157-178.
DOI:10.2307/41410412
Witeepanich, C., Emklang, N., Matsmak, J., Kanokviriyasanti, P., & Chanvarasuth, P. (2013). Understanding
the Adoption of Mobile Banking Services: an Empirical Study. In Proceedings of the 4th International
Conference on Engineering, Project, and Production Management. Bangkok, Thailand: The Sukosol. 2013
(pp. 282-291). October; 23-25.
Yao, H., & Zhong, C. (2011). The Analysis of Influencing Factors and Promotion Strategy for the Use of Mobile
Banking. Canadian Social Science, 7(2), 60-63. DOI:10.3968/j.css.1923669720110702.008
Yu, C. (2012). Factors affecting individuals to adopt mobile banking: Empirical evidence from the UTAUT model.
Journal of Electronic Commerce Research, 13(2), 104-121.
Zhou, T., Lu, Y., & Wang, B. (2010). Integrating TTF and UTAUT to explain mobile banking user adoption.
Computers in Human Behavior, 26(4), 760-767. DOI:10.1016/j.chb.2010.01.013
27
EJAE 2019  16 (1)  20-29
APPENDIX
Variable Statements Source

1. Using mobile banking services helps me accomplish things more
quickly. Addapted from:
Performance Al-Jabri (2015);
2. Using mobile banking would make it easier for me to carry out my
Expectance Venkatesh et al.,
tasks.
(2012)
3. I find mobile banking services useful in my daily life.
Addapted from:
4. I find mobile banking services easy to use. Samudra, Phad-
tare, 2012
5. Learning how to use mobile banking services is easy for me.
Effort Venkatesh et al.,
Expectance 6. I think the interaction with mobile banking does not require a lot (2012);
of mental effort.
Al-Jabri (2015);
7. Mobile banking services are easily accessible.
Gašević et al.,
(2016)
8. People who are important to me think that I should use mobile
banking services.
Addapted from:
9. People who are familiar with me think that I should use mobile
Social banking. Venkatesh et al.,
Influence (2012);
10. People who influence my behaviour think that I should use mobile
banking services. Yu (2012)
11. Most people surrounding with me use mobile banking.
12. My living environment supports me to use mobile banking. Addapted from:
Facilitating 13. My working environment supports me to use mobile banking. Venkatesh et al.,
Conditions 14. I can get help from others when I have difficulties using mobile (2012);
banking services. Yu (2012)
15. I intend to use mobile banking.
Yu (2012);
16. I would use mobile banking.
Behavioral Al-Jabri (2015);
Intention 17. I would see myself using mobile banking for handling my banking
transactions. Dasgupta et al.,
(2011)
18. I think it is a wise idea to use mobile banking services.
Table 5. Variables and corresponding statements
Source: Authors
28
EJAE 2019  16 (1)  20-29
ANTECEDENTE MOBILNOG BANKARSTVA:

UTAUT MODEL
Rezime:
Razvoj savremenih informaciono-komunikacionih tehnologija omogućio
je bankama da se u svom poslovanju oslone na mobilno bankarstvo
kao važan distributivni kanal. S obzirom na to da su ulaganja u razvoj
mobilnih bankarskih sistema izuzetno velika, saznanja o tome koji fak-
tori utiču na namere pojedinaca da koriste usluge mobilnog bankarstva
mogu biti od velikog značaja. U te svrhe, sprovedeno je empirijsko
istraživanje i anketirano je 313 ispitanika na teritoriji Šumadije, cen-
tralna Srbija. Prikupljeni primarni podaci analizirani su u statističkom
softveru SPSS v. 20. Za ispitivanje faktora u radu se koristi UTAUT
model (eng. The unified theory of acceptance and use of technology).
Rezultati empirijskog istraživanja ukazuju na to da sve komponente
UTAUT modela imaju statistički značajan uticaj na nameru korišćenja
mobilnog bankarstva, pri čemu su se kao najvažnije antecedente izdvojile Ključne reči:
očekivane performanse, dok najslabiji uticaj ima očekivani napor. U savremene tehnologije,
radu se potvrđuje uspešnost primene UTAUT modela za ispitivanje mobilno bankarstvo,
antecedenti mobilnog bankarstva i stečena su nova saznanja u vezi sa namera korišćenja mobilnog
namerom korišćenja mobilnog bankarstva u Srbiji koja mogu poslužiti bankarstva,
u menadžerske svrhe. UTAUT model.
29
EJAE 2019, 16(1): 30-40
ISSN 2406-2588
UDK: 338.23:620.92(669)"1991/2014"
331.5.024.5:620.92
DOI: 10.5937/EJAE15-19730
CAUSAL LINK BETWEEN EMPLOYMENT AND RENEWABLE ENERGY

CONSUMPTION: EVIDENCE FROM NIGERIA
Mukhtar Wakil Lawan*, Matthew Oladapo Gidigbi
School of Management and Information Technology,

Modibbo Adama University of Technology,
Yola, Nigeria

The paper examined the causal link between employment and renew-
able energy consumption in Nigeria for the period of 1991 to 2014
Correction: February 8, 2019
using annual time series data. The Toda-Yamamoto Granger Causal-
Accepted: March 21, 2019
ity approach was used for causal analysis and Johansen cointegration
technique to verify the long-run relationship between model variables.
The results supported the conservation hypothesis with unidirectional
causality from employment to energy consumption, but no evidence Keywords:
of cointegration was established. The study recommends that Nigeria renewable,
should review its energy policy in order to promote private investment causality,
in renewable energy projects towards finding a sustainable solution employment,
to help solve the energy crisis, create employment opportunities, and cointegration,
minimise environmental pollution peculiar to long-term use of fossil fuel. energy policy.
INTRODUCTION
For more than a decade, the Nigerian government has been pushing for the adaptation of renewable
energy into its energy generation mix in response to the persistent energy crisis in the power sector. The
existing energy policy under the Multi-Year Tariff Order (MYTO) for the power sector and existing
energy laws in the petroleum industry has failed to attract the desired level of investment. The existing
gas-fired power plants are largely energy inefficient, and face recurrent gas supply shortages from gas
supply hubs situated in the gas-rich Niger Delta region of the country. Rising concerns and debates on
the importance of environmental conservation and the reduction of air pollution, particularly from gas
flaring, have also provided a strong basis for the government to propel investment in renewable energy.
The government strongly believes that this strategy will also provide employment opportunities, while
helping to address rising environmental concerns associated with global warming.
30
*E-mail: mukhtar.lawan@mautech.edu.ng
EJAE 2019  16 (1)  30-40
LAWAN, M. W., GIDIGBI , M. O.  CAUSAL LINK BETWEEN EMPLOYMENT AND RENEWABLE ENERGY CONSUMPTION: EVIDENCE FROM NIGERIA
Numerous earlier country-specific studies for Nigeria analysed the causality pattern between eco-
nomic growth and aggregate energy/electricity consumption, and some used the traditional Granger
causality approach. Therefore, this paper will contribute to the existing literature by analysing causal
linkages between renewable energy consumption and employment by using the Toda-Yamamoto
(1995) augmented VAR approach due to its statistical advantages over the order of integration and
cointegration properties of time series.
LITERATURE REVIEW
Renewable energy sources, like solar, wind, and water, are distinct from fossil fuels due to the absence
of the carbon dioxide (CO2) gas notably identified by a number of studies (Nisbet & Myers, 2007; Schell-
ing, 1992; Warrick & Farmer, 1990) as one of the green gases that contribute to global warming. Ariouri
et al. (2014) have identified six economic effects that help in the understanding of the dynamic links
between energy consumption and employment. The links consisted of price, substitution, democratic,
structural, income, and technological effects. According to Papapetrou (2001), the price effect relates to
the impact of external shocks on the prices of energy sources, like oil, gas, and coal, which can stimulate
economic growth in certain economies and improve employment levels. Notable examples here are
most of the OPEC member countries, which rely extensively on the export of energy resources for gov-
ernment revenue. The substitution effect explains how shortages or constraint in energy supply may be
substituted by labour in certain macroeconomic production scenarios and vice versa. The demographic
effect explains the impact of a population boom on the short-run domestic demand for energy from
households, and long-run aggregate demand for energy due to changes in the level of the work-force
within an economy. The structural effect describes an impact in the form of less energy consumption
due to transition from manufacturing to a service-driven economy with minimal impact on unemploy-
ment. However, Jespersen (1999) argues that this might not be attainable in economies that have an
energy-intensive private service sector. The income effect relates to the simultaneous growth of employ-
ment and energy consumption, which may be at different rates usually preceded by rapid economic
expansion. The more income households get through employment, the higher the demand for goods,
services, and subsequently energy. In terms of technological effect, Çetin and Eğrican (2011) suggest
that changes from traditional energy technology to modern energy technology, such as solar energy,
can create direct and indirect employment opportunities depending on a nation’s development level.
Several empirical studies have tested the direction of causality between energy consumption and
economic growth/employment since its introduction in Granger (1969). These studies established sup-
port for at least one of four hypotheses; conservative, growth, feedback, and neutrality hypothesis. Bilgili
and Ozturk (2015) in a study of G7 countries over 1980-2009 applied panel cointegration, conventional,
and dynamic OLS to establish the positive effects of biomass energy consumption on economic growth.
Ocal and Aslan (2013) applied the ARDL and Toda-Yamamoto causality approach using time series
covering 1990-2010 for Turkey and found evidence of causal flow from economic growth to renewable
energy consumption. Kahia, Aïssa and Lanouar (2017) analysed panel data covering the period 1980-
2012 for MENA net oil importing countries using the panel vector error correction model (PVECM).
The study found evidence of simultaneous causality between economic growth and both renewable and
non-renewable energy use. Payne (2009) employed the Toda-Yamamoto causality test for U.S. data
for the period 1949-2006 and found no evidence of a causal link between renewable, non-renewable
energy consumption, and real GDP. However, the empirical results of causal studies have mostly been
mixed with no dominant prevailing theory both for the case of developed and developing countries.
Awokuse (2003) and Bahmani-Oskooee and Alse (1993) have suggested that variation in causal pattern
is influenced by several factors including theoretical framework, model variables, foreign policy, country
specific characteristics, time period, data frequency, and methodology adopted for the causality model.
31
EJAE 2019  16 (1)  30-40
The conservative, growth, feedback, and neutrality hypothesis are typically used to analyse the
direction of causality between energy consumption and economic growth/employment. The growth
hypothesis represents unidirectional causality from energy consumption to economic growth/employ-
ment. It suggests that increases in energy consumption lead to higher economic growth/employment
level. A number of studies (Altinay & Karagol, 2005; Ighodaro, 2010; Inglesi-Lotz, 2016; Ozturk & Bil-
gili, 2015) found evidence in support of the growth hypothesis. The conservative hypothesis indicates
a one-way link from economic growth/employment to energy consumption. It implies that higher
economic growth/employment will lead to more energy consumption. The empirical findings of some
studies (Lise, 2007; Matthew et al., 2018; Menyah & Wolde-Rufael, 2010; Ocal & Aslan, 2013; Sadorsky,
2009) supported the conservative hypothesis. The feedback hypothesis indicates a bidirectional causal
link between economic growth/employment and energy consumption. Numerous studies (Apergis
& Payne, 2011; Chang et al., 2001; Ebohon, 1996; Kahia et al., 2017; Koçak & Sarkgünes, 2017; Lin
& Moubarak, 2014; Osigwe & Arawomo, 2015; Sebri & Ben-Salha, 2014) established support for the
feedback hypothesis. The neutrality hypothesis indicates the absence of causality in either direction
between economic growth/employment and energy consumption. Some past empirical studies (Akpan
& Akpan, 2012; Esso, 2010; Menegaki & Tugcu, 2016, 2017; Payne, 2009; Vaona, 2012) provided sup-
port for the neutrality hypothesis for the countries under study.
The use of Granger’s (1969) or Sim’s (1972) Granger causality approach in the early set of studies
were particularly criticised due to use of non-stationary and sometimes cointegrated series. In such
instances, the Wald test statistic under the null does not follow its usual asymptotic chi-square dis-
tribution. Hence, other techniques, such as the ARDL bounds testing, Johansen and Juselius (1990)
cointegration technique, restricted VAR with imposed cointegration restrictions, instrumental regres-
sion, potential outcome framework, and the surplus-lag approach introduced by Toda and Yamamoto
(1995) along with similar alternatives by Dolado and Lütkepohl (1996) and Bauer and Maynard (2012),
were applied in later studies. The addition of surplus-lag in the causality model is meant to ensure the
Wald test statistic follows its usual chi-square asymptotic null distribution in a non-stationary process.
The approach also helps to minimise the pre-test bias from unit root and cointegration test at the cost
of a decrease in model efficiency. Nonetheless, Clarke and Mirsa (2006) argued that the loss of power
in the surplus-lag approach is less when compared to alternatives like VECM due to cointegration
restrictions. The latter approach could lead to severe over-rejecting of the null hypothesis of Granger
non-causality from preliminary test of cointegration. This paper focuses on analysing causal pattern,
and employs the Toda-Yamamoto (1995) surplus-lag approach in the causality model.
METHODOLOGY
The study used annual time series data1 for the period 1991 to 2014 obtained from the World De-
velopment Indicators (WDI) of the World Bank for the model variables of employment (EMP) and
renewable energy consumption (REC). The EMP variable expressed in percentage measures the pro-
portion of people aged 15 and above that are employed in Nigeria, while the REC variable measures
renewable energy consumption as a percentage of total final energy consumption.
Order of Integration and Optimal Lag Selection
The preliminary step for the Toda-Yamamoto (T-Y) Granger causality approach is to establish
the maximum order of integration (dmax) for model variables and the appropriate lag length (k) for
the VAR System. Hence, the order of integration for this study was established using the Augmented
1 Data set available at http://dx.doi.org/10.17632/3pp84yf7yf.1

32
EJAE 2019  16 (1)  30-40
Dicky-Fuller (ADF) test, while the appropriate lag length (k) for the VAR system was determined using
four lag selection criteria. This consisted of the Akaike Information Criterion (AIC), Schwarz Informa-
tion Criterion (SC), Hannan-Quinn Information Criterion (HQ), and the Final Prediction Error (FPE).
Model Diagnostic
In order to ensure the VAR model is well specified, the serial correlation LM test is used to ensure
the residuals are serially independent, and model dynamic stability is verified by analysing the inverse
roots of the associated characteristic equation.
Cointegration Test
Although the cointegration test does not affect the end result of the Toda-Yamamoto Granger
causality approach, the study will use the Johansen and Juselius (1990) maximum likelihood cointe-
gration technique. This helps to provide information on the potential long-run association between
model variables, and serves as a useful check for our causality model, since cointegrated variables will
be expected to exhibit at least a unidirectional causal pattern. The Johansen method relies on testing
the likelihood ratio of the trace test (λtrace) and max eigenvalue test (λmax) to determine the number of
cointegrating vectors for the VAR equation (1).
ΔZ t = μ + Σip=-11 Гi ∆Z t -i + ПZ t - p + ε t (1)
Where Zt is (n x 1) vector of I(1) variables, µ is (n x1) vector of constants, Γ and Π are (n x n) matrix
of coefficients and parameters, ∆ is difference operator, and εt is (n x 1) vector of error terms.
λtrace =− T Σni = r +1 ln (1 −  i ) (2)
Where T stands for the number of observations usable, Ln is natural log, and  is characteristic
root estimated (eigenvalue). The trace test in equation (2) test the null hypothesis that the rank of Π is
less than or equal to r cointegrating vector(s).
λmax =
− T ln (1 −  i ) (3)
The max eigenvalue test in equation (3) test the null hypothesis for the presence of exactly r coin-
tegrating vectors in Zt in the VAR equation (1).
Granger Causality Model
The Granger causality model is based on the Toda-Yamamoto (1995) approach. The causal test
follows a standard asymptotic distribution for the Wald statistic regardless of the order of integration
and cointegration between model variables (Bosupeng, 2016). The Granger non-causality model is
expressed in equation (4) and (5).
33
EJAE 2019  16 (1)  30-40
EMPt= δ=
1
+ Σik +1dmax Ψ1i EMPt=
−1
+ Σik +1dmax λ1i RECt −1 + μ1t (4)
RECt= δ=
2
+ Σik +1dmax Ψ 2i REC=
t −1
+ Σik +1dmax λ2i EMPt −1 + μ 2t (5)
In equations (4-5), δ , ψ and λ are model parameters and k is the appropriate lag length while dmax
is maximum integration order. The symbol µt is model uncorrelated error term while EMP and REC
stand for variables of employment and renewable energy consumption respectively.
EMPIRICAL RESULTS AND DISCUSSION
Unit Root Test and Optimal Lag Selection Results
The results of the unit root test for determining the order of integration for variables of employment
(EMP) and renewable energy consumption (REC) based on the ADF test is shown in table 1.
5% Critical 5% Critical
Variables Level First Difference Remark
Value Value
EMP -1.59 -2.99 -3.38* -3.00 I (1)
REC -2.34 -2.99 -5.37* -3.00 I (1)
Note: * denotes null rejection of non-stationarity at 5% level
Table 1. Augmented Dickey-Fuller (ADF) Unit Root Test Results
The results in table 1 suggest that the variables of renewable energy consumption (REC) and employ-
ment (EMP) are both stationary after first differencing and thus, maximum order of integration (dmax)
is 1. This also fulfils the condition to check for the presence of cointegration between the two variables.
Lag FPE AIC SC HQ

0 0.086287 3.225445 3.324375 3.239086
1 0.037757* 2.392903* 2.689694* 2.433827*
2 0.047615 2.601179 3.095830 2.669384
3 0.050764 2.608780 3.301291 2.704268
4 0.077526 2.921383 3.811755 3.044153
5 0.089162 2.860121 3.948353 3.010174
Note: * indicates lag order selected by each criterion
Table 2. VAR Lag Order Selection Results
The appropriate lag length (k) for the VAR causality model based on the four information criteria
is lag 1 as shown in table 2 results. The model is also found to be dynamically stable and the residuals
serially independent. Hence, the optimal lag for the Granger causality model, VAR (k + dmax) is 2.
34
EJAE 2019  16 (1)  30-40
Model Diagnostic Test Results
The result of the serial correlation LM test is shown in table 3 and the inverse roots of the charac-
teristic equation is shown in figure 1.
Lag LRE* stat Prob. Rao F-stat Prob.

1 6.719831 0.1515 1.825352 0.1520
2 0.525369 0.9710 0.127969 0.9710
3 0.981194 0.9126 0.240892 0.9127
4 3.255813 0.5160 0.831700 0.5164
5 5.162243 0.2711 1.363847 0.2716
6 3.279710 0.5122 0.838156 0.5126
Note: * Edgeworth expansion likelihood ratio statistic
Table 3. VAR Residual Serial Correlation LM Test
The results in table 3 indicates that serial correlation is removed from the model at 5% level.
Figure 1. Inverse Roots of AR characteristic Polynomial
The results in figure 1 established that the VAR model is dynamically stable as all points lie within
the unit circle.
Cointegration Test Results
The results of the Johansen cointegration test for the two I(1) model variables are shown in table 4.
35
EJAE 2019  16 (1)  30-40
Trace Critical Max-Eigen Critical

Vector Probability Probability
Statistics Value Statistics Value
Ho H1 λtrace 5% P λmax 5% P
r=0 r >0 12.22 15.49 0.15 10.26 14.26 0.20
r <= 1 r >1 1.97 3.84 0.16 1.97 3.84 0.16
Note: r indicates number of cointegrating vector (s)
Table 4. Johansen Cointegration Test Results
The trace and Max-Eigen statistics in table 4 indicate the absence of cointegration between the two
variables of REC and EMP. The null hypothesis of no cointegration cannot be rejected at the 5% sig-
nificance level. The absence of cointegration over the study period lend credence to the energy policy in
Nigeria that has promoted investment in the petroleum sector to sustain the economy through revenue
generation and employment. As a result, most studies (Akpan & Akpan, 2012; Ighodaro, 2010; Matthew
et al., 2018) for Nigeria that used electricity as proxy for energy consumption found evidence of long-
run relationship with economic growth. A further emphasis on the dominant use of non-renewables
(particularly natural gas) in power generating plants for several decades across the country.
Granger Causality Test Results
The results of the Granger non-causality model using the set of equations (4-5) in the augmented
level VAR (k + dmax) for the Wald test is shown in table 5.
EMP REC
EMP _ 5.54* (0.019)
REC 0.082 (0.77) _
Note: * denotes null rejection of Granger non-causality at 5% level
Probability reported in parenthesis
Table 5. T-Y Granger Non-Causality Test Results
The results in table 5 indicate a one-way causality from employment (EMP) to renewable energy
consumption (REC) as the null hypothesis of Granger non-causality is rejected at 5% level. It implies
that renewable energy consumption will continue to rise so long as employment levels continue to
grow in Nigeria. Hence, execution of renewable energy projects towards power generation will help
to create both direct and indirect employment which should induce an income effect, technological
effect and lead to higher energy consumption in the Nigerian economy. Direct jobs can be created in
the short-term during construction due to building, procurement, and installation of equipment at
renewable based power stations. Likewise, additional jobs are created during the course of operation
and maintenance of power stations in the long-term. Indirect jobs can be created during the course of
transmission and distribution of electrical power. These employment opportunities will increase the
potential for household spending on goods and services, which will have to be compensated by higher
energy consumption, especially by firms, in order to meet those demands.
The causal pattern observed in this paper differs from the findings of other studies (Akpan & Akpan,
2012; Ebohon, 1996; Esso, 2010; Ighodaro, 2010; Osigwe & Arawomo, 2015) for Nigeria largely due to
36
EJAE 2019  16 (1)  30-40
variation in methodological approach. The unrestricted test adopted in this paper minimise the pre-
filtering bias likely to affect some of those papers. However, this study is limited by the availability of
data on renewable energy consumption, thereby limiting the time period for the causal analysis which
could also account for variation in outcomes across these set of related studies.
CONCLUSION AND POLICY RECOMMENDATION
The study used annual time series data for the period 1991–2014 to analyse the causal pattern
between employment and renewable energy consumption in Nigeria. The Toda-Yamamoto Granger
non-causality technique was employed for the causality model, and the Johansen cointegration tech-
nique was used to check for the long-run relationship between model variables.
The findings support the conservative hypothesis as a one-way causal link was found from employ-
ment to renewable energy consumption in Nigeria for the period under consideration. As a result,
employment can be created during the construction phase and in the long-run during operations
and maintenance of renewable energy projects. This will result in higher supply and consumption of
energy by residential consumers and firms. Due to the large abundance of reserve for conventional
energy sources in Nigeria, the energy policy has mostly been geared towards promoting investment in
infrastructure to harness oil and gas resources. However, rising population figures, oil price volatility,
and air pollution, particularly from gas flaring in the oil industry, necessitates finding an economic and
environmentally sustainable solution to the energy crisis, and unemployment through the adaptation of
renewable energy resources. The energy crisis that has persisted for several decades has led to the col-
lapse of many industries and business enterprises, resulting in alarming levels of unemployment figures.
The study recommends that policy makers should introduce incentives such as import duty exemp-
tion and a tax holiday in order to propel private investment in renewables particularly in the power-
generating segment of the economy. Longe et al. (2018) established evidence of positive short-run and
long-run relationship between carbon dioxide emissions and energy use pattern in Nigeria. Diversifica-
tion into renewables will provide employment opportunities, particularly in the rural areas, and eliminate
the health-related costs associated with air pollution notable with the use of carbon-rich fossil fuels.
Furthermore, small and medium scale local production of alternative vehicle fuels, such as biodiesel,
should be supported by energy policy in Nigeria. The Nigerian Electricity Regulatory Commission
(NERC) should seek to introduce and implement a feed-in tariff scheme in order to facilitate the adapta-
tion of renewables and reduce the perceived producer economic risk in renewable energy production. It
is widely believed that Nigeria, like many oil producing countries, has passed its peaked oil production
and, as such, it is imperative the country exploit its vast renewable energy resources in order to sustain
economic growth going into the future. Lastly, policymakers should seek to implement a strategic plan
towards ensuring that new and existing hydropower plants are well equipped with modern technology
in order to facilitate energy efficiency, and create employment in the combined effort towards promot-
ing an eco-friendly environment.
Although the findings are meant to complement other empirical studies on the causal link between
employment and energy consumption for Nigeria, there are still ways to expand on the research in
further studies. One such way is to disaggregate renewable energy consumption into its different com-
ponents leading to a multivariate causality model, which can provide further insight on the source of
renewable energy that exacts greater employment effects on the economy. Moreover, another meth-
odology other than the surplus-lag approach, such as the bootstrapped p-value, could potentially be
used to improve the efficiency of the Granger non-causality test.
37
EJAE 2019  16 (1)  30-40
REFERENCES
Akpan, G. E., & Akpan, U. F. (2012). Electricity Consumption, Carbon Emissions and Economic Growth in
Nigeria. International Journal of Energy Economics and Policy, 2(4), 292-306.
Altinay, G., & Karagol, E. (2005). Electricity Consumption and Economic Growth: Evidence from Turkey. Energy
Economics, 27, 849-856.
Apergis, N., & Payne, J. E. (2011). The Renewable Energy Consumption - Growth Nexus in Central America.
Applied Energy, 88(1), 343-347. DOI:10.1016/j.apenergy.2010.07.013
Arouri, M. E. H., Youseff, A.B., M’Henni, H., & Rault, C. (2014). Exploring the Causality Links between Energy
and Employment in African Countries. IZA Discussion Paper No. 8296. Retrieved from http://anon-ftp.
iza.org/dp8296.pdf
Awokuse, T. O. (2003). Is the Export-led Growth Hypothesis Valid for Canada? The Canadian Journal of Econom-
ics / Revue Canadienne d’Economique, 36(1), 126-136. DOI:10.1111/1540-5982.00006
Bahmani-Oskooee, M., & Alse, J. (1993). Export growth and Economic growth: An Application of Cointegration
and Error-correction Modelling. The Journal of Developing Areas, 27(4), 535-542.
Bauer, D., & Maynard, A. (2012). Persistence-robust Surplus-lag Granger Causality Testing. Journal of Econo-
metrics, 169(2), 293-300. DOI:10.1016/j.jeconom.2012.01.023
Bilgili, F., & Ozturk, I. (2015). Biomass Energy and Economic Growth Nexus in G7 countries: Evidence from Dy-
namic Panel Data. Renewable and Sustainable Energy Reviews, 49, 132-138. DOI:10.1016/j.rser.2015.04.098
Bosupeng, M. (2016). Adverse Effects of the Automotive Industry on Carbon Dioxide Emissions. The European
Journal of Applied Economics, 13(1), 1-12. DOI:10.5937/ejae13-9345
Çetin, M., & Eğrican, N. (2011). Employment Impacts of Solar Energy in Turkey. Energy Policy, 39(11), 7184-
7190. DOI:10.1016/j.enpol.2011.08.039
Chang, T., Fang, W., & Wen, L. (2001). Energy Consumption, Employment, Output, and Temporal Causality:
Evidence from Taiwan Based on Cointegration and Error-Correction Modelling Techniques. Applied
Economics, 33(8), 1045-1056. DOI:10.1080/00036840122484
Clarke, J. A., & Mirza, S. (2006). A Comparison of Some Common Methods for Detecting Granger Noncausal-
ity. Journal of Statistical Computation and Simulation, 76(3), 207-231. DOI:10.1080/10629360500107741
Dolado, J., & Lütkepohl, H. (1996). Making Wald Tests Work for Cointegrated VAR Systems. Econometric Re-
views, 15(4), 369-386. DOI:10.1080/07474939608800362
Ebohon, O. J. (1996). Energy, Economic Growth and Causality in Developing Countries: A Case Study of Tanzania
and Nigeria. Energy Policy, 24(5), 447-453. DOI:10.1016/0301-4215(96)00027-4
Esso, L. J. (2010). Threshold Cointegration and Causality Relationship Between Energy Use and Growth in Seven
African Countries. Energy Economics, 32(6), 1383-1391. DOI:10.1016/j.eneco.2010.08.003
Granger, C. W. J. (1969). Investigating Causal Relations by Econometric Models and Cross-spectral Methods.
Econometrica, 37(3), 424-438. DOI:10.2307/1912791
Ighodaro, C. A. U. (2010). Co‐Integration and Causality Relationship between Energy Consumption and Eco-
nomic Growth: Further Empirical Evidence for Nigeria. Journal of Business Economics & Management,
11(1), 97-111. DOI:10.3846/jbem.2010.05
Inglesi-Lotz, R. (2016). The Impact of Renewable Energy Consumption to Economic Growth: A Panel Data Ap-
plication. Energy Economics, 53, 58-63. DOI:10.1016/j.eneco.2015.01.003
Jespersen, J. (1999). Reconciling Environment and Employment by Switching from Goods to Services? A
Review of Danish Experience. European Environment, 9(1), 17-23. DOI:10.1002/(SICI)1099-0976
(199901/02)9:1<17::AID-EET180>3.0.CO;2-J
Johansen, S., & Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration - With Ap-
plications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210.
38
EJAE 2019  16 (1)  30-40
Kahia, M., Aïssa, M. S. B., & Lanouar, C. (2017). Renewable and Non-renewable Energy use - Economic growth
Nexus: The Case of MENA Net Oil Importing Countries. Renewable and Sustainable Energy Reviews, 71,
127-140. DOI:10.1016/j.rser.2017.01.010
Koçak, E., & Şarkgüneşi, A. (2017). The Renewable Energy and Economic Growth Nexus in Black Sea and Balkan
Countries. Energy Policy, 100, 51-57. DOI:10.1016/j.enpol.2016.10.007
Lin, B., & Moubarak, M. (2014). Renewable Energy Consumption - Economic Growth Nexus for China. Renew-
able and Sustainable Energy Reviews, 40, 111-117. DOI:10.1016/j.rser.2014.07.128
Lise, W., & Van Montfort, K. (2007). Energy Consumption and GDP in Turkey: Is there a Co‐Integration Rela-
tionship? Energy Economics, 29(6), 1166-1178. DOI:10.1016/j.eneco.2006.08.010
Longe, A. E., Ajulo, K. D., Omitogun, O., & Adebayo, E. O. (2018). Trade, Transportation and Environment
Nexus in Nigeria. The European Journal of Applied Economics, 15(2), 29-42. DOI:10.5937/EJAE15-17360
Matthew, O. A., Ede, C. U., Osabohien, R., Ejemeyovwi, J., Fasina, F. F., & Akinpelumi, D. (2018). Electricity
Consumption and Human Capital Development in Nigeria: Exploring the Implications for Economic
Growth. International Journal of Energy Economics and Policy, 8(6), 8-15. DOI:10.32479/ijeep.6758
Menegaki, A. N., & Tugcu, C. T. (2016). Rethinking the Energy-Growth Nexus: Proposing an Index of Sustainable
Economic Welfare for Sub-Saharan Africa. Energy Research & Social Science, 17, 147-159. DOI:10.1016/j.
erss.2016.04.009
Menegaki, A. N., & Tugcu, C. T. (2017). Energy Consumption and Sustainable Economic Welfare in G7 Countries;
A Comparison with the Conventional Nexus. Renewable and Sustainable Energy Reviews, 69, 892-901.
DOI:10.1016/j.rser.2016.11.133
Menyah, K., & Wolde-Rufael, Y. (2010). CO2 Emissions, Nuclear Energy, Renewable Energy and Economic
Growth in the Us. Energy Policy, 38, 2911-2915. DOI:10.1016/j.enpol.2010.01.024
Nisbet, M. C., & Myers, T. (2007). Trends: Twenty Years of Public Opinion About Global Warming. The Public
Opinion Quarterly, 71(3), 444-470.
Ocal, O., & Aslan, A. (2013). Renewable Energy Consumption–Economic Growth Nexus in Turkey. Renewable
and Sustainable Energy Reviews, 28, 494-499. DOI:10.1016/j.rser.2013.08.036
Osigwe, A. C., & Arawomo, D. F. (2015). Energy Consumption, Energy Prices and Economic Growth: Causal Relation-
ships based on Error Correction Model. International Journal of Energy Economics and Policy, 5(2), 408-414.
Ozturk, I., & Bilgili, F. (2015). Economic Growth and Biomass Consumption Nexus: Dynamic Panel Analysis
for Sub-Sahara African Countries. Applied Energy, 137, 110-116. DOI:10.1016/j.apenergy.2014.10.017
Papapetrou, E. (2001). Oil Price Shocks, Stock Market, Economic Activity and Employment in Greece. Energy
Economics, 23(5), 511-532. DOI:10.1016/S0140-9883(01)00078-0
Payne, J. E. (2009). On the Dynamics of Energy Consumption and Output in the US. Applied Energy, 86, 575-577.
DOI:10.1016/j.apenergy.2008.07.003
Sadorsky, P. (2009). Renewable Energy Consumption and Income in Emerging Economies. Energy Policy, 37(10),
4021-4028. DOI:10.1016/j.enpol.2009.05.003
Schelling, T. C. (1992). Some Economics of Global Warming. The American Economic Review, 82(1), 1-14.
Sebri, M., & Ben-Salha, O. (2014). On the Causal Dynamics between Economic Growth, Renewable Energy
Consumption, CO2 Emissions and Trade Openness: Fresh Evidence from BRICS Countries. Renewable
and Sustainable Energy Reviews, 39, 14-23. DOI:10.1016/j.rser.2014.07.033
Sims, C. A. (1972). Money, Income and Causality. American Economic Review, 62(4), 540-552.
Toda, H. Y., & Yamamoto, T. (1995). Statistical Inference in Vector Autoregressions with Possibly Integrated
Processes. Journal of Econometrics, 66(1-2), 225-250. DOI:10.1016/0304-4076(94)01616-8
Vaona, A. (2012). Granger Non-Causality Tests between (Non)Renewable Energy Consumption and Output in Italy
Since 1861: The (Ir)Relevance of Structural Breaks. Energy Policy, 45, 226-236. DOI:10.1016/j.enpol.2012.02.023
Warrick, R., & Farmer, G. (1990). The Greenhouse Effect, Climatic Change and Rising Sea Level: Implications
for Development. Transactions of the Institute of British Geographers, 15(1), 5-20. DOI:10.2307/623089
39
EJAE 2019  16 (1)  30-40
UZROČNA VEZA IZMEĐU ZAPOŠLJAVANJA I POTROŠNJE OBNOVLJIVE

ENERGIJE: PRIMER NIGERIJE
Rezime:
Rad je ispitao uzročnu vezu između zapošljavanja, s jedne strane i
potrošnje energije iz obnovljivih izvora, s druge strane – u Nigeriji,
za period 1991-2014. godine, a oslanjajući se na godišnje podatke o
vremenskim serijama. Pristup Toda-Yamamoto Granger je korišćen
za uzročnu analizu, a Johansen tehnika kointegracije je upotrebljena
da bi se potvrdila dugoročna veza između varijabli modela. Rezultati
su podržali hipotezu o očuvanju jednosmerne uzročnosti između
zapošljavanja i potrošnje energije, ali nije utvrđen nikakav dokaz o
kointegraciji. Studija preporučuje da Nigerija treba da analizira svoju Ključne reči:
energetsku politiku, kako bi promovisala privatna ulaganja u projekte obnovljiva energija,
obnovljivih izvora energije u pronalaženju održivog rešenja u vezi uzročnost,
sa energetskom krizom, kao i stvaranju mogućnosti za zapošljavanje zaposlenje,
i smanjenju zagađenja životne sredine, koji karakterišu dugoročnu kointegracija,
upotrebu fosilnih goriva. energetska politika.
40
EJAE 2019, 16(1): 41-58
ISSN 2406-2588
UDK: 330.322:339.722(4)
336.76
DOI: 10.5937/EJAE15-19652
GOLD IN INVESTMENT PORTFOLIO FROM PERSPECTIVE OF EUROPEAN

INVESTOR
Tijana Šoja
Central Bank of Bosnia and Herzegovina,

Sarajevo, Bosnia and Herzegovina

Gold is a unique asset, highly liquid, but scarce and limited. It is a luxury
good and can be considered an investment opportunity. Gold is an asset
Correction: December 28, 2018
which does not carry counterparty risk – there is no associated credit
Accepted: January 31, 2019
risk. Due to these characteristics, gold represents a significant asset, and
has a fundamental role in investment portfolios. These circumstances
increase the interests of investors to include gold in investment port-
folios, especially during times of financial crisis. If an investor decides
to include gold in investment portfolio, it is necessary to evaluate the
portion of gold in the portfolio considering risk aspect, return and
diversification. In this research, a hypothesis was tested and confirmed
that gold offers good diversification for the investment portfolio, which
implies that gold is a desirable asset in the investment portfolio.
This research is focused on developing an optimal portfolio that com-
bines the Eurozone bond index with the investment grade rating from Keywords:
1 to 10 years (EG05), the stock index Euro Stoxx50 and gold using the gold,
Markowitz methodology. The result showed that optimal portfolio investment,
should include gold with a share between 1% to 9%, depending on the portfolio,
risk that the investor is willing to accept. crisis.
INTRODUCTION
Throughout history, gold has always had a noticeable reputation and different characteristics: it
held the role of a global currency, it was sometimes seen as goods, sometimes as a financial asset and,
of course, as jewellery. During the rapid development of the global financial market in the 1980’s and
1990’s, gold became an increasingly attractive investment. Moreover, the last financial crisis in 2007/8
and the debt crisis in Europe in 2010 increased the interest of investors for gold. Investors want gold
in their portfolios for many reasons. Some investors invest in gold in order to realise profit from the
41
*E-mail: tijana_soja@yahoo.com
EJAE 2019  16 (1)  41-58
ŠOJA, T.  GOLD IN INVESTMENT PORTFOLIO FROM PERSPECTIVE OF EUROPEAN INVESTOR
growth of the price of gold and take into account the limited supply of gold that can affect the price
increase. Other gold investors consider it a strategic asset and a long-term investment because of the
specific characteristics of this investment asset.
Financial crises, such as the global crisis 2007/8, increase the demand for safe assets like gold, as it
is perceived as an asset that preserves its value and provides a high level of security in times of crisis. In
addition, gold plays an important role in improving portfolio performance, portfolio diversification,
and could reduce overall portfolio risk. Due to these characteristics, it is argued that gold is a desirable
instrument in financial portfolios.
Previous research claim that asset class commodity could be the answer to many problems in invest-
ment activity today, and investment problems that the investment world faces. Because of the low cor-
relation between commodity and bonds, equities and inflation, investment in commodity, such as gold,
could be an valuable component in investment portfolios (Idzorek, 2006; Conover et al., 2010). Gold
is also considered an asset which can offer inflation hedge due to its low or negative correlation with
inflation and currency devaluation. During times of inflationary pressures, the price of gold generally
increases in order to balance inflationary consequences and hold purchasing power (Erb & Harvey, 2013).
Academic studies have also shown that gold is an attractive investment, especially as an investment
vehicle to diversify portfolios. Conover et al., (2009) but also Daskalaki & Skiadopoulos (2011) have
shown that investment portfolios which include precious metals, like gold or silver, demonstrate a
better rate of performance than portfolios without them.
Obviously, there is evidence that gold, as a financial asset, has an important role in diversifying in-
vestment portfolios and can improve their performance. In such circumstances, it is useful to research
the role of gold in European portfolios during and after the financial crisis of 2007/8. It was found that
there is a gap in research, which examined the optimal share of gold in investment portfolios during the
pre-crisis and post-crisis period, but also research papers that mainly focused on European investors.
The aim of this study is to explore the optimal share of gold in investment portfolios from the per-
spective of a European investor. The optimal share of gold in the investment portfolio is being exam-
ined from a European investor perspective that invests in portfolios which contain three instruments:
Eurozone government bonds, shares of European companies, and gold. Previous research has shown
that a low correlation between these assets could improve portfolio performance, and we will therefore
explore what an optimal share of gold in such an investment portfolio would be.
Bearing this in mind, the hypothesis that gold offers a good diversification for investment portfolios,
thus implying that gold is a desirable asset in portfolios, will be examined in this research. The start-
ing point is the assumption that the investor does not have a high-risk appetite, and prefers a lower
risk portfolio. The empirical research is focused on the period from January 2000 to December 2017.
Monthly data were used for the analyzed instruments, as follows:
◆ The EG05 index, which includes investment grade government bond maturity from 1 to 10 years,
◆ The Euro index Stoxx50, representing the top 50 shares of the best-performing companies from
eleven Eurozone countries, and
◆ The price of gold expressed in dollars.
The desired share of gold in investment portfolios is estimated throughout two periods: from Janu-
ary 2000 to December 2017, and during the global crisis from January 2007 to December 2017. For
portfolio construction and examining the optimal share of gold in investment portfolios, the modern
portfolio theory proposed by Markowitz will be used.
This research is divided into several thematic units: literature review, research methodology, research
findings, analysis, and concluding remarks.
42
EJAE 2019  16 (1)  41-58
LITERATURE REVIEW
The role of gold in investment portfolios and the need to be included in investment portfolios, are
interesting and current topics. According to Hillier et al. (2006), the existing literature that treats the
role of gold in portfolios and the role of gold as an investment, can generally be classified into several
areas, thus, gold is analyzed as a form of hedging, as an instrument of portfolio diversification, its con-
nection with macroeconomic factors and gold production and its characteristics. From the perspective
of this research, our focus will be on the role of gold in investment portfolios, so gold will be observed
as a financial asset.
Usually, investors diversify portfolios through two key assets, i.e. stocks and bonds (Idzorek, 2006).
However, with increased globalization, research has shown that the correlation among primary assets
has observed a steady growth (Idzorek, 2005; Johnson & Soenen, 1997). As a result,, investors did not
enjoy a high degree of portfolio diversification and their investments were not protected enough from
the financial market turbulence (Ratner & Klein, 2008; Bernhart et al., 2011).
Economic and political crises have influenced investors to include assets with a lower correlation
with shares and bonds in portfolios, in order to diversify them. In this context, the idea of including
new assets, such as gold, in portfolios with the aim of diversification, is desirable.
Numerous analysts consider gold a good alternative to diversification, due to its low correlation
with traditional assets (Idzorek, 2006; Conover et al., 2010). Gold is often perceived as a “safe haven”
and as an asset that protects wealth and value in times of inflation, resulting from a low correlation of
gold with market trends (Clapperton, 2010; Conover et al., 2009).
During periods of global uncertainty, many investors choose to invest in gold because it is regarded
as a safe investment. In addition to this, the rise in the price of gold, which has been present since 1999
through 2012, has led to a 15.4% annual return on gold investment. This is a far greater return than offered
by shares in the U.S. (return of 1.5%) and bonds (return of 6.4%) over the same period (Fernando, 2017).
Researchers have a different stance towards gold as an investment option. Some researchers highlight
negative attitudes to gold in investment portfolios, while some have a positive view about gold and its
role in portfolios. Investors, such as Warren Buffett, believe that gold is a non-productive asset that
increases fears among its investors. He considers that the rise in gold prices from 2010 to 2012 was a
“balloon”, and compares it to the 17th-century Tulipomania, the dot-com crisis in the 1990’s and the
latest crisis of 2008. Numerous sceptics of gold generally support Buffett’s claims (Fernando, 2017).
The World Gold Council−or WGC (2018) highlights that gold is a highly liquid, scarce asset and is
no one’s liability. Moreover, gold is a luxury good, but also an investment. Because of these character-
istics, gold can have a very important, even fundamental, role in investment portfolios. By adding gold
to investment portfolios, investors can increase diversification but also enhance risk-adjusted returns.
The WGC (2018) found that US dollar institutional investors, by adding 2%, 5% or 10% in gold, have
increased returns and reduced volatility. Their analysis also showed that, for most US dollar investors,
holdings between 2% to 10% of gold can improve portfolio performance.
The majority of researchers and analysts point out that gold is an attractive asset, and represents a
good basis for portfolio diversification. Researchers have shown that portfolios containing precious
metals, such as gold and platinum, have recorded significantly better performances than standard stock
portfolios without gold (Conover et al., 2009; Daskalaki & Skiadopoulos, 2011; Hillier et al., 2006).
Nevertheless, advocates of gold-inclusive portfolios suggest that gold can minimize the standard devia-
tion of the total portfolio risk, reduce volatility, and boost returns (Merk Investments, 2012).
Gold can be the valuable asset for diversification - even a small share of gold in the portfolio, be-
tween 1% and 3%, can significantly reduce the overall portfolio risk (Michaud et al., 2011). Research
43
EJAE 2019  16 (1)  41-58
conducted during the 1980s’, such as Sherman (1982), suggest that the 5% share of gold in the stock
portfolio resulted in lower risk and higher returns. Lucey et al. (2006) examined the structure of port-
folios, investors, and their focus on finding optimal portfolios, and demonstrated that the optimal
portfolio has 6% to 25% of gold, depending on the period of investment.
Numerous evidence suggest that gold can serve as a safe haven and an asset that provides a high degree
of protection against inflation and currency depreciation, as observed over a long period of time (Baur
& Lucey, 2010; Conover et al., 2009; Ghosh et al., 2004; Capie et al., 2005; Joy, 2011). Similarly, Pullen et
al, (2014) demonstrate and confirm that gold represents good protection in periods of financial disasters.
Baur and Lucey (2010) studied constant and time-varying relations between the U.S., the U.K., and
German stock and bond returns and gold returns in order to explore gold as a hedge and safe haven.
They found that gold, on average, is a safe haven in extreme stock market conditions, but did not found
that gold is a safe haven for bonds at any analyzed market.
As we can see from previous research, there is a lot of evidence that gold represents a good basis
for diversification portfolios. Furthermore, there are many papers on U.S. portfolios and role of gold,
but not those on European investing in EUR financial instruments (bonds and shares). Additionally,
there is lack of research on the optimal role of gold in EUR portfolios during and after crisis 2007/8.
Considering all the abovementioned, this research will show that gold has a significant role in EUR
investment portfolios, and can be used for diversification.
METHODOLOGY
The role and share of gold in portfolios was analyzed for the period from January 2000 to December
2017. The analysis includes the following instruments: Eurozone government bond index (EG05), Euro
area stocks (Euro Stoxx50), and gold. All data is on a monthly basis, i.e., the analysis includes the value
of each instrument at the end of the month. Firstly, a monthly return for each instrument is calculated
using the following expression (Bodie, et al 2014):
pt
Rt = ln ( )
pt −1
Rt represents a return, ln is the natural logarithm, pt is the value in the current period and pt-1 is the
value in the previous period. Complete portfolio optimization was carried out based on the data on
the monthly return of analyzed instruments.
The average of return, necessary for the analysis, is calculated as follows:
x1 + ... xn
x=
n
The standard deviation as a measure of the dispersion of the return, i.e., the deviation of the indi-
vidual return from the middle value, was calculated using the following expression (Bodie, et al 2014):
1 n
σ= Σ (xi − x )2
n i =1
For calculating the VaR it is important to consider the observation period, as well as the confidence
interval. Parameter VaR is known as the method of variance and covariance, and the formula for cal-
culating parametric VaR is the following (Bodie, et al 2014):
44
EJAE 2019  16 (1)  41-58
VaRx ,a =− za ⋅ σ ⋅ S
In the above formula, za represent the quantile order α of standardized random variables, S is
the value of the position being calculated. VaR was calculated with a confidence interval of 95%.
The optimal portfolio is determined using the Markowitz method, or a modern portfolio theory. This
theory involves the calculation of correlation and covariation among the instruments included in the
portfolio, as well as the calculation of the expected return and portfolio risk.
The expected return of the portfolio is calculated using the following expression (Levišauskait, 2010):
n
Er ( p ) =Σ w1 ⋅ Ei (r ) =w1 ⋅ E1(r ) + w2 ⋅ E2(r ) + ... + wn ⋅ En(r )
i =1
where the following applies:

E r ( p ) - Expected portfolios return
Ei (r ) - The expected rate of return on a financial instrument
wi - The share of the value of the portfolio that is invested in financial instrument i
n - Number of financial instruments in the portfolio
In order to deploy an efficient portfolio, it is necessary to calculate the covariance that measures
how two variables move together – whether to move in the same direction, so they have a positive
covariance, or move in a different, opposite direction, so they have a negative covariance. Covariance
is calculated as follows (Bodie, et al 2014):
Σ (RA − RA )(RB − RB )
Covariance ( A, B) =
N

RA – Return of instrument A (the same holds for instrument B)
RA – Average return for instrument A (the same hold for instrument B)
For the next step, it is necessary to calculate the correlation between the instruments in order to
determine the strength of the relationship between the instruments in a portfolio. The correlation
should be used in conjunction with the covariance, and is represented as follow (Bodie, et al 2014):
Cov ( A, B)
Correlation= p=
σA σB

Cov (A,B) – Covariance between instrument A and instrument B
σ A σ B - Standard deviation of A and B
The portfolio risk that consists of three securities (A, B and C) can be calculated as follows
(Levišauskait, 2010):
σ P = (w A2 ⋅ σ A2 + w B2 ⋅ σ B2 + wC2 ⋅ σ C2 + 2 w Aw Bw AB + 2 w AwC w AC + 2 w BwC w BC )1/2
45
EJAE 2019  16 (1)  41-58

wA, wB, wC - Share of initially invested values of financial instruments A,B and C (wA+ wB+wC= 1)
σ A , σ B , σ C - Standard deviation of financial instruments
RESULTS OF RESEARCH
This research has observed and analyzed during the period from January 2000 to December 2017, and
the period from January 2007 to December 2017. All calculations are made for these two periods in Excel.
In the first step, all data are analyzed and demonstrated using descriptive statistics. Var, as an initial
measure of risk, was calculated. The results are shown in Table 1:
EG05 EURO STOXX50 Gold

Mean 0.36% -0.02% 0.82%
StDev 0.81% 5.25% 4.87%
Freq<0 31.94% 46.30% 44.91%
Parametric VaR -0.97% -8.66% -7.19%
Table 1. Descriptive statistics and VaR for the period 01.01.2000 - 31.12.2017
Source: Authors’ processing
Descriptive statistics were calculated in Excel. All data are calculated for the period from 01.01.2000
until 31.12.2017. The same date were used for the calculated parametric VaR. It is important to emphasize
that parametric VaR assume normal distribution. During the period from January 2000 to December
2017, the average return on the index of government bonds EG05 was 0.36%, the Euro Stoxx50 had a
negative return of 0.02%, while gold had the highest return of 0.82%. The standard deviation, as a risk
measure, was observed at the highest level with shares at 5.25%, followed by gold at 4.87%. Bonds carry
a significantly lower standard deviation; thus, they are considered less risky instruments.
Frequency (Freq) shows the number of observations that are less than 0, and demonstrates returns
that are less than 0%, divided by total observations. This implies that this data shows a return share
that is less than 0% during the analyzed period.
The data show that the lowest returns below 0% in the analyzed period were recorded in bonds
(EG05), where the frequency of negative return has a share of 31.94%, while the largest share of nega-
tive returns was recorded in the stock index, where this figure is 46.30%.
VaR as a risk measure is at the lowest level in bonds, which is further evidence that it is one of the
safest instruments of investment.
Descriptive analysis and VaR for the period from January 2007 to December 2017 was calculated
in the same way as a previous analysis. The data are presented in Table 2:

Mean 0.33% 0.01% 0.69%
StDev 0.85% 5.14% 5.33%
Freq<0 34.09% 46.97% 46.21%
Parametric VaR -1.07% -8.44% -8.09%
Table 2. Descriptive statistics and VaR for the period 01.01.2007-31.12.2017
46
EJAE 2019  16 (1)  41-58
During the crisis period, gold again had the highest average return of 0.69%, while the shares again
had the lowest return of 0.01%. Bonds, once more, showed the highest degree of security, considering
the data on standard deviation, VaR, and the frequency of negative returns.
For the next step, a return correlation is calculated among the analyzed instruments, as shown in Table 3:

EG05 1
EURO STOXX50 -0.22 1
Gold 0.08 -0.09 1
Table 3. Correlation for the period 31.01.2000 - 31.12.2017
Correlation analysis shows almost no correlation amid gold and other financial assets. The differ-
ence between the bond index EG05 and gold correlation is only 0.08, while between the stock index
EuroStoxx50 and gold correlation it is slightly negative, at -0.09.
The correlation between the analyzed data for the crisis and post-crisis period is shown in Table 4:

EG05 1
EURO STOXX50 -0.07 1
Gold 0.09 -0.09 1
Table 4. Correlation for the period 31.01.2007 - 31.12.2017
In this period, the correlation is almost 0 for all analyzed instruments. Moreover, there is a similar
correlation over a longer period of time, as shown in Table 3.
After calculating the correlation, the covariance among the analyzed instruments was taken into
consideration. The covariance matrix is shown in Tables 5 and 6:

EG05 0.0078% -0.0093% 0.0062%
EURO STOXX50 -0.0093% 0.2749% -0.0221%
Gold 0.0062% -0.0221% 0.2427%
Table 5. Covariance matrix for the period of 01.01.2000 - 31.12.2017

EG05 0.0083% -0.0029% 0.0065%
EURO STOXX50 -0.0029% 0.2620% -0.0255%
Gold 0.0065% -0.0255% 0.2871%
Table 6: Covariance matrix for the period of 01.01.2007 - 31.12.2017
47
EJAE 2019  16 (1)  41-58
Different portfolios were made using the covariant matrix by taking into consideration the differ-
ent participation of individual instruments in the portfolio, and with the aim of finding the optimal
portfolio using the Markowitz methodology.
An overview of the portfolio offering the minimum standard deviation and the appropriate return
for a given level of risk or an effective set is shown in Table 7. When calculating the optimal portfolio,
the risk-free rate is fixed at 0% (German Council of Economic Experts – Annual Report 2016/17). In
the current low and negative yield environment in EMU, especially in Germany, which are at the mo-
ment negative, up to 7 years.
Table 7 shows data for slope, which represents the slope of the capital market line (CML) and dem-
onstrates the point where CML has a tangency in line with the efficient set. The optimal portfolio is the
one with the highest slope. At that point, there is a portfolio that has the lowest standard deviation and
the lowest risk, and such is acceptable from the risk-averse investor’s perspective.
Return 0.25% 0.30% 0.35% 0.39% 0.40% 0.45% 0.50% 0.55% 0.60% 0.65% 0.70% 0.75% 0.80%
Risk 1.53% 1.00% 0.83% 2.3% 0.97% 1.28% 1.71% 2.18% 2.67% 3.18% 3.69% 4.21% 4.73%
Slope 0.1634 0.3012 0.4140 0.17 0.4125 0.3506 0.2928 0.2524 0.2245 0.2045 0.1197 0.1782 0.1692
EG05 70.86% 84.21% 93.31% 33.33% 90.18% 80.24% 69.37% 58.50% 47.62% 36.75% 25.88% 15.01% 4.14%
EURO
29.14% 15.79% 5.73% 33.33% 0.51% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
STOXX50
Gold 0.00% 0.0% 0.96% 33.34% 9.30% 19.76% 30.63% 41.50% 52.38% 63.25% 74.12% 84.99% 95.86%
Table 7. An overview of different portfolios, and optimal portfolio for a period of 01.01.2000-31.12.2017
Source: Authors’ processing in Excel
All the calculations are made in Excel, using the Solver function. At the first step it was calculated
portfolio who has the lowest standard deviation or the lowest risk.
For the second step, we chose a different rate of the returns, between 0.2% up to 0.8%, which was
the maximum returns that gold had during the analyzed period (from 01.01.2000 until 31.12.2017).
We therefore used returns from 0.250% and increased it up to a 5 basis point, as shown in Table 7.
When determining the target return, we used Solver function to find the instrument share that offer
desirable return. The average portfolio return was calculated considering the average returns of each
instrument and their share in portfolios compared with the risk-free rate, which was set to 0%. The
slope was calculated just as a ratio between portfolio return and portfolio risk. As we can see, we calcu-
lated a different returns rate, and show a share of each instrument in corresponding returns. We also
calculated returns and risk in case that portfolio consist the same share of each instrument. In that case
portfolio has a returns of 0.357% but the risk of this portfolio is 2.3% which is quite high. The same
level of return investor can have with a lower risk, as it is shown in Table 7.
The results demonstrate that, from the standpoint of the risk-averse investor, the acceptable portfolio
is one that offers an expected return of 0.3% with a standard deviation of 0.80%, which is represented
by the tangent of the efficient set line, as shown in Figure 1:
48
EJAE 2019  16 (1)  41-58
Figure 1. Efficient set for a period of 01.01.2000 - 31.12.2017

If an investor is risk averse, then the optimal portfolio should contain 93.3% of bonds, 5.7% shares,
and the share of gold should be 1%. On the other hand, the portfolio with an expected return of 0.4%
and a standard deviation of 1% can be considered an optimal portfolio. It is a portfolio made up with
90.2% of bonds, 0.5% of shares and 9.3% gold. This portfolio has a higher expected return, but also a
slightly higher risk.
However, the structure of the portfolio that the investor will adopt depending on investor's risk ap-
petite. This means that a portfolio that includes 9.3% of gold could be considered as optimal. Likewise,
if an investor is ready to take on more risk, the possibility exists of including a larger share of gold in
the investment portfolio.
The following phase included testing of an optimal portfolio using the same instruments for the
period during the global crisis and beyond, from January 2007 to December 2017. The same calcula-
tions were used in this case. The efficient set is given in Table 8 and Figure 2:
Return 0.15% 0.20% 0.25% 0.32% 0.34% 0.35% 0.40% 0.45% 0.50% 0.55% 0.60% 0.65% 0.68%
Risk 2.86% 2.09% 1.38% 0,88% 2.39% 0.96% 1.39% 2.01% 2.68% 3.39% 4.10% 4.82% 5.26%
Slope 0.0524 0.0957 0.1810 0.3590 0.14 0.3643 0.2880 0.2244 0.1863 0.1624 0.1462 0.1347 0.1293
EG05 44.11% 59.94% 75.77% 94.96% 33.33% 93.51% 79.60% 65.72% 51.84% 37.96% 24.08% 10.20% 1.87%
EURO
55.89% 40.06% 24.23% 4.11% 33.33% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
STOXX50
Gold 0.00% 0.00% 0.00% 0.93% 33.34% 6.49% 20.40% 34.28% 48.16% 62.04% 75.92% 89.80% 98.13%
Table 8. Overview of different portfolios and optimal portfolio for a period of 01.01.2007 - 31.12.2017
49
EJAE 2019  16 (1)  41-58
Efficient set is shown in Figure 2:
Figure 2. Efficient set for a period of 01.01.2007 - 31.12.2017

An optimal portfolio comprises 93.5% of bonds, 6.5% of gold, and no stock. This portfolio has an
expected return of 0.35% and a risk of 0.96%. If the investor favours a somewhat lower risk, the portfolio
can consist of 95% of bonds, 4.1% of shares and 0.9% of gold. These findings confirm that, during the
crisis, it was optimal to include gold in portfolios.
CONCLUSION
Economic crises, turbulence, and uncertainties in financial markets emphasize the importance of
risk management strategies and portfolio diversification. At the same time, it is evident that the correla-
tion between traditional assets, shares, and bonds is increasing. If these circumstances are considered
in combination with poor returns offered by the stock, it can be concluded that investors are more
interested in pursuing other investment assets, such as monetary gold.
Previous research has indicated that investors have different attitudes towards the role of gold in the
portfolio. Some advocate its inclusion in portfolios, while others consider it is not beneficial. Decisions
to include monetary gold in the portfolio will ultimately depend on the investor, investment objectives,
and the interest in portfolio diversification.
The purpose of this study was to examine whether gold has an important role in investment port-
folios from the perspective of European investors that invest in traditional assets, stocks, and bonds.
Three instruments were combined - bonds, stocks and gold, whereas the optimal portfolio was found by
Markowitz portfolio theory. The analyzed period was from January 2000 to December 2017, while the
observation period was segmented into two periods covering the entire analyzed period, from January
2000 to December 2017, and the period of global crisis and the post-crisis period, from January 2007 to
December 2017. This study tested the hypothesis that gold represents a useful instrument for portfolio
diversification and, as such, is a desirable instrument in investment portfolios.
50
EJAE 2019  16 (1)  41-58
Following the research results, it can be concluded that gold represents an important instru-
ment for portfolio diversification and, therefore, shares between 1% and 9% are recommended for
inclusion in portfolios. It can also be argued that it is justifiable to include gold in investment portfolios
if the portfolio is combined with European bonds and stocks. Gold is a good basis for diversification
portfolios, both from the standpoint of the risk-averse investor and from the aspect of the investor
prepared to take a higher risk.
REFERENCES
Baur, D., & Lucey, B. (2010). Is gold a hedge or a safe haven? An analysis of stocks, bonds and gold. Financial
Review, 45(2), 217-229.
Bernhart, G., Höcht, S., Neugebauer, M., Neumann, M., & Zagst, R. (2011). Asset correlations in turbulent markets
and the impact of different regimes on asset management. Asia-Pacific Journal of Operational Research,
28(1), 1-23. DOI:10.1142/S0217595911003028
Bodie, Z., Kane, A., Marcus, A. (2014). Investment. New York: McGraw-Hill Education.
Capie, F., Mills, T. C., & Wood, G. (2005). Gold as a hedge against the dollar. Journal of International Financial
Markets Institutions and Money, 15(4), 343-352.
Clapperton, G. (2010). Raising the gold standard. Engineering & Technology, 5(15), 66-69. DOI:10.1049/et.2010.1514
Conover, C. M., Jensen, G. R., Johnson, R. R., & Mercer, J. M. (2009). Can precious metals make your portfolio
shine? Journal of Investing, 18(1), 75-86. DOI:10.3905/JOI.2009.18.1.075
Conover, C. M., Jensen, G. R., Johnson, R. R., & Mercer, J. M. (2010). Is now the time to add commodities to your
portfolio? The Journal of Investing, 19(3), 10-19. DOI:10.3905/joi.2010.19.3.010
Daskalaki, C., & Skiadopoulos, G. (2011). Should investors include commodities in their portfolios after all? New
evidence. Journal of Banking and Finance, 35(10), 2606-2626. DOI:10.1016/j.jbankfin.2011.02.02
Erb, C. B., & Harvey, C. R. (2013). The Golden Dilemma. Financial Analysts Journal, 69(4), 10-42. DOI:10.2139/
ssrn.2078535
Fernandno, N. (2017). The Role of Gold in an Investment Portfolio: An empirical study on diversification benefits
of gold from the perspective of Swedish investors. Umeå: University
German Council of Economic Experts.
Ghosh, D., Levin, E. J., Macmillan, P., & Wright, R. E. (2004). Gold as an inflation hedge. Studies in Economics
and Finance, 22, 1-25.
Hillier, D., Draper, P., & Faff, R. (2006). Do precious metals shine? An investment perspective. Financial Analysts
Journal, 62(2), 98-106. DOI:10.2469/faj.v62.n2.4085
Idzorek, T. M. (2005). Portfolio diversification with Gold, Silver, and Platinum. Chicago: Ibbotson Associates.
Idzorek, T. M. (2006). Strategic asset allocation and commodities. Chicago: Ibbotson Associates.
Johnson, R., & Soenen, L. (1997). Gold as an investment asset: Perspectives from different countries. Journal of
Investing, 6(3), 91-99. DOI: 10.3905/joi.1997.408427
Joy, M. (2011). Gold and the US dollar: hedge or haven? Finance Research Letters, 8(3), 120-131. DOI:10.1016/j.
frl.2011.01.001
Levišauskait, K. (2010). Investment Analysis and Portfolio Management. Lithuania: Vytautas Magnus University
Kaunas.
Lucey, B., Poti,V., Tully, E. (2006). International Portfolio Formation, Skewness and the Role of Gold. DOI:10.2139/
ssrn.452482
Merk Investments, LLC. (2012). The Case for Gold: Portfolio Benefits of the Ultimate Currency. Retrieved October
28, 2018, from https://www.merkinvestments.com/gold/white-papers/downloadcaseforgold-portfolio-
benefits.php
51
EJAE 2019  16 (1)  41-58
Michaud, R., Michaud, R., Ecsh, D., Schroeder, E. (2011). Gold as strategic assets for European investor. New
York: World Gold Council.
Pullen, T., Bensen, K., & Faff, R. (2014). A comparative analysis of the investment characteristics of alternative
gold assets. Abacus, 50(1), 76-92. DOI:10.2139/ssrn.1928591
Ratner, M., & Klein, S. (2008). The portfolio implications of gold investment. The Journal of Investing, 17(1),
77-87. DOI:10.3905/joi.2008.701958
Sherman, E. (1982). Gold: A Conservative, Prudent Diversifier. Journal of Portfolio Management, 8(3), 21-27.
DOI:10.3905/jpm.1982.408850
World Gold Council. (2018). Investment Update: IMF report highlights gold’s relevance. Retrieved October 28,
2018, from https://www.gold.org/goldhub/research/imf-report-highlights-golds-relevance
52
EJAE 2019  16 (1)  41-58
APPENDIX
Date EG05 EURO STOXX50 Gold (in USD)

31.12.2017 638.241 3503.96 1302.8
30.11.2017 641.495 3569.93 1271.72
31.10.2017 640.889 3673.95 1270.34
29.9.2017 637.124 3594.85 1279.75
31.8.2017 638.318 3421.47 1316.96
31.7.2017 635.338 3449.36 1267.9
30.6.2017 633.954 3441.88 1241.61
31.5.2017 636.571 3554.59 1269.86
28.4.2017 633.943 3559.59 1268.28
31.3.2017 631.627 3500.93 1249.2
28.2.2017 633.707 3319.61 1256.37
31.1.2017 629.714 3230.68 1210.59
30.12.2016 636.44 3290.52 1147.5
30.11.2016 632.685 3051.61 1174.94
31.10.2016 637.026 3055.25 1273.76
30.9.2016 643.661 3002.24 1315.87
31.8.2016 642.57 3023.13 1308.17
29.7.2016 642.626 2990.76 1351.28
30.6.2016 640.275 2864.74 1316.13
31.5.2016 635.125 3063.48 1214.88
29.4.2016 631.786 3028.21 1293.53
31.3.2016 634.553 3004.93 1232.44
29.2.2016 633.492 2945.75 1232.07
29.1.2016 630.91 3045.09 1118.21
31.12.2015 624.272 3267.52 1062.19
30.11.2015 627.997 3506.45 1064.17
30.10.2015 624.822 3418.23 1142.11
30.9.2015 620.819 3100.67 1114.9
31.8.2015 616.142 3269.63 1133.72
31.7.2015 619.113 3600.69 1095.8
30.6.2015 611.707 3424.3 1173.76
29.5.2015 618.451 3570.78 1190.58
30.4.2015 621.706 3615.59 1181.44
31.3.2015 624.871 3697.38 1183.88
27.2.2015 623.269 3599 1213.18
30.1.2015 619.8 3351.44 1283.79
31.12.2014 615.374 3146.43 1187.96
53
EJAE 2019  16 (1)  41-58
28.11.2014 612.503 3250.93 1167.38

31.10.2014 608.391 3113.32 1172.94
30.9.2014 608.153 3225.93 1208.67
29.8.2014 606.714 3172.63 1287.32
31.7.2014 600.64 3115.51 1282.28
30.6.2014 597.679 3228.24 1318.35
30.5.2014 592.667 3244.6 1249.68
30.4.2014 588.373 3198.39 1293.5
31.3.2014 585.007 3161.6 1286.92
28.2.2014 581.198 3149.23 1326.39
31.1.2014 578.525 3013.96 1244.55
31.12.2013 569.519 3109 1204.99
29.11.2013 572.521 3086.64 1253.35
31.10.2013 570.194 3067.95 1323.66
30.9.2013 563.645 2893.15 1331.77
30.8.2013 560.243 2721.37 1395.27
31.7.2013 561.747 2768.15 1308.29
28.6.2013 557.649 2602.59 1234.53
31.5.2013 563.957 2769.64 1387.8
30.4.2013 568.492 2712 1471.96
29.3.2013 558.774 2624.02 1597.5
28.2.2013 556.154 2633.55 1581.4
31.1.2013 553.812 2702.98 1662.51
31.12.2012 555.636 2635.93 1676.23
30.11.2012 553.361 2575.25 1714.98
31.10.2012 547.385 2503.64 1719.35
28.9.2012 543.972 2454.26 1772.25
31.8.2012 537.781 2440.71 1691.85
31.7.2012 533.277 2325.72 1615.73
29.6.2012 527.468 2264.72 1597.45
31.5.2012 527.342 2118.94 1566.84
30.4.2012 526.463 2306.43 1663.81
30.3.2012 526.888 2477.28 1668.15
29.2.2012 526.85 2512.11 1721.9
31.1.2012 519.543 2416.66 1730.91
30.12.2011 509.712 2316.55 1564.91
30.11.2011 493.849 2330.43 1745.59
31.10.2011 504.583 2385.22 1724.48
30.9.2011 511.382 2179.66 1623.79
31.8.2011 509.716 2302.08 1834.99
54
EJAE 2019  16 (1)  41-58
29.7.2011 495.494 2670.37 1627.05

30.6.2011 495.81 2848.53 1504.72
31.5.2011 496.187 2861.92 1536.23
29.4.2011 492.119 3011.25 1563.7
31.3.2011 490.879 2910.91 1437.78
28.2.2011 493.412 3013.09 1411.88
31.1.2011 492.856 2953.63 1337.14
31.12.2010 494.774 2792.82 1421.4
30.11.2010 494.947 2650.99 1388.53
29.10.2010 504.495 2844.99 1359.4
30.9.2010 505.976 2747.9 1307.6
31.8.2010 509.88 2622.95 1248.45
30.7.2010 503.02 2742.14 1181
30.6.2010 499.319 2573.32 1241.68
31.5.2010 502.363 2610.26 1216,45
30.4.2010 495.374 2816.86 1179.03
31.3.2010 499.629 2931.16 1114.49
26.2.2010 496.943 2728.47 1117.59
29.1.2010 491.722 2776.3 1081.2
31.12.2009 490.316 2964.96 1098.65
30.11.2009 493.412 2797.25 1173.38
30.10.2009 491.131 2743.5 1045.45
30.9.2009 489.72 2872.63 1007.6
31.8.2009 487.214 2775.17 950.94
31.7.2009 485.857 2638.13 954
30.6.2009 480.278 2401.69 930
29.5.2009 475.594 2451.24 975.75
30.4.2009 477.869 2375.34 887.95
31.3.2009 476.288 2071.13 919.9
27.2.2009 471.51 1976.23 942.32
30.1.2009 466.974 2236.98 927.85
31.12.2008 467.308 2447.62 875.43
28.11.2008 462.422 2430.31 817.68
31.10.2008 451.291 2591.76 721.8
30.9.2008 445.312 3038.2 875.55
29.8.2008 441.124 3365.63 831.86
31.7.2008 436.608 3367.82 917.43
30.6.2008 429.084 3352.81 923.56
30.5.2008 433.308 3777.85 885.43
30.4.2008 437.87 3825.02 867.03
55
EJAE 2019  16 (1)  41-58
31.3.2008 440.356 3628.06 920.96

29.2.2008 443.148 3724.5 973.08
31.1.2008 439.559 3792.8 924.49
31.12.2007 430.095 4399.72 833.05
30.11.2007 431.422 4394.95 782.92
31.10.2007 427.392 4489.79 790.5
28.9.2007 425.132 4381.71 743.75
31.8.2007 424.446 4294.56 673
31.7.2007 419.959 4315.69 665.15
29.6.2007 415.629 4489.77 650.9
31.5.2007 416.385 4512.65 659.45
30.4.2007 419.29 4392.34 680.85
30.3.2007 419.548 4181.03 665.05
28.2.2007 420.04 4087.12 667.89
31.1.2007 416.732 4178.54 650.53
29.12.2006 417.009 4119.94 635.7
30.11.2006 420.368 3987.23 647.5
31.10.2006 418.359 4004.8 604.8
29.9.2006 417.856 3899.41 596.55
31.8.2006 416.63 3808.7 626.28
31.7.2006 413.59 3691.87 633.36
30.6.2006 410.221 3648.92 613.99
31.5.2006 411.224 3637.17 642
28.4.2006 409.208 3839.9 653.23
31.3.2006 410.779 3853.74 582.85
28.2.2006 414.24 3774.51 561.2
31.1.2006 413.913 3691.41 571.95
30.12.2005 415.407 3578.93 517
30.11.2005 413.302 3447.07 494.7
31.10.2005 413.777 3320.15 467.4
30.9.2005 416.944 3428.51 469
31.8.2005 417.7 3263.78 434.53
29.7.2005 414.953 3326.51 430.55
30.6.2005 416.616 3181.54 435.88
31.5.2005 413.095 3076.7 417.1
29.4.2005 409.742 2930.1 436.01
31.3.2005 404.74 3055.73 428.24
28.2.2005 402.807 3058.32 436
31.1.2005 404.033 2984.59 421.5
31.12.2004 401.059 2951.01 438.05
56
EJAE 2019  16 (1)  41-58
30.11.2004 399.46 2876.39 450.65

29.10.2004 396.423 2811.72 427.04
30.9.2004 393.015 2726.3 418.1
31.8.2004 391.957 2670.79 409.7
30.7.2004 387.505 2720.05 390.2
30.6.2004 384.768 2811.08 394
31.5.2004 384.321 2749.62 395.35
30.4.2004 384.74 2787.48 389.3
31.3.2004 388.056 2787.49 425.1
27.2.2004 384.969 2893.18 397
30.1.2004 379.994 2839.13 401.2
31.12.2003 377.864 2760.66 415.05
28.11.2003 373.375 2630.47 397.75
31.10.2003 374.508 2575.04 383.05
30.9.2003 379.013 2395.87 387.28
29.8.2003 373.316 2556.71 375.55
31.7.2003 373.502 2519.79 355.95
30.6.2003 378.124 2419.51 346.35
30.5.2003 377.63 2330.06 364.55
30.4.2003 371.016 2324.23 339.15
31.3.2003 370.291 2036.86 335.95
28.2.2003 371.142 2140.73 349.75
31.1.2003 366.924 2248.17 368.05
31.12.2002 363.57 2398.65 347.85
29.11.2002 357.251 2656.85 318.95
31.10.2002 355.617 2518.99 317.55
30.9.2002 356.676 2204.39 324.05
30.8.2002 350.043 2709.29 312.75
31.7.2002 346.321 2685.79 302.43
28.6.2002 341.548 3133.39 317.25
31.5.2002 336.716 3425.79 325.25
30.4.2002 336.189 3574.23 308.15
29.3.2002 332.727 3784.05 302.5
28.2.2002 335.481 3624.74 296.65
31.1.2002 334.303 3670.26 281.85
31.12.2001 333.723 3806.13 278.95
30.11.2001 337.01 3658.27 275.05
31.10.2001 338.616 3478.63 279.85
28.9.2001 332.602 3296.66 292.55
31.8.2001 329.468 3743.97 274.45
57
EJAE 2019  16 (1)  41-58
31.7.2001 326.218 4091.38 266.15

29.6.2001 322.34 4243.91 271.55
31.5.2001 319.845 4426.24 266.6
30.4.2001 318.476 4525.01 263.48
30.3.2001 321.816 4185 257.95
28.2.2001 319.136 4318.88 267.15
31.1.2001 317.688 4779.9 265.2
29.12.2000 315.543 4772.39 272.25
30.11.2000 311.145 4790.08 269
31.10.2000 307.107 5057.46 264.68
29.9.2000 305.635 4915.18 274.25
31.8.2000 302.854 5175.12 277.25
31.7.2000 302.772 5122.8 277.25
30.6.2000 302.037 5145.35 289.15
31.5.2000 300.393 5200.89 272.6
28.4.2000 300.332 5303.95 274.5
31.3.2000 300.485 5249.55 279.73
29.2.2000 296.822 5182.62 293.3
31.1.2000 295.425 4684.48 283.6
31.12.1999 296.306 4904.46 288
Table 9. Raw data, monthly values for all variables
Source: Bloomberg
ZLATO U PORTFOLIO INVESTICIJAMA IZ UGLA EVROPSKOG ULAGAČA
Rezime:
Zlato je jedinstven vid imovine, velike vrednosti, ali, u isto vreme, vid
kojeg nema dovoljno na raspolaganju. U pitanju je imovina luksuzne
prirode, koja se može smatrati sjajnom prilikom za ulaganje. Takođe,
zlato je imovina koja ne nosi rizik druge strane – odnosno, ne uključuje
povezani kreditni rizik. Upravo zbog ovih osobina, zlato predstavlja
značajan oblik imovine i ima izuzetno važnu ulogu u portfolio inve-
sticijama. Navedene okolnosti uvećavaju interese ulagača da uvrste
zlato u portfolio investicije, posebno tokom perioda finansijskih kriza.
Ukoliko ulagač odluči da to učini, neophodno je proceniti udeo zlata u
portfoliju, uzimajući u obzir apskte rizika, povraćaja i diversifikacije.
U ovom radu, testirana je, i potvrđena hipoteza na osnovu koje zlato
omogućava diversifikaciju za portfolio investicije, što implicira da je
zlato poželjan oblik imovine u ovom kontekstu. Istraživanje se fokusi-
ralo na razvoj optimalnog portfolija, koji kombinuje indeks obveznica Ključne reči:
Evrozone sa investicionim rejtingom 1-10 godina (EG 05), indeks Euro zlato,
Stoxx 50 i zlato, uz upotrebu metodologije autora Markowitz. Rezultati investicije,
su pokazali da optimalan portfolio treba da uključuje zlato sa udelom portfolio,
1-9%, u zavisnosti od rizika koji je ulagač spreman da prihvati. kriza.
58
EJAE 2019, 16(1): 59-76
ISSN 2406-2588
UDK: 336.71:[004:007
336.71:[621.395.721.5:004.77
DOI: 10.5937/EJAE15-18751
DEFINING THE NEED FOR AND PROPOSING HOW TO TRANSFORM

TRADITIONAL INTO DIGITAL BANKS WITH THE SUPPORT OF
INFORMATION AND MOBILE TECHNOLOGIES
Mirko Sajić1,*, Zlatko Bundalo2, Dušanka Bundalo3
1
Sberbank a.d.,
Banja Luka, Bosnia and Herzegovina
2
Faculty of Electrical Engineering, University of Banja Luka,
3
Faculty of Philosophy, University of Banja Luka,

The need to practically and effectively implement the transformation of
Received: September 2, 2018
standard traditional banks into digital ones and how to transform them
Correction: October 18, 2018
using information and mobile technologies are analyzed and described
Accepted: October 31, 2018
in the paper. The aim of this paper is to provide clear evidence about the
need to transform banks from their present, traditional form into a new
one that organizes and provides services, through a so-called digital bank.
The great influence of mobile digital information technologies on the
entire financial sector is further emphasized. The problems that appear
because of the divergence of the existing concept of bank development
and way in which modern clients want to obtain services, according to Keywords:
the possibilities of modern mobile digital technologies, are addition- bank transformation,
ally explained. Proposals are also given for how to practically perform information and mobile technologies,
these changes and transformations, together with reasons that require traditional retail bank and digital
changes. The basic principles for transitioning banks from traditional bank,
to digital formats through the so-called hybrid transformation period hybrid period of bank transformation,
are presented, and several concrete solutions are proposed. digital bank creation period.
59
*E-mail: mirko.sajic@gmail.com
EJAE 2019  16 (1)  59-76
SAJIĆ, M., BUNDALO, Z., BUNDALO, D.  DEFINING THE NEED FOR AND PROPOSING HOW TO TRANSFORM TRADITIONAL INTO DIGITAL BANKS WITH
THE SUPPORT OF INFORMATION AND MOBILE TECHNOLOGIES
INTRODUCTION
It has been noticed and written about in professional and scientific literature that the expansion
of information and digital technologies has greatly contributed to the rise of so-called uncontrolled
banking. State institutions and governments are trying to strengthen their banking regulations through
their agencies for banking, but the achieved effects have not shown great efficiency. More and more
often theses like the following can be found: “The banking system has been turned into a dysfunctional
public-private project. Banking institutions achieve a huge profit by taking excessive risks in good times,
while the government absorbs their losses in bad times.” (McMillan, 2014).
Modern technology has drastically changed entire areas of life and interest of human population,
of creation, of trade, and so on. One only needs to notice what happened to books (from their writing
and publishing to how they are sold), what happened to bookstore chains (for example, Barnes & No-
ble). Something similar happened to the music industry (for example, LP, cassettes, CD players, mp3
players, iTunes) and to movies and TV. A very similar situation is now also occurring with banks and
in the banking sector.
The modern information, telecommunication, and mobile technologies lead to the fact that the mo-
dern banking client wants and demands that banks be faster, more efficient, and cheaper. Modern clients
also wants that he/she realize his/her needs for banking services from his/her home or work, without
needing to personally enter into bank premises. All that forces banks to be adapted to such requests and
needs. However, all this in practice goes quite slowly and unorganized, without any systematic approach.
This paper analyzes, proposes, and describes a systematized approach to transforming standard tra-
ditional banks into modern digital banks. It could contribute to a faster and better quality of practical
transformation of banks and their adaptation to modern trends and client requirements and needs.
DISHARMONY BETWEEN DEVELOPMENT OF BANKS AND MOBILE INFORMATION

TECHNOLOGIES
It is a well-known fact that it is very difficult for traditional banks to adapt to the growing expansion
of the use of mobile digital technologies and mobile devices. Banks were one of the leaders in introducing
new technologies in the time when the first computers, servers, databases, and communication links
appeared. However, reception of the latest expansion and boom in the development and use of digital
mobile technologies and mobile devices banks was quite unprepared (Turban, McLean & Wetherbe,
2004; Accenture, 2015).
Figure 1. demonstrates the nearly identical matching of the structure of a traditional bank informa-
tion system (Figure 1a.) and the structure of the bank itself (Figure 1b.) when client-server architecture
was actual information technology. That structure is with the central office and the network of branch
offices, agencies, and forward (remote) work places.
The main reason behind the banks’ unpreparedness and delay concerning the speed of development
and introduction of information and mobile technologies lies in the traditional form of structure of the
so-called Retail Bank. A real existing example of such an structure is shown in Figure 2. It is not possible
to adapt such an structure, with small changes, to new technology in such a way that the technology
could be used to its full capacity and taking advantage of the possibilities they provide (Sajić, Bundalo,
Bundalo & Pašalić, 2017). The base of the traditional bank consists of the Central Unit (Central Office),
which includes the strategic and operational management of the bank, IT (Information Technology)
centre, marketing, the Call Centre, the Back Office, accounting and controlling, legal services, and
other support services. The Central Unit dictates work procedures , creates and launches products on
the market, and manages network operations. The network consists of relevant branches, agencies,
60
EJAE 2019  16 (1)  59-76
and counters. This network was recently was expanded to include ATM (Automated Teller Machine)
and POS (Point Of Sale) devices. That, in a sense, represented the limited use of modern technologies.
The main problem of such forms of bank structure lies in the fact that modern clients, using modern
mobile information technologies, mobile smart phones and tablets, receive an increasing amount of
information and services through these mobile devices. As such, the need for clients to personally enter
banks for services continues to disappear. On the other hand, the basic concept behind traditional
banks is to attract clients to come into their bank branches and offices.
a) b)
Figure 1. Similarity of client-server architecture (a) and network structure (b) of bank
Figure 2. Example of the traditional structure of bank

61
EJAE 2019  16 (1)  59-76
Banks have tried to use modern IT technologies, but quite incorrectly. Banks send e-mails and SMS
messages to clients and publish a variety of information on their websites. Yet all this is done to attract
clients to enter their offices. That is a real problem of this approach. Modern clients would like to obtain
the banking services they need on their mobile devices and that they can realize these services from
home, from work, while traveling, etc. However, the basic concept of a bank is still to do everything to
attract clients to come into their office and to present and sell their banking products to clients there.
Banks have begun to develop and provide electronic (eBanking) and mobile banking (mBanking)
services as products in order to somehow follow in line with their clients’ desires and needs. .Products,
when sufficiently popularized and distributed, demonstrate the thesis is correct of thesis concerning
the way the structure of banks is outdated. Clients can perform many services by using their mobile
devices. It practically demonstrates that the bank network of branches, agencies, and remote counters
becomes unnecessary in the form that it is now. The simplest cost/benefit analysis would show that
branch offices are more and more expensive, and that they are becoming less and less profitable. Cli-
ents’ habits of are increasingly moving in other directions. The only thing that still retains branches in
practice is the legal regulation of the Banking Agencies. They still require a client’s physical presence
in the realization of certain banking services (physical identification, signature on paper, etc.).
Figure 3. demonstrates the typical architecture of modern banks and a block diagram of the infor-
mation system of a modern bank. In addition to the central area, essentially two channels, those of
communication and bank operation performance with clients, physical channel and mobile channel,
are shown. Physical contact with clients is realized through the network of branches/agencies/counters
where there is physical personal contact between bank employees and clients. Through personal con-
versation, clients request and bank employees provide needed services. On the other hand, a number of
clients access banks via the Internet, and use their mobile devices at their disposal. They perform their
operations with the bank through the appropriate software support. Though not specifically shown
here, ATM’s and the network of POS devices basically belong to this group.
Figure 3. Typical architecture and block diagram of information system of modern bank.
62
EJAE 2019  16 (1)  59-76
Figure 3. clearly shows that, during the time in question, more and more customers will use remote
access with the help of mobile devices for performing banking operations. The so-called Client migra-
tion path can be seen in Figure 3. As such, there will be more and more weaken power and importance
of using certain branches/agencies/counters and of parts of their networks. Based on this, it can be
concluded that the networks of branches/agencies/remote counters will collapse by themselves when a
sufficient number of clients begins to use almost exclusively work with bank at distance. It will happen
under pressure of insolvency if before of that is not performed bank transformation, adequately and
on time.
Prediction and proposal is that this will lead to transformation of complete banking network and
transformation of purpose of its physical locations. In that process, some of that places will be conver-
ted into combination of devices for self-service during performing banking operations and reception
offices. That offices will serve as suitable places where trained bank employees will perform work of
banking financial advisors to clients who want to do this via physical contact and who need this kind
of help. Some of that places will be completely closed. The latter is particularly related to rented places,
non-bank-owned places. It is clear that sustainability of certain locations in which bank branches/
agencies/counters are located, in terms of cost-effectiveness, will no longer be possible after migration
of sufficient number of clients to mobile technologies.
That means that the main reason for banking problems during the migration from using digital
mobile technology and during the transformation into digital banks is, in fact, that branch networks
and agencies become unnecessary (King, 2012; Accenture, 2015).
Moreover, the traditional structure of the bank implies traditional way of dealing with clients.
However, all analyses demonstrate that if success with clients is desired then in some way it should
become part of them (banks should become part of clients). That is especially demonstrated on the
basis of development of social networks.
THE DISADVANTAGES OF THE TRADITIONAL APPROACH TOWARDS CLIENTS AND

HOW INFORMATION TECHNOLOGIES HELP
With the birth of high-quality CRM (Customer Relationship Management) solutions and the buil-
ding of their own Knowledge Data Bases in banks it is evidently that orientation to financial data only
is insufficient to provide quality banking services to clients.
One of the most common descriptions of the term CRM that can be found in the literature is:
“CRM - Customer Relationship Management is the harmonization of business strategies, structu-
ral structure and culture of company, information about clients and information technology, with
the purpose that in all contact with clients satisfy their needs and achieve business benefit and profit.
CRM can be understood as a set of tools for management of business and relationship with clients, that
enable full connectivity of clients with all processes that are performed, from tracking orders, offers
and contracts, to tracking working tasks. It also represents an integrated marketing, service and sales
strategy that requires the common work of all departments of the company. This business strategy is
based on the philosophy “the buyer is king” and focus is on the client. Management with relationship
with clients is reflected through people, processes and information technologies. The tool that is used
to achieve the goals of this strategy is CRM technology. CRM is not just a tool or solution, it is also a
special model of thinking.” (Haase, 2016). Figure 4. shows the basic principles of CRM (Haase, 2016).
Development of information and mobile digital technologies, in particular expansion of eCommerce
sales via the Internet, was demonstrated to clients what are all possibilities and options in this regard.
Customers now know that it is possible to buy television set, music devices, furniture, kitchen devices
63
EJAE 2019  16 (1)  59-76
via the Internet. Then, customers correctly thing why would not it be possible to get a loan in the same
way to achieve a particular goal of retail shopping. Many of them are thinking even further, why not
perform entire retail shopping in this way from one place and immediately. It is realistic to predict
that in the near future significant number of customers will perform complete purchase process from
their homes or from their workplaces. For example, customer could purchase a car even though he/
she did not even sit in it.
Figure 4. Basic principles of CRM.
The Knowledge Data Bases have been incorporated in large banks in last ten years or more (Turban,
McLean & Wetherbe, 2004; Accenture, 2015). They were originally intended to provide promptly and
efficiently answers to questions asked in the structure (in the bank). However, it was appeared idea
that this knowledge base, which every day increases and becomes more quality, can be efficiently used
also in providing adequate answers to clients. For this purpose, with the help of so-called Business In-
telligence, were made robots that respond to customers questions. It is most often performed on Web
pages, although there are also cases of developed and used speech robots. Therefore, modern client
raises very logical question that if this was possible to create and organize what is with possibility of
automated loan offering and granting and with other automated banking services.
Proposals what should be performed in this regard in order to reduce lacks of traditional approach
and to use possibilities of modern information technologies:
◆ Collect data from all available resources
It should be collecting data from all resources, especially on the Internet. Collect data such as
data that can be found on social networks and various other resources. That should be data that
contain information about existing but also potential clients. Locally it could be CIPS, Statistics,
APIF, Registry of loans, data bases of water supply companies, electricity distribution compa-
nies, local telecom providers, etc. That data should be processed well. Organize own data bases,
based on the Big Data concept, and connect them to existing CRM solution in order to obtain
64
EJAE 2019  16 (1)  59-76
as much as possible useful client data. Such could better organize services and create products
that will satisfy customers as much as possible. Based on that knowledge, choose appropriate
products for appropriate user groups, address them appropriately, and perform predictions of
their wishes and needs.
◆ Understand the power of mobile systems
Power of mobile systems could be illustrated, for example, with the information that the Barclays
Bank needed 13 years to collect 2 million clients in its Internet banking application and only 2
months for the same number of clients on the mobile application.
◆ Understand the power of social networks
The most banks not only do not use social networks, such as are for example Facebook, Twitter,
etc., but intentionally avoid them. That is practically big mistake. On the contrary, banks should
stimulate “chatting” through that social networks. They should to open their accounts and pro-
files on social networks and to obtain their followers. In that way banks would easier perform
marketing and expansion of information about their products. Also, those followers and others
who would give their comments on social networks can serve to bank, especially to department
for new products, as free of charge but very powerful testers of new products. It could be also
performed surveys on existing products, collection of helpful advices for improving products
and services, and similar.
But, it should be very careful that all this be performed in accordance with relevant laws and regula-
tive about personal data. For example, the GDPR (General Data Protection Regulation) is regulation
of European Union that prescribes way of manipulation with personal data of citizens (EU Regulation
2016/679) (European Parliament and Council of Europe, 2016).
THE INFLUENCE OF SOCIAL NETWORKS ON THE DEVELOPMENT OF BANKING

PRODUCTS
Large modern companies, such as Google, Apple, Facebook and similar, with their approach and
appropriate social networks, achieved that clients share their information with others.
Banks are either not trying to participate in social networks, or are doing it in a rather rigid and
incorrect way, trying to control them. It has a bad effect for banks. Banks should stimulate engagement
and the openness of their clients in order to obtain as much and as precise information as possible from
the clients for the banks’ own needs.
Below is a proposal for what should be done in order to use social networks to significantly improve
bank operations:
◆ Harness the power of the masses by organizing surveys about their own current and future
banking products
Use mass of bank active and potential users present on social networks for testing and as source
of future ideas. Such, it is simply possible to bank to convert that mass of clients into a kind of
department for new products, the department with great efficiency and with small investments.
But, wrong approach to that mass of clients can cause loss of clients confidence, permanently
or for a longer period of time. Therefore, all this should be performed very systematically and
very responsibly.
65
EJAE 2019  16 (1)  59-76
IMPROVING KNOWLEDGE AND SOCIALIZATION OF CLIENTS USING MODERN

INFORMATION TECHNOLOGIES
Let us consider the following situation. Let someone is bank client for 10 years and they ask him/
her in the bank for name of his/her father. Two problems may arise in such case. The first problem is
that, on the basis of a rigid too formal approach, it can be provoked reaction of the client of type “Why
are you interested in that?”. On the other hand, many companies such as are Google, Amazon, Apple,
Facebook, Instagram, LinkedIn and others, already know this information for long time period. They
were properly and unobtrusively obtained that information from the user, mainly through a hidden
question when creating user names, passwords, and similar. Another problem, possibly even bigger,
could be client reaction of style: “I am your client for ten years and you do not know anything about
me. You asked me this question many times.” Thus, the client correctly concludes that this bank does
not care about him/her. His/her natural reaction is to look for another bank what will be better finan-
cial advisor for him/her. It is evidently that companies Google, Amazon and similar companies know
more about us than the banks in what we are clients. It is clear that the problem is in the technology
of approach and access to the clients.
Proposal what should be performed to better use knowledge and socialization of clients and modern
information technology to improve bank operations:
◆ Change behaviour towards the client, be more accessible and open
It should allow even more relaxed way of bank staff dressing in order that also in this way be closer
to clients. A rigid, repulsive and too formal approach and treatment towards clients refuses them
and certainly does not contribute to the trust and closeness with bank, that the modern client
is looking for. One of examples is way of dressing of bank staff, suit, tie, and similar. Analyses
show that this generally could influence more refusing than that it attracts modern client. Also,
it is needed to look more in the eyes of the client during contact and less to look at computer
screen to concentrate on correct data entry. However, in order that bank employee be able to
perform all of mentioned in a quality way, it should be enabled to him/her by technology. The
bank should strive towards appropriate so-called “Front End” solution (an application used by
bank employees when serving client). That solution should to allow that with a few movements of
mouse employee can find and enter appropriate data, that use of keyboard be as less as possible,
that the application itself offers appropriate products according to characteristics of specific client
that adequate CRM will get either from CBS (Core Banking System) or from Big Data system.
This means that banks needs to know their clients, and to use the KYC (Know Your Client) prin-
ciple. There is no bank that does not insist on it. But the big question is whether it is the right way it
wants to perform it.
Proposal what should be performed to better know bank clients in order to improve operations of
banks:
◆ Gain more knowledge about clients through sophisticated built CRM solution, based on Data
Warehouse and Business Intelligence (Sajić, Bundalo, Bundalo & Pašalić, 2017)
The main goal is to have accurate and on time information about client, both financial and non-
financial, about his/her needs, wishes, and even also about his/her behaviour. That will enable
necessary information to those bank employees who come at the counter in contact with the
client, as well as to those who work on segmentation, who create and realize campaigns, according
to which they will act towards client in an adequate way. Also, it should enable to those clients
who want their activities with bank to perform remotely, by mobile devices, from home, from
work, when are at travelling, to can perform it in such a way.
66
EJAE 2019  16 (1)  59-76
It should be also used possibilities of so-called socialization of clients. It means that it should be
find ways how to convince client to believe that bank employee will offer him/her the best solution.
Proposals what should be performed to better use possibilities of socialization of clients in order to
improve operations of banks:
◆ Create mutual trust
It should be understood that power of the Internet and mobile devices is such that client can to
obtain adequate information, in a very simple way, very quickly, almost on the spot, about same
or similar products that are offered to him/her from other banks. This practically means that it
should be offered products to client with reasonable prices and other conditions. It should not
try at any price that product be sold to client, especially when it is known in advance that client
will not use it and that product is not suitable for client. In practice it is very often case with
sale of the package products. Managers in banks should stop practice of stimulating sales of
products at all costs. For such attempts of sales, on the contrary, they have to determine penalty
counter-measures. Client will realize that bank sold him some product unnecessarily, that he/
she does not use it, but pays as is using it. Client will then feel cheated and perhaps decide to
change the bank. That is very often case in banking, selling products without previous analysis
of needs of clients. The most common case is with electronic payment cards where to client are
issued and sold, for example, both Visa and Master credit cards, but client uses only one of the
cards. Similar situation is also with issuing and selling revolving and instalment cards that are
usually not used by client. Very similar things were also done by mobile providers who offered
the package services. They were, for example, to user who is their client for about decade or
more in the package among others offered up to 3000 SMS messages per month. But, if they
were performed statistical analysis of amount of messages that client sends monthly they would
see that it was only about 10.
◆ Stop practice of treating clients as they are goods, but try to satisfy real needs of client
When bank obtains customer trusts in such a way then it can count on long-term cooperation.
Client will not leave bank so easily just because someone else offers some more financially fa-
vourable services at a certain moment, because the trust is created for years.
TRANSFORMATION OF BANKS AND THE INCREASED NEEDS OF CLIENTS
The most surveys that are carried out and that can be found in literature show that younger clients
mostly say that banks do not know their needs. Also, the elder population of clients is not satisfied with
degree of assistance of bank in creating their financial needs and strategies. As one recent and intere-
sting example of that can be seen conclusion of one study. According to research of Cisco company
with the title “Reimagining Digital Bank” it can be seen that 43% of clients in USA believe that their
bank does not know them and therefore cannot provide them personalized service. In addition, 31%
of clients believe that their bank does not help them to achieve their primary financial goals. Also, 20%
of examined said that they will change banks and traditional financial institutions with personalized
services of so-called “Internet of Everything (IoE)” type.
Proposal what should be performed to better coordinate activities of banks with growing customer
needs:
◆ Accelerate transformation of banks
Accelerate bank transformation even at cost of achieving worse financial results in transfor-
mation period. That could be problem if owners of bank do not take clear position about the
transformation. It is well known that owners of large number of banks are small shareholders
67
EJAE 2019  16 (1)  59-76
and that there is no one recognizable owner who would have significant number of shares. That
is more common for European banks than for US banks. The problem with banks with such
type of capital could be when it is necessary to influence on Bank Management to begin faster
transformation. Namely, mandates of Bank Managements are mainly on 4 year period. For such
large bank transformations as is the one proposed and described here 4 years is short period.
Also, effectiveness of success of existing Bank Management is measured in the period of their
mandate. Therefore, any Bank Management will very difficultly and unwillingly decide to go on
more radical transformation moves what may give worse results in initial series of years, even
if later successes would far exceed previous temporarily weaker results. That really slows down
processes of transformation and can lead banks to large problems. It is therefore necessary to
look for effective ways how Bank Managements could be free of existing fear and be stimulated
to accelerate unavoidable processes of bank transformation.
MODERN RETAIL
Modern retail of products and services, such as are performed by big companies Apple, Amazon,
Google, eBay, etc., no longer implies only sale in the stores. It implies also use of such stores as means
of creating followers of a brand, creating loyalty and belonging to a particular brand. Philosophy of
so-called physical presence in the store is more and more becoming an outdated category, economi-
cally unprofitable and unsustainable, especially when products are becoming more and more “virtual.”
Practice of obtaining new clients at all costs, while neglecting keeping of existing ones, returns to banks
as a boomerang. Modern IT solutions, advanced CRM and Front End solutions, mobile applications,
Big Data and similar, and modern tools for achieving KYC approach are needed for keeping clients
and obtaining clients loyalty.
It is necessary to maintain close relationship with existing clients and to increase total number of
clients. This can be achieved by mobile applications, remotely. It is proposed that it be accomplished
in the following way:
◆ Working, as best as possible, and as profiled as possible, on the segmentation of clients
It should be performed with help of Big Data, social networks and strategies of addressing to
different groups of clients,
◆ Working on permanent improvement of speech robots
Robots that answer on clients questions (so-called Chat boot) should be permanently developed
and improved,
◆ Gathering in the Call Centre experts for the products
That experts should to answer live to clients by chatting, video and phone calls or postponed by
e-mails, video help clips, etc.
MODERN BANKS AND THE CONCEPT OF THE DIGITAL BANK
The main task of standard Retail Bank in the past was to distribute live money (so-called cash)
through network of bank branches. The basic task of modern bank now is ability to be constantly on
service to customers with all bank products on the principle of availability of 24/7/365 basis.
It can be shortly said for fully digital bank that the entire banking business that bank has in its scope
of activities digital bank performs in the cloud, via the Internet. There are no offices (physical places
and locations) in what the bank would receive and serve clients. Accessibility of the bank and services
68
EJAE 2019  16 (1)  59-76
is permanent and really of 24/7/365 type. Many banks, still traditionally oriented, usually post on their
Web pages information about availability of 24/7/365 type. But, it is only partially correct and is valid
only for certain types of services and products.
Mobile phones and other types of mobile devices are no longer just technological fashion trend.
They are means that connect people on distance, that connect friends, relatives, business partners.
Thus, the mobile devices become unavoidable also as means for realizing of banking operations. It is
obvious that the mobile devices will very soon become primary means for realizing banking operations,
as in some spheres of human activities they already are. Also, it is obvious that thus bank also will soon
become digital bank (Marous, 2013; Accenture, 2015).
The digital bank is partly also social bank (Skinner, 2014). For example, it is interesting how many
newspapers are being purchased and reading in this time. It is clear that this is less and less because
their news, while they be printed and reach users, are mostly already out dated and worthless. Various
types of Internet social mobile media have already published them. The social media long ago do not
exist and live from subscriptions and similar things. They mostly serve to stimulate clients engagement
and activities, through which, most often in an indirect way, they come to financial benefit. It is, there-
fore, clear necessity for digital bank to be connected with social media and social networks in finding
useful information and in finding some of future ways for realization of financial earnings and profit.
So, there is need to create links between banks and various social networks in order to exchange useful
information and to obtain new useful information and knowledge about clients and groups of clients.
Banks can use social media and social networks in different ways:
◆ As a sources of information about clients,
◆ As a sources of information about different trends,
◆ As a polygon for testing of new ideas and new products,
◆ As a polygon for development of new products by launching information about new products
and gathering reactions and opinions about it,
◆ As a place for popularization of their products and services
However, bank should here act with extreme care because social media were proven as very
powerful in popularizing of any topic. So, it should take care not to get the reverse effect, not to
start an avalanche of bad criticism on account of services and products of the bank, what could
have great negative consequences for that bank,
◆ As a source and an example of new ways of performing operations and providing services.
TRANSFORMATION OF BANK STRUCTURE AND ROLE OF MOBILE INFORMATION

TECHNOLOGIES
Development and application of information technologies significantly influence on needs and way
of transformation of bank from traditional into digital one. It is clear that this will also cause significant
changes in structure of bank.
It is proposal here and it is also expectation that in process of transformation the structure of banks
should be transferred from vertical to horizontal one. Therefore, it is proposed here that in structure
of bank should be performed transformation of sectors and departments into teams, organized and
gathered around individual banking products. The teams should look more like project teams than like
current banking sectors. There would be very few workers outside of these teams, mostly common ser-
vices and management. Figure 5. shows proposed model of structure of modern digital bank. It is more
similar to some production structure than to the current bank (Sajić, Bundalo, Bundalo & Pašalić, 2017).
69
EJAE 2019  16 (1)  59-76
With banking experts for each particular product in the teams will also be experts from IT techno-
logies who are connected with that product, experts from so-called data science, experts for marketing
of that product type, experts from Call Centre. Proposal is that, with all of them, in the team also be
engaged mathematician/statistician and psychologist/sociologist. They should statistically and psycho-
logically/sociologically shape and from the expert point of view interpret obtained data. Based on that
they will propose guidelines to the marketing and others in the team.
It is clear that in the transformation of structure of bank the IT sector will also go through significant
changes. It is proposed here that the most part of the IT sector be simply divided by product teams. As
some specific sector or department it should remain technicians/operators and administrators who
work on general activities (e-mail, the Internet, active directory environment, etc.).
It is also evident that in such new structure of digital bank outsourcing of the IT sector becomes
impossible. It should be already clear to everyone that technology on what are based all more important
jobs and work places in the bank can not be outsourced. IT sector for long time is no more bank service
but it acts more like its bloodstream. It may sound strange but it is easier to outsource the Corporate
part of bank than the IT part. Something just like that will most probably happen in near future. For
example, the banks for what it will no longer be profitable will transfer business of payment transactions
to someone else with whom they will make contract. It could be for example some FinTech company,
PayPal for example. However, it is absurd and impossible to expect that bank can perform outsourcing
of operations of IT sector in the future. If the bank would even succeeded to do it, having in the mind
nature of digital bank and ways of its operation, nothing more would prevent such an outsourcing
partner from becoming bank itself, because it was already taken over all important bank jobs.
Figure 5. Proposed model of structure of modern digital bank.
Also, it is evident and clear that the Bank Managements in the modern digital banks will have to
have IT experts in their composition. Or the Bank Management will post them as so-called Chief In-
formation Officers. They will not formally be in the Bank Management but will have authority as well
70
EJAE 2019  16 (1)  59-76
as the Bank Management in the areas of IT technologies that they cover. It is already evident in present
banks that there is huge lack of IT experts, especially in part for organizing and performing projects.
The great majority of banking projects as a very significant have IT component. That creates difficulties
for those who initiate, organize and implement projects but do not have necessary IT knowledge. When
such project comes to the head of IT sector it is usually then too late to correct created errors. Also, the
head of IT sector does not have sufficient authority to impose an opinion that he/she considers to be
correct based on his/her expertise and expertise of his/her team.
MODERN BANKING APPLICATIONS AND CORE BANKING SYSTEMS IN THE FUTURE
The biggest transformation in information technologies and in information system (IS) in bank will
not happen either in interface nor in some special technology. It will be in approach which must enable
easier anticipation of needs of clients and their habits and customs. It is proposed here that in the future
it more goes to build such API functions that will be easily fitted into various heterogeneous systems. It
is proposed that the IS of the bank be decomposed into the components, into the products. On the basis
of it, the banks could be also profiled and could perform only some types of banking operations, that are
profitable for them. With other jobs bank will not deal at all or will, through the API interface, connect with
other banks or FinTech companies, specialists for that type of services. The bank will transfer them concrete
work while taking its share of financial compensation in distribution chain. Only members of large banking
groups will, maybe, remain to deal with complete banking operations as it is also situation now in practice.
Regarding the API functions, in one survey can be seen that 59% of banks declared that so-called
“open API” technology will have great impact on modelling their products. Approximately 67% of banks
stated that API already has an impact or that it is expected in the next 2 years. While 39% examined stated
that they already allocate large percentage of investments in the implementation of API technology.
The proposal of structure of the IS of modern digital bank is shown in figure 6. (Sajić, Bundalo,
Bundalo & Pašalić, 2017).
It can be seen from figure 6 that here is proposed and predicted that communication with data that
is coming from clients first realizes the CRM and then the CRM forwards data to the CBS. It is ensured
in this way that the CRM in the real time analyzes incoming data and creates some conclusions based
on it or only forward data to the CBS.
Figure 6. Proposal of structure of information system of digital bank.

71
EJAE 2019  16 (1)  59-76
PROPOSAL OF WAY OF BANK TRANSFORMATION FROM TRADITIONAL TO DIGITAL

BANK
In addition to already mentioned arguments that are caused by huge population of digital mobile tech-
nology and changes of habits and wishes of clients, there is also one more important fact why it is natural
process of transformation of traditional into digital (cloud) bank. If it is looked carefully, it can be seen
that almost all banking products and services have already become of virtual character. With withdrawal
of “the cash” from circulation the last “solid” banking product is also lost. It is known that every virtual
product and service can be algorithmically described and therefore software processed and automated (API
functions). That is why a logical question arises in relation to fact that banks usually have large number of
branches, most often in their possession. The proposed solution is in performing transformation of bank
from traditional to modern (digital) bank. Intermediate phase in that would be so-called hybrid period.
One representative example of failed attempt of transformation is transformation of traditional
banking branches into places for sitting, drinking coffee and talking about banking activities, according
to model applied for bookstores. Clients that come into bank offices come with concrete intention and
do not want to spend more time there than it is needed. They want as soon as possible to complete
activities they have planned. They probably do not have enough time and have some other obligations.
This is basic difference in comparison to similar, but successful, model of transformation of bookstores.
Even some conveniences, such as free Wi-Fi, free coffee and similar, do not hold clients in bank more
than it is needed. Simply, clients did not come with intention to relax but to perform necessary activity
in the bank as quickly as possible.
It is proposed here one completely different way of transformation of bank branches. Some of re-
asons for that transformation are:
◆ There is less and less money in the branches, the money becomes data, and data must be central-
ized to be usable.
◆ Branches will be less and less sales and transaction centres, and more and more will become
centres where consultations on more complex products are performed.
◆ The products of the bank, except of the cash, by their nature are virtual and then it is much easier
to organize sales and perform services via the Internet.
Newly formed banks and small banks with a few branches will much easier perform transformation
into hybrid or digital banks. Large banks will have many problems while be performing transformati-
on. What banks are bigger the transition process will last longer. Some of the world largest banks are,
probably calculating about needed time for transition, decided that for them is more profitable to create
completely new digital bank that will appear on the market immediately. That bank will acquire part
of new clientele that is already ready for such type of bank and prevent leaving of part of the existing
clientele who will automatically move to the digital bank.
It is proposed that the process of bank transformation be divided into two periods: hybrid period
(Weber, 2014) and period of creation of the digital bank, and that the process be realized in that order.
Hybrid period
It is proposed here that the hybrid period of transformation of banks includes the following phases
and activities:
◆ Replace traditional banking counters in the bank branches with multifunctional ATM devices
Besides issuing money that devices can also receive money, perform payments and can gradually
increase number of banking services. At the start, it would be desirable that this devices have
72
EJAE 2019  16 (1)  59-76
microphone handsets and ability to reproduce video clips that are essentially help reproductions.
Such equipped that devices would be able at a later stage, when will no more be employees at
place of installation of that devices, to have possibility for connection with the Call Centre for
purpose of providing assistance and consultations to clients.
◆ Train employees to become consultants and providers of services
Train them to be more consultants and providers of services and less sellers of services.
◆ At places where the settings of described devices creates sufficient surplus of employees shorten
working hours of employees and organize work in more shifts
It should be performed in order to provide as quality as possible and as approximate as possible
services of the 24/7/365 type, and in order to keep as much as possible employees.
◆ ATM devices, located in separate locations outside the branches, attempt to transfer to owner-
ship of specialized firms
Such firms will necessarily appear on the market and their primary business will be working with
ATMs. It is already known that ATMs are becoming more cost than they itself earn. Reasons for
that are increases in cost of renting space, insurance and transport of the money. If it is realized
by one specialized firm, its costs will be the same or lower than for the bank, but it will be used
the same device for several banks with which it makes contracts. On the other hand, bank will
such expand its network of ATM services and at same time reduce costs.
◆ Transform branches and agencies into places to provide consultations
It should be performed for purpose of better selling products and raising level of bank services.
◆ Try to sell or rent selling places that appear insufficiently visited
It should try to sell or rent places that are non profitable in terms of contribution to the overall
image and operation of the bank.
◆ Introduce and permanently upgrade CRM solutions in information system of the bank
It should be performed in order of better and faster segmentation of clients, connected in groups
according to some characteristics and, accordingly, creating successful campaigns for purpose of
selling and popularizing banking products and services. Good CRM solutions will enable more
efficient usage of information about clients financial habits and achievement of KYC strategy
in full sense of that word.
◆ Introduce and permanently upgrade DMS solution of the bank
It should be performed in order of more efficient archiving of banking documents, their faster
searching and savings in physical space, paper and everything else that includes the archive in
physical sense. DMS is very useful also for possibility of automating of banking jobs.
◆ Permanently work on the automation of banking operations
It should try to perform it in all parts of the banking business.
Period of creation of digital bank
It is proposed here that the period of creation of a digital bank includes following phases and activities:
◆ Synchronously with phases of hybrid period, strengthen centralization of bank with core in Call
Centre
The reason for this is that through the Call Centre will be provided consulting and help services
to clients. It will be performed either through educational video clips, by telephone, via live video,
by chatting or by email correspondence. By contact via the Call Centre clients will be able to get
73
EJAE 2019  16 (1)  59-76
answers on their questions and consult themselves from the first hand, from the most specialized
people and experts related to the particular product. In the traditional bank system the client
received information from the Account Managers or Personal Bankers, who went to trainings
to mentioned experts. Although they can be very capable, they are still so-called second hand
experts. Such, it is lost on the quality of presentation of a particular product.
◆ eBanking and mobile banking applications merge into one, at least as far as users are concerned
The goal is that user when is using eBanking or mobile application not notice difference at all, that
can to start at one and to end on the other, that training for using is the same for both, and similar.
◆ As tempo of harmonization of legislation will allow, change products and services in a way that
they can be executed and used remotely
Products and services should also be transferred on mobile applications.
◆ Create a flexible information system
It should be performed through the API functions. It should be performed such that it be eas-
ily compatible with other applications, especially with those already offered by the so-called
FinTech firms, because that firms are leading in innovative services. There are very few of banks
that have such development teams that can parry to FinTech firms. If they have them, it is only
in certain banking business domains. It is more profitable to have the ability to provide some
service on time, than at all costs to develop it. The PSD2 EU directive supports this conclusion
(Backbase, 2017).
◆ Reorganize bank such that it has far less vertical and far more horizontal elements
It can be seen in figure 1. problem and complexity of organizing cooperation between sectors in
traditional bank, because all cooperation goes through the central parts. It is therefore necessary
to reorganize current banking sectors (Retail, Corporate, IT, etc.) into more efficient teams con-
centrated around products or product groups. Only the most necessary personnel that serves to
provide common internal services to that teams should be leaved in the vertical part of the struc-
ture. Also, very small number of managing posts that serve to effectively connect that teams into
the structural unit should be in the vertical part. Programmers, development teams, marketing,
sales teams should be grouped by that product teams. Thus will be provided narrow specializa-
tion of professional personnel, their greater efficiency and better teamwork. Such new proposed
structure of the digital bank is shown in figure 5. (Sajić, Bundalo, Bundalo & Pašalić, 2017).
◆ Introduce the “Big Data” concept into the information system of bank
It should be performed in a way to enable better collection of both financial and other data about
clients of the bank, according to the model of the world known search engines, Internet shops,
social networks, etc. For providing adequate services to clients, it is not enough only knowledge
about the financial characteristics of the client but also other knowledge, especially related to its
purchasing habits. So, it is necessary and desirable to perform as soon as possible transformation
of banks from financial data banks into data banks. This will also cause employment of some of
previously unused employee profiles in banks. Beside “data science” specialists that would be ex-
perts for Big Data, it will be need to classify and statistically process the data. Such, it opens places
for profiles of employees of mathematician/statistician type and psychologist/sociologist (or of
similar education) type. They will provide correct interpretations of statistically processed data.
◆ Permanently work on development and introduction of new banking services and products
It should be performed on application of information and mobile technologies (Sajić, Bundalo,
Bundalo & Pašalić, 2017; Sajić, Bundalo, Bundalo & Pašalić, 2018; Sajić, Bundalo, Bundalo,
Stojanović & Sajić, 2018; Sajić, Bundalo, Bundalo, Sajić & Kuzmić, 2018).
74
EJAE 2019  16 (1)  59-76
CONCLUSIONS
The need for anticipated changes in the banking sector is no longer questioned. The way that this
will be performed can vary in accordance with specifics of concrete bank. One general principle for
transformation of banks from traditional into digital banks that is practically the most expected and
the most realistic possible way is proposed and described in this paper. Tempo of implementation of
all activities of the transformation will depend mostly on tempo of adoption of necessary legal regula-
tions related to the digital business. Such regulations are digital signature and other similar regulations
that will remove need for physical visits of clients to bank branches. Also, it will depend on degree of
pressure of clients on banks for gaining ability to use bank services remotely. Proposal is that banks
already now perform all activities that they are able to do in order to more prepared meet that changes.
Also, banks should even to initiate that changes in accordance with their possibilities. Cooperation
and symbioses of banks and telecom operators also have great chances to provide good results in these
areas, especially in the case of local and regional structures.
The process of transformation will be more complex and slower if bank is more diversified, if it has
larger network of branches and agencies. From that reason, some large world banks use another method
in the transformation. They were established totally new digital bank. That digital bank in parallel with
traditional bank operates on the market. It tries to satisfy all those clients who are already prepared to
move to new way of operation with bank (remote operation). At the same time, they will also get some
new clients from some other banks that still do not offer such conditions of operation. It is expected
that, over time, this newly established digital banks will take over leadership of their traditional banks
founders and that huge majority of clients will move over time to that new digital bank.
The trend among clients to complete the entire centralized retail business has become more and more
noticeable. For example, a buyer wants to buy new kitchen. He/she wants that from one place select
model of kitchen that suits to him/her and that at the same place resolves commercial conditions (to
choose loan and perform payment). If banks do not set themselves as leaders in this process, someone
else will set up and take over that business. Companies that have successfully developed social networks,
search engines, and Internet shopping could become new retail leaders. Such companies have greater
potential and possibility to take over the retail business and, therefore, retail banking in the future. Banks
need to keep this in the mind, to develop their own appropriate strategy, and to transform themselves
in that direction as soon as possible.
REFERENCES
Accenture (2015). Being digital: Digital strategy execution drives a new era of banking. Retrieved Jun 30, 2018, from
https://www.accenture.com/us-en/insight-digital-strategy-new-era-banking
Backbase (2017). The PSD2 Playbook - Backbase. Retrieved Jun 30, 2018, from https://backbase.com/wp-content/
uploads/2017/04/Backbase_The_PSD2_Playbook.pdf
European Parliament and Council of Europe. (2016). Regulation (EU) 2016/679 of the European Parliament and of
the Council of Europe of 27 April 2016 on the protection of individuals with regard to the processing of per-
sonal data and on the free movement of such data and on putting out of force of Directive 95/46/EC (General
Data Protection Regulation). Retrieved Jun 30, 2018, from https://eur-lex.europa.eu/eli/reg/2016/679/oj
Haase, S. (2016). 4 unconventional ways to use your CRM software. Retrieved Jun 10, 2018, from https://www.
entrepreneur.com/article/279015
King, B. (2012). BANK 3.0: Why Banking Is No Longer Somewhere You Go But Something You Do. Hoboken: Wiley.
Marous, J. (2013). Top 10 Retail Banking Trends and Predictions for 2014. Retrieved Jun 3, 2018, from https://thefinancial-
brand.com/36367/2014-top-bank-trends-predictions-forecast-digital-disruption.
75
EJAE 2019  16 (1)  59-76
McMillan, J. (2014). The End of Banking Money, Credit, and the digital Revolution. Zurich: Zero/One Economics.
Sajić, M., Bundalo, D., Bundalo, Z., & Pašalić, D. (2017). Digital Technologies in Transformation of Classical
Retail Bank into Digital Bank. In 25th Telecommunications forum TELFOR 2017. 21-22 November 2017
(pp. 1-4). Belgrade: Telecommunications Society.
Sajić, M., Bundalo, D., Bundalo, Z., & Pašalić, D. (2018). Using Digital and Mobile Technologies for Increasing
Efficiency of Financial Institutions. Acta Technica Corviniensis-Bulletin of Engineering, 11(3), 39-42.
Sajić, M., Bundalo, D., Bundalo, Z., Stojanović, R., & Sajić, L. (2018). Design of Digital Modular Bank Safety
Deposit Box Using Modern Information and Communication Technologies. In 7th Mediterranean Con-
ference on Embedded Computing MECO 2018. 10-14 June 2018 (pp. 107-112). Budva: IEEE.
Sajić, M., Bundalo, D., Bundalo, Z., Sajić, L., & Kuzmić, G. (2018). Programmable Electronic Payment Card
Transaction Limit Implemented Using Mobile Electronic Technologies. In 7th Mediterranean Conference
on Embedded Computing MECO 2018. 10-14 June 2018 (pp. 186-190). Budva: IEEE
Skinner, C. (2014). Digital Bank: Strategies for Launching or Becoming a Digital Bank. Singapore: Marshall Cav-
endish Business.
Turban, E., McLean, E., & Wetherbe, J. (2004). Information Technology for Management - Transforming Business
in the Digital Economy. Hoboken: Wiley.
Weber, M. (2014). 5 Tips for Your Next Branch Transformation Project. Retrieved Jun 5, 2018, from https://thefinan-
cialbrand.com/39641/bank-credit-union-branch-design-tips.
POTREBA I PREDLOG NAČINA TRANSFORMACIJE KLASIČNE U

DIGITALNU BANKU UZ POMOĆ INFORMACIONIH I MOBILNIH
TEHNOLOGIJA
Rezime:
U radu se razmatra i opisuje potreba da se praktično i efikasno realizuje
transformacija standardne klasične banke u digitalnu banku i način
transformacije korišćenjem informacionih i mobilnih tehnologija. Rad
ima za cilj da pruži jasne dokaze o nužnosti transformacije banaka iz
sadašnjeg klasičnog oblika u novi oblik organizovanja i pružanja usluga,
u tzv. digitalnu banku. Pri tome je takođe naglašen veliki uticaj mobilnih
digitalnih informacionih tehnologija na celokupni finansijski sektor.
Objašnjeni su problemi koji nastaju zbog razmimoilaženja postojeće Ključne reči:
koncepcije razvoja banke i načina na koji moderni klijent želi da mu transformacija banke,
se pruži usluga, shodno mogućnostima modernih mobilnih informa- informacione i mobilne tehnologije,
cionih tehnologija. Zajedno sa razlozima koji zahtevaju promene, dati klasična retail banka i digitalna
su i predlozi kako da se praktično izvrše te promene i transformacija. banka,
Predstavljena su osnovna načela prelaska banke iz klasičnog u digitalni hibridni period transformacije
oblik, preko tzv. hibridnog perioda transformacije, te predložena neka banke,
konkretna rešenja. period stvaranja digitalne banke.
76
EJAE 2019, 16(1): 77-98
ISSN 2406-2588
UDK: 005.334:009.96
338.124.4(596.2)
DOI: 10.5937/EJAE15-19262
RESULTANT EFFECT OF CRISIS-DRIVEN HR STRATEGIES APPLIED

DURING CURRENT ECONOMIC CRISIS IN OMAN –
AN HR MANAGER’S PERSPECTIVE
Venkat Ram Raj Thumiki1, Ana Jovancai Stakić1,*, Rayaan Said Sulaiman Al Barwani2
1
Modern College of Business and Science,
Muscat, Sultanate of Oman
2
Franklin University,
Columbus, Ohio

During an economic crisis, companies redesign their functional strategies
Received: October 23, 2018
for survival and growth. This paper aims at identifying HR practices
Correction: December 5, 2018
adopted during the current economic crisis in Oman, and explains the
Accepted: April 8, 2019
resultant effect of crisis-driven HR strategies from an HR managers’
perspective. Primary data was collected online from 112 HR manag-
ers representing various manufacturing and service organizations in
Muscat, Oman. It was found that HR managers perceive a greater im-
pact of economic crisis on their businesses rather than other types of
crises such as natural and technology crises. They think that managing
employees during an economic crisis is relatively easier than managing
other resources and other stakeholders. Changing HR practices during
economic crises include, abeyance of employee benefits and cutting costs
on employee recreation. Knowledge management activities have been
increased and non-monetary motivation techniques are being adopted
as a part of crisis-driven HR management. Increased employee engage-
ment and enhanced corporate image among employees were identified Keywords:
as the resultant effect. Testing the hypothesis revealed that cost cutting economic crisis,
on employee recreation is significantly higher in large organizations, abeyance,
job redesign activity is significantly higher in small organizations, while job redesign,
large organizations find it difficult to deal with employees during pe- non-monetary motivation,
riods of crisis more so than small and medium sized organizations do. knowledge management.
77
*E-mail: anastakic@mcbs.edu.om
EJAE 2019  16 (1)  77-98
THUMIKI, V. R. R., STAKIĆ, J. A., AL BARWANI, R. S. S.  RESULTANT EFFECT OF CRISIS-DRIVEN HR STRATEGIES APPLIED DURING CURRENT
ECONOMIC CRISIS IN OMAN – AN HR MANAGER’S PERSPECTIVE
INTRODUCTION
In the business world, where crisis is common, how an organization acts and responds to the crisis
and how it motivates its employees (Silverthorne, 2018) speaks about how successfully it will survive
(Argenti, 2002). Crisis management is a process that includes, understanding crises before they occurs,
preventing crisis situations whenever possible, managing business functions during crises and handling
post-crisis situations (Augustine, 1995). There are various types of crises, such as natural crises, tech-
nological crises, economic crises, crises of malevolence, etc. (Hart et al., 1993). Cyclone Gonu created a
natural crisis in Oman in 2007 that resulted in a temporary shut-down of the Sohar and Qaboos ports
and lowering operational level of oil refinery petrochemical plant in Sohar (Fritz et al., 2010). Emma
Storm caused disruption to the supplies and affected the retail industry in England (Woods, 2018).
A malevolence crisis was recorded in Sony Picture Entertainment in 2014, due to a cyberattack that
leaked information regarding the release of its upcoming films (Peterson, 2014). Another example of
a malevolence crisis is the ‘Ransomware’ attack committed by a hacker using the ‘WannaCry’ mal-
ware (Graham, 2017). Along with macro environmental factors, such as oil price fluctuations, internal
factors such as organizational misdeeds, mismanagement and mishandling of situations could also
cause crisis in a company (Coombs & Holladay, 2002). An important aspect to note is that, whatever
the type of crisis may be, the impact will be on one of the key stakeholders, i.e., employees (Coombs,
2004) and lack of knowledge of HR policies among employees could lead to aggravating the situation
(Narayanan et al., 2018).
Current research addresses the role of HRM in times of economic crisis through capturing the
crisis-driven HR strategies and further understanding the resultant effect of those strategies on human
resources from the HR managers’ perspective.
The current economic crisis in Oman started in 2014 with the reduction in oil prices (Elrich, 2015)
as Oman depends on oil for more than two thirds of its budget (ibid). This lowered the investments
in the oil sector and reduced the spending by the Government (The National, 5 March, 2015) which
resulted in decelerating economic growth in the Sultanate in 2016 (fanack.com, 21 Feb, 2018). Though
the available literature indicates betterment of the economic situation (Focus economics, 10 April, 2018),
forecasts and experts’ opinions indicate that the Omani economy has not yet entered into a post-crisis
situation (Focus Economics,) and is still in an economic crisis (Times of Oman, 10 January, 2018).
LITERATURE REVIEW
According to a research by Fink (1986) which was further emphasized by Bergstrom (2018), among
organizations that have not planned for a crisis and are unprepared for potential crises, the crisis lasted
two-and-a-half times longer than those companies that did have a plan in place. Spillan and Hough
(2003), who conducted a study in Pennsylvania and New York found that 15% of companies had crisis
management teams. An important finding from their study, which is relevant to Oman, is that the small
business owners showed a slight apprehension towards crises which could lead to unpreparedness. The
following sections present the reviewed literature relating to economic crises, and the role of HRM and
HRM strategies pre, during, and post crisis.
As HRM is one of the most crucial functions that affect the organizational efficiency (Noe et al.,
2011; Ochetan & Ochetan, 2012) and employment relations (Kirov & Thill, 2018), it is important to
emphasize its role in crisis management (Barton, 2000; Luxford, 2008). Functional managers need to
devise crisis-specific strategies in their respective functions in which the HR department’s involvement
is imperative (Fodor & Poor, 2009). During a crisis, as employees may not voice their opinion (Prouska
& Psychogios, 2016), the role of the HR department becomes crucial (Wooten & James, 2008) because
78
EJAE 2019  16 (1)  77-98
this department is in-charge of handling employee affairs, formulating rules and regulations, employee
training and development, etc. (Burma, 2014). Some of the commonly applied HR strategies during a
crisis include, downsizing, cost cutting, postponing benefits, etc. (Howard, 2013; HRMA, 2014), which
could influence employee perception towards work (Coombs, 2007).
Pre-crisis HR strategies: The HR department needs to be environmentaly sensitive (Vardarlier, 2016)
and may have to identify a crisis before it occurs because it will certainly affect their human resources
(Baubion, 2013). After estimating and defining the potential crisis, the HR manager needs to devise
appropriate crisis response plans, crisis communication plans, crisis management teams; the manager
may have to revisit HR policies and strategies (Workplace Info Writers, 2006). The HR department in
association with various functional heads must engage its personnel in multiple operational training
programs that enable them to prepare for the potential crisis from all dimensions (Coombs, 2007).
HR strategies during crisis: According to Hendry and Pettigrew (1986), companies can survive a
crisis through effective management of human resources. In-crisis HRM strategies include, redesigning
organization structure, providing necessary knowledge and training to employees regarding performing
during crisis, etc. (Ochetan & Ochetan, 2012). HR departments need to ensure their employees well-
being, job security, and enhance the value of human capital as a part of in-crisis HR strategy (HRMA,
2014; Howard, 2013). Crisis communication plays an important role, as it requires expertise and special
skill (Coombs & Holladay, 1996). The HR department is the contact-point between a company and
its employees (Burma, 2014). The first step towards crisis communication with employees during a
crisis is to communicate with the right people in the team about the situation so that they can handle
the relevant issues (Coombs & Holladay, 1996). Employees of HR departments who speak on behalf
of the company need to be trained in crisis communication (Fener & Cevik, 2015) so that they can
effectively communicate with the external stakeholders during a crisis. Crises influence organizations’
outlooks on managing situations during a crisis (Argenti, 2002), and the result is that the companies
started building crisis management teams (Kondrasuk, 2004).
Post-crisis HR strategies: By being environmentally sensitive, the HR managers need to identify the
end of the crisis, and may have to plan for expansion and growth strategies. Post-crisis HR strategies
include, recovery plans, increased recruitment of manpower, redesigning the organizational structure,
etc. (Matsuka, 2010), along with effective supervisor support that could positively influence the em-
ployees’ perception of the the organization (Straub et al., 2018).
RESEARCH METHODOLOGY
Primary Data-Questionnaire design: Primary data was collected through administering an online
questionnaire created using Google Forms. It contained a question on the number of employees along
with a question on the sector in which the organization was operating. Questions were aimed at cap-
turing the awareness level of HR managers of the current economic crisis, their perception of impact
of economic crisis on human resources of the organization, their HR practices during the current
economic crisis, along with the problems that they had been encountering as a result of crisis-driven
HR strategies. A monadic rating scale (Smith & Albaum, 2010) was used to understand HR managers’
rating of difficulty level of dealing with various resources during crises along with identifying their
perception of the resultant effect of their crisis-driven HR strategies. A semantic differential scale was
used to identify HR managers’ level of implementation of various HR strategies during the current
crisis (Saunders et al., 2007).1
1 The dataset is publicly available via following web link: https://data.mendeley.com/datasets/bdbntgy6fc/draft?a=cb2e3e9b-

516b-4189-9894-8095fb00f9f0
79
EJAE 2019  16 (1)  77-98
Reliability and Validity of the Questionnaire: The instrument used to collect primary data from
HR managers was tested (Kothari, 2004) using two methods, firstly, the test of face validity (Saunders
et al., 2007) where in an expert has reviewed the questionnaire, and suggested changes and secondly,
through calculating Cronbach’s Alpha (Cronbach, 1951), which is presented in the reliability section.
Sample Plan: An online questionnaire was distributed to more than 250 respondents using snowball
sampling technique (Smith & Albaum, 2010) in which the respondents (HR managers in this case)
were requested to send the questionnaire to their contacts. However, due to a low response rate (Nulty,
2008), only 116 valid responses were received out of which 112 responses were used in data analysis.
Four responses were excluded from the analysis, as they are identified as a ‘non-representative’ sample.
Reason for Excluding Four Responses: On the questionnaire, the item measuring HR Managers’
perception of impact of different types of crises on their business as ‘Not applicable’ as one of its op-
tions. Out of a total of seven types of crises presented, one or few of the crises may not be applicable to
some types of businesses. Hence, the ‘Non-applicable’ option was included. Out of the 116 responses
received, four respondents indicated that all seven types of crises were not applicable to them. Thus,
they become a non-representative sample. The reason could be either their businesses or the organiza-
tions are not impacted by the crisis, or that they did not understand the question. In both cases, the
responses do not fall under the scope of the research. Hence, are not included in the analysis.
Statistical Analysis: The research output of the current research is explained through quantitative
analyses using frequency distribution and percentages. Descriptive statistics, including mean, median,
and standard deviation are used to describe the nature of the findings. Hypotheses were tested using
ANOVA to find the differences between multiple groups and a T-test to find the differences between
two groups of respondents.
Secondary Data: Various sources of secondary data that are used for this study include, websites
of companies and newspapers (Times of Oman, Oman Observer, The National). As part of secondary
data information regarding HR strategies during crises was collected from published journal articles
and reports by experts (Saunders et al., 2007).
Data Analysis Software: Data analysis software, SPSS (17.0) was used to analyse the collected data
using all relevant statistical tools and techniques (Field, 2012).
RESULTS AND DISCUSSION
The following section focuses on analyzing the data collected from 112 respondents who are HR
managers in various organizations in Muscat. It provides the findings related to HR practices during
the current economic crisis and the HR managers’ perception of the resultant effect of their crisis-
driven HR strategies.
Sample Characteristics
Nearly half (49.1%) of the respondents represented organizations with an employee-size of 101 to
500. The majority of the respondents (72%) were from the service sector representing, telecomunications,
airlines, construction, banking, insurance, retail, education and health sectors. Due to the increase in
non-oil diversification strategy in Oman (Times of Oman, 7 Feb, 2018), more jobs are now created in
the service sector (Oman Observer, 25 Feb, 2018). The sample, therefore, becomes valid for the study.
HR Managers’ Perception of the ‘impact of different types of crises on their businesses’

Seven types of crises were presented to the respondents viz., 1) natural crisis: floods, 2) economic
crisis: economic downturn, 3) technological crisis: computer malware attack, 4) malevolence cri-
sis: extreme tactics by miscreant individuals, 5) deception crisis: deliberate wrong actions taken by
80
EJAE 2019  16 (1)  77-98
management, 6) workplace violence: strikes or other related problems, and 7) rumors: about the com-
pany or its products spread in society. Respondents were asked to rate the impact of each type of crisis
on their businesses. The measurement scale ranged from 1 to 5, 1 being no impact at all and 5 having
significantly high impact with an additional ‘not applicable’ option. While calculating averages, ‘not
applicable’ responses were not considered as they were not included in the ‘population of interest’
(Smith & Albaum, 2010).
Not Average rating Std.

N
applicable (scale 1-5) Dev.
Perceived impact of natural crisis on business 104 8 2.90 1.383
Perceived impact of economic crisis on business 108 4 3.53 1.080
Perceived impact of technology crisis on business 108 4 3.37 1.173
Perceived impact of malevolence crisis on business 91 21 3.01 1.378
Perceived impact of deception crisis on business 89 23 3.20 1.208
Perceived impact of workplace violence crisis on business 81 31 3.00 1.423
Perceived impact of rumors based crisis on business 88 24 3.00 1.232
Table 1. HR Managers’ Perception of Impact of Different Types of Crises on their Businesses
Findings related to HR managers’ perception of impact of different types of crises on their respective
businesses can be seen in Table 1. It was found that HR managers perceived greater impact of eco-
nomic crisis (3.53) and technology crisis (3.37) over other crises on their businesses. The low standard
deviation (1.080) indicates closeness of the opinions. This finding empirically proves the importance
given to economic crisis by the companies. Furthermore, as presented in Table 2, more than 97% of
the respondents were knowledgeable about the current economic crisis.
Frequency Percent
Unknown to me 0 0%
I know a little from others 3 2.7%
I read about it a number of times 37 33%
I read about it regularly 53 47.3% 97.3%
I have extensive knowledge about it 19 17%
Total 112 100%
Table 2. Level of Awareness of Current Economic Crisis
Impact of Current Economic Crisis on the Organization

The majority of the respondents (80.4%) specified that the current economic crisis had an impact on
their organization which can be interpreted as ‘it affected their HR strategies’. Though a similar finding
is presented in Table 1, it addresses the impact of the economic crisis in general whereas this finding
is specific to the current economic crisis and also with reference to HR function. These two questions
validate the findings and can be treated as evidence of validity and reliability of the questionnaire.
81
EJAE 2019  16 (1)  77-98
Possible ways of the impact of the economic crisis on HR could be downsizing, reducing costs, hiring
of trainees or contractors to pay less wages, suspending promotions and extra privileges, changing HR
policies, rules and regulations, etc.
Difficulty in Dealing with Resources and Stakeholders During Economic Crisis

This question was aimed at discovering HR managers’ perception of difficulty in dealing with hu-
man resources during economic crises. The findings are presented in Table 3. Six items were presented
out, of which three are resources: employees, machines and money, while three are parties: investors,
dealers & suppliers, and Government. Among these options, the HR managers directly dealt with
employees and with Government regarding HR issues only, and did not directly deal with machines,
investors, and suppliers. Hence, their perception of difficulty in dealing with employees is understood
as result of their experience, while their perception of difficulty in dealing with other resources and
stakeholders is understood as a result of their comprehension of the situation. The measurement scale
contained 5 points, with 1 being no problem at all to deal with and 5 being highly complicated to deal
with, with an average point of 3 being moderately difficult to deal with. A high average indicates more
difficult to deal with.
Average rating
(scale of 1-5)
Difficulty of dealing with Government during crisis 3.21
Difficulty of dealing with external parties during crisis 3.06
Difficulty of dealing with money during crisis 3.03
Difficulty of dealing with investors during crisis 2.88
Difficulty of dealing with employees during crisis 2.74
Difficulty of dealing with machines during crisis 2.32
Table 3. HR Managers’ Perception of Difficulty in Dealing with Various Resources and Stakeholders During a Crisis
According to the respondents, dealing with Government during a crisis is more difficult. An
interesting finding is that the HR managers think that dealing with employees is easier during crisis
compared to dealing with other resources and other parties (Table 3). Possible reasons could be that
the employees become vulnerable due to the ‘fear factor’.
Probable reasons for difficulty in dealing with external parties might be due to the change of com-
munication and change of contract terms during crises. A reason for difficulty in dealing with money
could be need for saving and cost cutting.
Data presented in Table 1 presents the HR managers’ perception of impact of economic crisis on
the organization from the general perspective, while the finding presented in Table 4 presents their
perception of the effect of economic crisis on the organization from the HR perspective.
A higher average represents the perception of a greater impact on company’s HR. An average of 3.42
indicates moderate to high impact of the current economic crisis on employees’ jobs and their work life.
82
EJAE 2019  16 (1)  77-98
Points on
Frequency Percent
scale
Unaffected 1 9 8.0
Little effect on the jobs & work life of employees 2 14 12.5
Moderate effect 3 36 32.1
More effect 4 27 24.1
Significant effect 5 26 23.2
Total 112 100.0
Average rating of effect of current economic crisis on HR 3.42
Table 4. HR Managers’ Perception of Effect of Current Economic Crisis on HR
HR Practices During the Economic Crisis

This is one of the key findings of the current research. Respondents were asked to mention a level
of implementation of the given HR strategies during a crisis on a measurement scale of 1 to 5, with an
additional option of ‘non-applicable’. The scale contained, 1) no plan of doing it, 2) will think of doing
it, 3) planning of doing it, 4) just started doing it and 5) already started and is in full implementation.
Implemen-
Not Std.
No. N tation level
applicable Dev.
(scale 1-5)
1 Increased knowledge management activities 102 10 3.45 1.340
2 Using non-monetary motivation techniques 104 8 3.43 1.453
3 Cost cutting on entertainment & recreational activities 108 4 3.41 1.582
4 Redesign jobs: Job enlargement 106 6 3.27 1.515
5 Abeyance of rewards and incentives 107 5 3.22 1.690
6 Cost cutting on employee training and development activities 104 8 3.12 1.554
7 Increased communication with employees 107 5 3.07 1.574
8 Redesign jobs: Job enrichment 103 9 2.83 1.498
9 Increased dependency on outsourcing 108 4 2.81 1.548
10 Appointment of crisis team 108 4 2.73 1.562
11 Training employees in working during crisis 108 4 2.69 1.609
12 Reducing number of employees 107 5 2.66 1.590
13 Lowering income options for workers 99 13 1.93 1.409
14 Sending employees on un-paid leaves 92 20 1.89 1.370
15 Reducing number of working hours 84 28 1.57 1.056
Table 5. HR Practices Adopted During Economic Crisis Arranged According to Level of Implementation
83
EJAE 2019  16 (1)  77-98
The findings presented in Table 5 are interesting. HR managers indicated that they have increased
‘knowledge management’ activities in the organization (3.45). The highest rating of this item speaks
of the ‘professionalism’ of HR managers, as they are aware of the fact that learning organizations sur-
vive crises. The next strategy being implemented during the current economic crisis is an increased
use of non-monetary motivation techniques (3.43) HR managers are aware that motivation and rec-
ognition are important during crisis to ensure productivity (O’Connor, 1987). Managers now apply
non-monetary techniques to motivate their employees viz., recognition letters, motivational mailers,
appreciation letters, redesigning the job titles without increase in pay, promotions without increase in
pay, etc. Managers have cut costs on employee entertainment activities (implementation rating of 3.41)
and not on the employee developmental activities (3.12). This data speaks of the professional approach
of the managers. The budget for training and development activities is usually assumed to be greater
than the entertainment budget, and the managers can save more by cutting training and development
costs. However, they were cutting entertainment and recreation costs, instead of cutting training and
development costs.
HR strategies during economic crisis include job enlargement (3.27), i.e., adding tasks at no addi-
tional costs as this strategy can motivate employees by making their jobs more interesting and important
(Noe et al., 2011). Promotions, bonuses and other benefits were kept under abeyance or postponed
(3.22) which is one of the strategies usually adopted during an economic crisis (Feng, 2018; Merhan
& Tracy, 2016). The lowest rated HR strategy in implementation is reducing the number of working
hours for employees (the lowest average of 1.57). In fact, 25% of the respondents specified that this
strategy is not applicable to them. Mostly presumed strategy, ‘downsizing’ is also rated low in imple-
mentation with an average of 2.66. Thus, this finding disproves the myth that downsizing is the first
HR strategy that is implemented during a crisis. This empirical survey proves most of the commonly
presumed strategies as myths. For example, some of the myths from a lay-man’s perspective are that
HR managers reduce the number of jobs during crisis, they cut even the training and development
costs, and they force employees to go on un-paid leaves. But the current research empirically proved
that, in reality, these strategies are given the least amount of importance in implementation. Thus, this
research attains significance.
HR Managers’ Perception of Resultant Effect of their Crisis-Driven HR Strategies

This is another key finding of the current research. The respondents (HR managers) were presented
seven resultant effects of crisis-driven HR strategies and were required to rate each of them on a scale
of 1 to 5 in terms of effect on their human resources according to their perception (presented in Table
6). Though the scale was uniform (5-point scale), the scale description varied according to the type of
effect, which is clearly explained in individual description analyses.
Effect on Motivation Level

The perceived resultant effect of crisis-driven HR strategies on the motivation level of employees
was measured on a scale of 1 to 5, starting from highly reduced motivation levels to highly increased
motivation levels with a center-point of moderate effect. The average of 3.11 indicates a moderate
effect of crisis-driven HR strategies on employees, according to the HR managers. As this finding is
from the HR managers’ perspective, it needs to be validated through studying the employee behavior.
However, from the HR managers’ view-point, their crisis-driven HR strategies did not demotivate
their employees and the reasons could be the preparedness of the employees due to awareness of the
current economic crisis.
84
EJAE 2019  16 (1)  77-98
Std.
N Mean
Deviation
Motivation level of employees 112 3.11 1.269
Commitment level of employees 112 3.05 1.199
Rumors and informal communication among employees 112 3.13 0.988
Employee engagement & involvement of employees 112 3.21 1.086
Active/ Passive behavior of employees at the workplace 111 3.44 1.076
Employee turnover 112 3.20 1.184
Corporate image among employees 112 3.15 1.172
Table 6: HR Managers’ Perception of Resultant Effect of Crisis-Driven HR Strategies
Effect on Commitment Level

The measurement scale contained 5 points starting from a highly reduced commitment level to a
highly increased commitment level. The opinion was that the commitment levels of employees were
reduced due to stringent measures, and cost cutting needed to be validated through research. The cur-
rent research attempted to find an answer to this research question. According to HR managers, their
crisis-driven HR strategies did not reduce the commitment levels of their employees, and has shown
moderate effect (3.05).
Rumors and Informal Communication

The crisis-driven HR strategies might encourage informal communication and generate rumors as
the employees may not openly communicate or comment on the management’s decisions during a crisis
(Coombs & Holladay, 2002). According to the HR managers, there is a moderate impact on commu-
nication among employees (3.13 on a scale of 1 to 5). Though informal communication is common in
any organization (Bovee & Thill, 2011), the current research proved that the crisis-driven HR strategies
have a moderate effect on informal communication among employees and create room for rumors.
Active and Passive Behavior at the Workplace

This is the highest rated item on the questionnaire, with an average of 3.44 on a scale of 1 to 5. The
measurement scale contained 1) visible passive behavior, 3) moderate active and passive behavior,
and 5) visible active behavior. An average of more than 3 indicates that the employees have become
active in the workplace, as they are now aware of current situation. The HR managers’ have noticed
active behavior in the form of actively participating in meetings, coming forward for solving problems
at the workplace, etc. Moreover, a low standard deviation (1.076) indicates similarity in the responses
of HR managers.
Employee Turnover
According to the HR managers. the crisis-driven HR strategies have not resulted in employee loss.
The measurement scale contained 1) increased employee turnover, 3) moderate employee turnover
and 5) reduced employee turnover, and the respondents were required to provide their perception of
the resultant effect of their HR strategies during a crisis on employee turnover. An average of more
than 3 gave a good signal, as it indicated reduced employee turnover. In this study, an average of 3.20
indicated that the crisis-driven HR strategies had, in fact, reduced employee turnover as against the
common opinion or myth of increased employee turnover during a crisis (Vintisa, 2010).
85
EJAE 2019  16 (1)  77-98
Employee Engagement and Involvement of Employees

The crisis-driven HR strategies had created an active workplace environment. According to HR
managers, employees involved more in constructive activities participated more actively in meetings
and contributed willingly in decision-making, which contributed to enhanced employee engagement.
Employee engagement created a healthy relationship between the employee and the organization
(Ellis & Sorensen, 2007). An average of 3.21 indicated moderate to high employee engagement at the
workplace which was a positive resultant effect of crisis-driven HR strategies.
Corporate Image Among Employees

The assumption of lowered corporate image among employees during a crisis (Wright, 2009) could be
a myth (Hansen, 2005). The current research has empirically proved that corporate image did not suffer
a decrease among employees due to stringent and difficult crisis-driven HR strategies. The respondents
were required to present their perception of the resultant effect of their HR strategies taken-up during
crisis on corporate image of their employees. The measurement scale contained 1) reduced corporate
image among employees, 3) moderate effect on corporate image, and 5) increased corporate image. An
average of more than 3 can be considered as a good indicator as it indicates an increase in corporate
image among employees after crisis-driven HR strategies have been implemented. The HR managers
perceived (3.15) that their employees do regard and respect their organization and that the corporate
image had increased among employees.
Differences in Application of HR Strategies Between Small, Medium and Large Organizations

Ho: There is no significant difference in the application of HR strategies during a crisis between
small, medium, and large organizations
H1: There is a significant difference in the application of HR strategies during crisis between small,
medium, and large organizations
Conclusion
HR strategy p-value Significance
(Post Hoc Test)
Not significant
Increased knowledge management activities .510 ***
Ho: Not rejected
Not significant
Using non-monetary motivation techniques .238 ***
Ho: Not rejected
Application by large organi-

Cost cutting on entertainment & Significant zations is significantly high-
.038
recreational activities Ho: Rejected er than small and medium
organizations (Appendix 1)
Application by small or-

Redesign jobs: Job enlargement (adding Significant ganizations is significantly
.035
tasks to a job at no additional pay) Ho: Rejected higher than medium orga-
nizations (Appendix 2)
Not significant
Abeyance of rewards and incentives .101 ***
Ho: Not rejected
Application by large organi-

Cost cutting on employee training and de- Significant zations is significantly high-
.017
velopment activities Ho: Rejected er than small and medium
organizations (Appendix 3)
86
EJAE 2019  16 (1)  77-98
Not significant
Increased communication with employees .114 ***
Ho: Not rejected
Not significant
Redesign jobs: Job enrichment .615 ***
Ho: Not rejected
Not significant
Increased dependency on outsourcing .254 ***
Ho: Not rejected
Not significant
Appointment of crisis team .724 ***
Ho: Not rejected
Not significant
Training employees in working during crisis .523 ***
Ho: Not rejected
Not significant
Reducing number of employees .331 ***
Ho: Not rejected
Not significant
Lowering income options for workers .594 ***
Ho: Not rejected
Not significant
Sending employees on un-paid leaves .752 ***
Ho: Not rejected
Not significant
Reducing number of working hours .331 ***
Ho: Not rejected
Grouping Variable: Number of Employees in the Organization
Small=Below 100, Medium=101 to 500, Large=More than 500 employees
Table 7. Summary of ANOVA Test Results
The organizations in the study were divided into small (under 100 employees), medium (101 to 500
employees) and large (more than 500 employees) for the purpose of hypotheses testing and further
analysis. Out of 15 crisis-driven HR strategies, only three strategies namely, cost cutting on employee
recreational activities, job enlargement and cost cutting on employee training and development were
found to be applied at different levels in the three categories of organizations. HR managers representing
large organizations have given an average implementation rating of 4.28 (on a scale of 1 to 5) to ‘cost
cutting on employee entertainment & recreational activities’. Whereas HR managers of small organiza-
tions gave an average implementation rating of 3.24 and HR managers of medium organizations gave an
average implementation rating of 3.25 to the same variable. An ANOVA test was conducted to identify
the difference of means between groups indicated that there is a significant difference (Table 7). Later,
the Post Hoc Tests (Appendix 1) indicated that the application of this strategy by large organizations
is significantly higher than small and medium organizations. The reasons could be more spending
on employee recreation by larger organizations compared to small and medium-sized organizations.
Moreover, it can be interpreted that small organizations may not be saving significant amount of money
by cutting costs on employee recreation.
The next finding is related to redesigning jobs, more specifically, job enlargement which involves
adding tasks to a job with no additional pay to the employee. The ANOVA test revealed that there
is a significant difference between the implementation of this strategy by large, medium and small
organizations (Table 7 & Appendix 2). With an average of 3.67, job enlargement strategy is applied
more by small organizations compared to medium-sized organizations. Otherwise, the difference is not
87
EJAE 2019  16 (1)  77-98
significant compared to large organizations. The reasons could be that it is easier to redesign jobs in small
organizations whereas, in large organizations with hundreds and thousands of employees, it is a difficult
task. Hence, HR managers of large-sized organizations might not be showing more interest in applying
job enlargement activity. The last hypothesis under this section is related to cost cutting on employee
training and development. The ANOVA test revealed that large sized organizations’ implementation
of this strategy has been significantly higher than in small and medium sized organizations (Table 7 &
Post Hoc Tests presented in Appendix 3). It can be interpreted, that as the budget for employee train-
ing and development in large sized organizations is usually higher, they can save significant amount
of money on cost cutting compared to small and medium sized organizations.
Differences in HR Managers’ Perception of the Resultant Effect of their HR Strategies Between

Small, Medium, and Large organizations
Ho: There is no significant difference in the resultant effect of crisis-driven HR strategies between
small, medium, and large organizations
H1: There is a significant difference in resultant effect of crisis-driven HR strategies between small,
medium, and large organizations
Resultant effect p-value Significance Conclusion (Post Hoc Test)
Not significant
Effect on motivation level .956 ***
Ho: Not rejected
Not significant
Effect on commitment level .937 ***
Ho: Not rejected
Not significant
Rumors and informal communication .942 ***
Ho: Not rejected
Employee engagement & involvement of Not significant

.349 ***
employees Ho: Not rejected
Not significant
Active/passive behavior at workplace .893 ***
Ho: Not rejected
Not significant
Employee turnover .292 ***
Ho: Not rejected
Not significant
Corporate image among employees .880 ***
Ho: Not rejected
Grouping variable: Number of Employees in the Organization
This analysis proves that the resultant effect does not depend upon the size of the organization (Table
8). The HR managers of small, medium and large organizations equally perceive the effect of their crisis-
driven HR strategies. With reference to the motivation levels of their employees after certain changes
to HR strategies, all three types of HR managers mentioned that the effect is moderate to high ranging
between the average values of 3.06 to 3.15 (scale 1 to 5). Similarly, with reference to active and passive
behavior at the workplace, the HR managers of all three types of organizations felt that the employees
88
EJAE 2019  16 (1)  77-98
in their respective organizations became active players at the workplace with averages of 3.49 (small),
4.39 (medium), and 3.39 (large). Thus, it can be interpreted that the resultant effect of crisis-driven HR
strategies will be same, irrespective of the manpower size of the organization.
Differences in HR Managers’ Perception of Resultant Effect of their HR Strategies Between the

Manufacturing and Service Sectors
Ho: There is no significant difference in the resultant effect of crisis-driven HR strategies between
the manufacturing and service sector organizations
H1: There is a significant difference in the resultant effect of crisis-driven HR strategies between the
manufacturing and service sector organizations
Resultant effect p-value Significance Conclusion
Not significant
Effect on motivation level .872 ***
Ho: Not rejected
Not significant
Effect on commitment level .985 ***
Ho: Not rejected
Significant Significantly higher in service

Rumors and informal communication .002 sector (3.16) than manufac-
Ho: Rejected turing sector (3.03)

Employee engagement & involvement of
.023 sector (3.22) than manufac-
employees Ho: Rejected turing sector (3.19)
Not significant
Active/passive behavior at workplace .908 ***
Ho: Not rejected

Employee turnover .048 sector (3.32) than manufac-
Ho: Rejected turing sector (2.87)
Not significant
Corporate image among employees 0.76 ***
Ho: Not rejected
Grouping Variable: Sector of the Organization - Manufacturing Sector & Service Sector
Table 9. Summary of t-Test Results
Another relevant thing for this study is to understand the differences between the manufactur-
ing and service sector organizations. Though the current crisis started with the manufacturing sector
(petroleum), the service sector was also suffering equally or even more. The current survey included
service sector organizations like telecommunications, airlines, construction, banking, insurance, retail,
education, and health, while the manufacturing sector included petroleum, food, etc. The findings
of the hypotheses testing revealed that the impact had been greater in the service sector than in the
manufacturing sector (Table 9). 3 out of 7 resultant effects were found to be significantly different in
the two sectors and, interestingly, the impact has been significantly higher in the service sector than in
the manufacturing sector. Managers from the service sector have indicated a relatively lower job loss
(3.32) than HR managers from the manufacturing sector (2.87).
89
EJAE 2019  16 (1)  77-98
Differences Between HR Managers’ Perceived Difficulty in Dealing with Employees Between

Small, Medium and Large Organizations
Ho: There is no significant difference between the perceived difficulty in dealing with employees
during a crisis between small, medium, and large organizations
H1: There is no significant difference between the perceived difficulty in dealing with employees
during a crisis between small, medium, and large organizations
Testing variable p-value Significance Conclusion (Post Hoc Test)

• HR managers of small organizations perceive less
difficulty in dealing with employees during a crisis
than HR managers of medium and large organiza-
Difficulty in dealing Significant tions
with employees dur- .040
ing crisis Ho: Rejected • HR managers of medium organizations perceive
less difficulty in dealing with employees during a
crisis than HR managers of large organizations (Ap-
pendix 4).
Grouping Variable: Number of Employees in the Organization

The general opinion that managing smaller organizations with fewer employees is relatively easier
than managing larger organizations (Noe et al., 2011; Morgan, 2015) is proved to be true through this
empirical research. HR managers of smaller organizations with less than 100 employees indicated that
it is easier to deal with employees during a crisis with an average of 2.54 on a scale of 1, which indicates
no problem at all in dealing with employees during a crisis and 5 being highly complicated to deal
with. This average is significantly lower than perceptions of HR managers representing medium-sized
organizations and larger-sized organizations. Thus, it can be interpreted that, the larger the organization
in terms of number of employees, the more difficult it is in dealing with them during a crisis.
Reliability Analysis
Cronbach’s Alpha N of Items

.871 38
Table 11. Reliability Statistics
The reliability analysis which is expected to be as close as possible to 1, indicates that the question-
naire is valid and the data collected can be used in further analyses (Reynaldo & Santos, 1999). Cron-
bach’s Alpha for the current research is calculated at .871 (Table 11) for 38 items on the questionnaire.
This allows the researcher to arrive at reliable outputs and valid conclusions.
CONCLUSIONS AND SUGGESTIONS
Economic crisis affects all aspects of business, forcing managers to alter their functional strategies.
During a crisis, dealing with human resources is a complicated function when compared with manag-
ing other business functions. Hence, managers are advised to revise their HR practices in the current
90
EJAE 2019  16 (1)  77-98
economic crisis. This paper addresses the vital issue of the application of crisis-driven HR strategies,
as well as the resultant effect through empirical research conducted in Muscat. HR practices that are
being applied now can be called as ‘crisis-driven HR strategies’, as they are influenced by the current
economic crisis and the need to be looked at from a different perspective. As findings revealed that
HR managers perceive a greater impact of the economic crisis on their respective businesses compared
with other types of crises, it is recommended that they redesign their HR strategies to ensure success in
the current economic crisis. The research findings disproved many myths about HR strategies adopted
during economic crisis. For example, instead of emphasizing cutting cost and employee separations,
the HR managers emphasized on enhancing knowledge management activities in the company as they
knew that learning organizations survive during difficult times. It is recommended that they further
increase their knowledge management activities and communicate the same to their employees. One
of the resultant effects of crisis-driven HR strategies was that the employee engagement increased, as
the employees were now more involved in constructive activities and exhibited active behavior at the
workplace. This further increased corporate image among employees which was earlier a myth that
crisis-driven HR strategies lowerd the corporate image.
During the current economic crisis, large organizations had cut costs on employee recreation,
rather than the costs related to employee training and development. It was found that small organi-
zations performed job enlargement tasks (by adding more tasks at no additional costs) while large
organizations found it difficult to deal with their employees during a crisis (due to the large size of
their work force). The survey revealed a moderate increase in communication with employees, and
it is recommended that the HR should increase communication with its employees and should dis-
cuss various issues and crises with them. Furthermore, it is recommended that managers and team
leaders adopt more overt and planned motivation techniques. A need to appoint crisis management
teams and train employees during crisis has also been identified. To perform effectively during the
current economic crisis, the HR managers, may have to equip themselves with more information and
acquire more knowledge in the HR domain. While this research presented a broad overview of hu-
man resource management during the current economic crisis, it calls for further research thorough
inquiry into specific aspects, such as changes in job analysis and design, changes in recruitment and
selection procedures, etc. Thus, through more narrowed-down research, organizations can enhance
the effectiveness of their HR strategies for the overall success of their organizations.
REFERENCES
Argenti, P. A. (2002). Crisis Communication: Lessons from 9/11. Retrieved March 15, 2018, from Harvard Busi-
ness Review https://hbr.org/2002/12/crisis-communication-lessons-from-911
Augustine, N. R. (1995). Managing the crisis you tried to prevent. Harvard Business Review, 73(6), 147-158.
Barton, L. (2000). Crisis in organizations. Cincinnati, Ohio: South-Western College Publishing
Baubion, C. (2013). OECD risk management: Strategic crisis management. Paris: OECD.
Bergström, O. (2018). Changing restructuring regimes in 11 European countries during and after the financial
crisis. European Journal of Industrial Relations. DOI:10.1177/0959680118770747
Bovee, C. L. & Thill, J. V. (2011). Business Communication Essentials. Harlow: Pearson Education.
Burma, Z.A. (2014). Human Resource Management and Its Importance for Today’s Organizations. International
Journal of Education and Social Science, 1(2), 85-94.
Coombs, W. T., & Holladay, S. J. (1996). Communication and Attributions in a Crisis: An Experimental Study
in Crisis Communication. Journal of Public Relations Research, 8(4), 279-295.
Coombs, W.T. (2004). Structuring crisis discourse knowledge: The West Pharmaceutics case. Public Relations
Review, 30, 467-474.
91
EJAE 2019  16 (1)  77-98
Coombs, W.T. (2007). Ongoing crisis communication: Planning, managing, and responding. Los Angeles: Sage
Publications.
Coombs, W.T., & Holladay, S. J. (2002). Helping crisis managers protect reputational assets: Initial tests of the
situational crisis communication theory. Management Communication Quarterly, 16, 165-186.
Cronbach, L. J. (1951). Coefficient Alpha and the Internal Structure Of Tests. Psychometrika, 16, 297-334.
Ellis C.M. & Sorensen A. (2007). Assessing Employee Engagement: The Key To Improving Productivity. Perspec-
tives, 15(1).
Ellis, D. (2008). Citigroup to cut more than 50,000 jobs. Retrieved March 15, 2018, from Money.Cnn.Com. http://
money.cnn.com/2008/11/17/news/companies/citigroup/
Fener, T., & Cevik, T. (2015). Leadership in Crisis Management: Separation of Leadership and Executive Concepts.
Procedia Economics and Finance, 26, 695-701.
Feng, F. Z. (2018). Dynamic Compensation under Uncertainty Shocks And Limited Commitment. Boston Meet-
ings Paper. DOI:10.2139/ssrn.2313484
Field, A. (2012). Discovering Statistics Using IBM SPSS Statistics. London: Sage Publication.
Fink, S. (1986). Crisis Management: Planning for the Inevitable. New York: Amacom.
Focus Economics (2018). Oman Economic Outlook. Retrieved March, 6, 2018, from https://www.focus-economics.
com/countries/oman
Fodor, P., & Poor, J. (2009). The Impact of the Economic and Financial Crisis on HRM and Knowledge-Manage-
ment in Hungary and Slovakia - Empirical Research 2008-2009. Acta Polytechnica Hungarica, 6(3), 69-91.
Fritz, H.M., Blount, C. D., Al Busaidi, F. B., & Al-Harthy, A. H. M. (2010). Cyclone Gonu storm surge in Oman.
Estuarine, Coastal and Shelf Science, 86(1), 102-106.
Graham, C. (2017). NHS cyber attack: Everything you need to know about ‘biggest ransomware’ offensive in
history. Retrieved February 28, 2018, from https://www.telegraph.co.uk/news/2017/05/13/nhs-cyber-
attack-everything-need-know-biggest-ransomware-offensive/
Hansen, F. (2005). The Turnover Myth. Retrieved June 21, 2018, from Workforce Management https://www.
workforce.com/2005/06/02/THE-TURNOVER-MYTH/
Hart, P., Rosenthal, U., & Kouzmin, A. (1993). Crisis Decision Making: The Centralization Thesis Revisited.
Administration & Society, 25(1), 12-44.
Head, M. (2014). Global unemployment rises above 200 million. Retrieved January 21, 2018, from World Socialist
Website https://www.wsws.org/en/articles/2014/01/21/jobs-j21.html
Howard, T. (2013). Human Resource’s Role in Crisis Events. Retrieved March 15, 2018, from https://www.feinet.
com/assets/uploads/archive/files/Human%20Resource%27s%20Role%20in%20Crisis%20Events_0.pdf
HRMA. (2014). The Roles of Human Resources in Organizational Crisis Management. Retrieved March 15, 2018,
from https://cphrbc.ca/wp-content/uploads/2014/11/rb-organizational-crisis-management.pdf
Kirov, V.N., & Thill, P. (2018). The Impact of Crisis and Restructuring on Employment Relations in Banking:
The Cases of France, Luxembourg and Romania. European Journal of Industrial Relations, 24(3), 297-315.
Kothari, C.R. (2004). Research Methodology Methods And Techniques, 2 E, New Age International Publishers,
New Delhi, pp. 20.
Luxford, C. (2008). How can HR help during an economic crisis? Retrieved March 15, 2018, from https://www.
hcamag.com/hr-resources/leadership/how-can-hr-help-during-an-economic-crisis-115053.aspx
Matsuka, E. (2010). The Need for Innovative Human Resources Management Practices After Economic Crisis.
Human Resources Management & Ergonomics, 4(2), 1-15.
Mehran H., & Tracy, J. S. (2016). Deferred Cash Compensation: Enhancing Stability in the Financial Services
Industry. Economic Policy Review, Aug, 61-75.
Morgan, J. (2015). Why Smaller Teams Are Better Than Larger Ones. Retrieved March 20, 2018, from https://
www.forbes.com/sites/jacobmorgan/2015/04/15/why-smaller-teams-are-better-than-larger-ones/#77d
62e221e68
92
EJAE 2019  16 (1)  77-98
Muscat Daily (2017). Central Bank of Oman Annual Report Unveiled. Retreived March 20, 2018, from http://
www.muscatdaily.com/archive/business/central-bank-of-oman-annual-report-unveiled-52b1
Narayan, V., John-Stewart, G., O’Malley, G., & Gage, G. (2018). “If I had known, I would have applied”: Poor
communication, job dissatisfaction, and attrition of rural health workers in Sierra Leone. Human Resources
for Health, 16(1). DOI:10.1186/s12960-018-0311-y
Noe, R. A., & Noe, R. A. (2011). Fundamentals of human resource management. New York: McGraw-Hill Irwin.
Nulty, D. D. (2008). The adequacy of response rates to online and paper surveys: what can be done? Assessment
& Evaluation in Higher Education, 33(3), 301-314. DOI:10.1080/02602930701293231
Ochetan, C. M. T., & Ochetan, D. A. (2012). The Influence of Economic and Financial Crisis on Human Resources
Management. Procedia Economics and Finance, 3, 769-774.
O’Connor, J. R. (1987). The meaning of crisis: A theoretical introduction. Oxford: Blackwell.
Oman Observer (2018). Jobs for 80,000 Omanis in Logistics Sector by 2020. Retreived March 20, 2018, from http://
www.omanobserver.om/jobs-80000-omanis-logistics-sector-2020/
Peterson, A. (18 Dec, 2014). The Sony Pictures Hack, Explained. Retrieved February 28, 2018, from https://
www.washingtonpost.com/news/the-switch/wp/2014/12/18/the-sony-pictures-hack-explained/?utm_
term=.392c92bb6bd8
Prouska, R., & Psychogios, A. (2016). Do not say a word! Conceptualizing employee silence in a long-term crisis
context. The International Journal Of Human Resource Management, 29(5), 885-914. DOI:10.1080/0958
5192.2016.1212913.
Reynaldo, J.A., & Santos, A. (1999) Cronbach’s Alpha: A Tool for Assessing the Reliability of Scales. Journal of
Extension, 37, 1-4.
Saunders, M., Lewis, P., & Thornhill, A. (2007). Research Methods for Business Students. Harlow: Pearson Education.
Silverthorne, S. (2018). The Dark Side of Performance Bonuses. Retrieved April 28, 2018, from HBS Working
Knowledge https://hbswk.hbs.edu/item/the-dark-side-of-performance-bonuses?cid=wk-rss
Smith, S. M. & Albaum, G. S. (2010). An Introduction to Marketing Research. Qualtrics, 123, 130, 234.
Spillan, J., & Hough, D. M. (2003). Crisis Planning in Small Businesses: Importance, Impetus and Indifference.
European Management Journal, 21(3), 398-407. DOI:10.1016/S0263-2373(03)00046-X
Straub, C., Vinkenburg, C. J., Van Kleef, M., & Hofmans, J. (2018). Effective HR implementation: the impact of
supervisor support for policy use on employee perceptions and attitudes. International Journal Of Human
Resource Management, 29(22), 3115-3135. DOI: 10.1080/09585192.2018.1457555
Vardarlier, P. (2016). Strategic approach to human resources management during crisis. Procedia - Social And
Behavioral Sciences, 235(24), 463-472.
Vintisa, K. (2010). The Impact of Economic Crisis on Human Resources Management of Public Sector. Human
Resources Management & Ergonomics, 6(1), 1-13.
Woods, B. (2018). Snow to melt high street sales as retailers brace for more pain. Retrieved March 1, 2018, from
https://www.independent.ie/world-news/snow-to-melt-high-street-sales-as-retailers-brace-for-more-
pain-36658839.html
Wooten, L. P., & James, E. H. (2008). Linking Crisis Management And Leadership Competencies: The Role
Of Human Resource Development. Advances In Developing Human Resources, 20(10), 1-28. DOI:10.
1177/1523422308316450
Workplace Info Writers (2006). HR’s role in crisis management. Retrieved February 28, 2018, from http://work-
placeinfo.com.au/hr-management/performance-management/analysis/hr-s-role-in-crisis-management#.
WRPLJ9RUBIU
Wright, C. (2009). Responding to crises: A test of the situational crisis communication theory. Graduate Thesis
and Dissertations, University of South Florida. Retrieved February 2, 2018, from https://scholarcom-
mons.usf.edu/CGI/VIEWCONTENT.CGI?ARTICLE=1090&CONTEXT=ETD
93
EJAE 2019  16 (1)  77-98
APPENDICES
Appendix 1
DESCRIPTIVES FOR ANOVA TEST 1
Cost cutting on employee entertainment & recreational activities
Std.
N Mean
Dev.
Below 100 employees (small) 38 3.24 1.584

101 to 500 employees (medium) 53 3.25 1.628
More than 500 employees (large) 18 4.28 1.179
Total 109 3.41 1.582
ANOVA
Cost cutting on employee entertainment & recreational activities
Sum of Squares Df Mean Square F Sig.
Between Groups 16.131 2 8.066 3.362 .038
Within Groups 254.291 106 2.399
Total 270.422 108
Post Hoc Tests

Multiple Comparisons
Cost cutting on employee entertainment & recreational activities LSD
95% Confidence
(I) Number of (J) Number of Mean Difference Std. Interval
Sig.
employees employees (I-J) Error Lower Upper
Bound Bound
101 to 500 employees
-.008 .329 .980 -.66 .64
Below 100 (medium)
employees (small) More than 500
-1.041* .443 .021 -1.92 -.16
employees (Large)
Below 100 employees
101 to 500 .008 .329 .980 -.64 .66
(small)
employees (me-
dium) More than 500
-1.032* .423 .016 -1.87 -.19
employees (Large)
Below 100
1.041* .443 .021 .16 1.92
More than 500 employees (small)
employees (Large) 101 to 500
1.032* .423 .016 .19 1.87
employees (medium)
*. The mean difference is significant at the 0.05 level.
94
EJAE 2019  16 (1)  77-98
Appendix 2
Redesign jobs: Job enlargement (adding tasks at no additional payments)
95% Confidence
Std. Std. Interval for Mean
N Mean Min Max
Dev. Error Lower Upper
Bound Bound
Below 100 employees (small) 39 3.67 1.383 .221 3.22 4.11 1 5
101 to 500 employees (medium) 51 2.88 1.492 .209 2.46 3.30 1 5
More than 500 employees (Large) 16 3.56 1.672 .418 2.67 4.45 1 5
Total 106 3.27 1.515 .147 2.98 3.57 1 5
ANOVA
Redesign jobs: Job enlargement (adding tasks at no additional payments)
Sum of Squares Df Mean Square F Sig.
Between Groups 15.168 2 7.584 3.458 .035
Within Groups 225.898 103 2.193
Total 241.066 105
Post Hoc Tests

Redesign jobs: Job enlargement (adding tasks at no additional payments)LSD
95% Confidence Interval
(I) Number (J) Number Mean Std.
Sig. Lower Upper
of employees of employees Difference (I-J) Error
Bound Bound
101 to 500
.784* .315 .014 .16 1.41
Below 100 employees (medium)
.104 .440 .813 -.77 .98
employees (Large)
Below 100
101 to 500 -.784* .315 .014 -1.41 -.16
employees (small)
employees
(medium) More than 500
-.680 .424 .112 -1.52 .16
employees (Large)
Below 100
-.104 .440 .813 -.98 .77
.680 .424 .112 -.16 1.52
employees (medium)
95
EJAE 2019  16 (1)  77-98
Appendix 3
Cost cutting on employee training and development activities
95% Confidence
N Mean Min Max
Bound Bound
101 to 500 employees (medium) 50 2.80 1.565 .221 2.36 3.24 1 5
Total 104 3.12 1.554 .152 2.81 3.42 1 5
ANOVA
Cost cutting on employee training and development activities
Sum of Squares df Mean Square F Sig.
Between Groups 19.336 2 9.668 4.259 .017
Within Groups 229.280 101 2.270
Total 248.615 103
Post Hoc Tests

Cost cutting on employee training and development activities LSD
95% Confidence
(I) Number of (J) Number of Mean Std. Interval
Sig.
employees employees Difference (I-J) Error Lower Upper
Bound Bound
101 to 500
.332 .324 .309 -.31 .97
Below 100 mployees (medium)
-.931* .449 .041 -1.82 -.04
employees (Large)
Below 100
-.332 .324 .309 -.97 .31
101 to 500 employees (small)
employees (medium) More than 500
-1.263* .433 .004 -2.12 -.40
employees (Large)
Below 100
.931* .449 .041 .04 1.82
employees (Large) 101 to 500 employees
1.263* .433 .004 .40 2.12
(medium)
96
EJAE 2019  16 (1)  77-98
Appendix 4
Difficulty of dealing with employees during crisis
95% Confidence
N Mean Min Max
Bound Bound
101 to 500 employees (medium) 55 2.71 .916 .124 2.46 2.96 1 5
Total 112 2.74 1.038 .098 2.55 2.94 1 5
ANOVA
Difficulty of dealing with employees during crisis
Sum of Squares df Mean Square F Sig.
Between Groups 6.842 2 3.421 3.310 .040
Within Groups 112.649 109 1.033
Total 119.491 111
Post Hoc Tests

Difficulty of dealing with employees during crisis LSD
95% Confidence
(I) Number of (J) Number of Mean Differ- Interval
Std. Error Sig.
employees employees ence (I-J) Lower Upper
Bound Bound
101 to 500
-.171 .213 .424 -.59 .25
Below 100 employees (medium)
-.739* .290 .012 -1.31 -.17
employees (Large)
Below 100
.171 .213 .424 -.25 .59
101 to 500 employees (small)
employees (medium) More than 500
-.569* .276 .042 -1.12 -.02
employees (Large)
Below 100
.739* .290 .012 .17 1.31
.569* .276 .042 .02 1.12
employees (medium)
97
EJAE 2019  16 (1)  77-98
EFEKTI KRIZNIH HR STRATEGIJA PRIMENJENIH ZA VREME TRENUTNE

EKONOMSKE KRIZE U OMANU – STANOVIŠTE JEDNOG HR MENADŽERA
Rezime:
Tokom ekonomske krize, kompanije nastoje da preoblikuju svoj način
rada, a sa ciljem opstanka i napretka. Ovaj rad teži da osvetli praksu iz
okvira ljudskih resursa koja je primenjena za vreme trenutne ekonom-
ske krize u Omanu, istovremeno ilustrujući efekte kriznih strategija,
iz ugla jednog menažera za ljudske resurse. Osnovni podaci dobijeni
su posredstvom interneta, od strane 112 HR menadžera, iz različitih
organizacija koje se bave proizvodnjom i uslugama u Muskatu, Oman.
Utvrđeno je da HR menadžeri ekonomsku krizu doživljavaju kao činioca
koji ostavlja značajnije efekte na njihovo poslovanje od efekata krize
druge prirode, kao što su prirodna ili tehnološka. Oni veruju da je, tokom
kriznog perioda, relativno jednostavnije upravljati zaposlenima nego
drugim izvorima i ostalim zainteresovanim stranama. Izmene u HR
praksi tokom perioda ekonomske krize uključuju ukidanje povlastica
namenjenih zaposlenima, kao i smanjenje troškova u vezi sa njihovim
rekreativnim aktivnostima. Umesto toga, krizni HR menadžment
dovodi do umnožavanja aktivnosti u vezi sa menadžmentom znanja,
ali i usvajanja tehnika motivacije koja ne uključuje novčana sredstva.
Kao rezultat, primećeno je značajnije učešće zaposlenih u aktivnostima,
te unapređena korporativna slika među njima. Proveravanje polazne
hipoteze dovelo je do zaključka da je smanjivanje troškova, a u vezi sa Ključne reči:
rekreativnim aktivnostima zaposlenih, značajno više u velikim orga- ekonomska kriza,
nizacijama, da je preoblikovanje aktivnosti značajno više u manjim ukidanje,
organizacijama, ali i da velike organizacije imaju poteškoće u odnosu preoblikovanje aktivnosti,
i radu sa zaposlenima tokom perioda krize, u većoj meri u odnosu na ne-novčana motivacija,
male i organizacije srednje veličine. menadžment znanja
98
CIP - Каталогизација у публикацији
Народна библиотека Србије, Београд
33
The EUROPEAN Journal of Applied

Economics / editor-in-chief Nemanja Stanišić. -
Vol. 12, No. 1 (2015)- . - Belgrade : Singidunum
University, 2015- (Belgrade : Caligraph). - 28
cm
Polugodišnje. - Је наставак: Singidunum

Journal of Applied Sciences = ISSN 2217-8090
ISSN 2406-2588 = The European Journal of
Applied Economics
COBISS.SR-ID 214758924
Vol. 16 Nº 1
Vol. 16 Nº 1
OCTOBER 2019
Population Age Structure Change Antecedents of mobile banking: Causal link between employment and
and Labour Productivity: Utaut model p. 20-29 renewable energy consumption:
Evidence from Tunisia p. 1-19 Evidence from Nigeria p. 30-40
Gold in investment portfolio from Defining the need for and proposing how Resultant Effect of Crisis-Driven
perspective of European investor to transform traditional into digital banks HR Strategies Applied During Current
2019
p. 41-58 with the support of information and Economic Crisis in Oman – An HR

mobile technologies. p. 59-76 Manager’s Perspective p. 77-98

The European Journal of Applied Economics - Vol. 16 #1

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

The European Journal of Applied Economics - Vol. 16 #1

Uploaded by

Copyright:

Available Formats

journal.singidunum.ac.

p. 41-58 with the support of information and Economic Crisis in Oman – An HR

w w w. j our na l.sing idunum.a c .rs

Population Age Structure Change and Labour Productivity:

Antecedents of Mobile Banking: UTAUT Model

Causal Link between Employment and Renewable Energy

Gold in Investment Portfolio from Perspective of European Investor

De�ining the Need for and Proposing How to Transform Traditional

Resultant Effect of Crisis-Driven HR Strategies Applied During

POPULATION AGE STRUCTURE CHANGE AND LABOUR PRODUCTIVITY:

Olfa Frini*, Khoutem Ben Jedidia

Abstract: Article info:

Region/Country Productivity Age Productivity

Productivity increases with age in

German The most promoting age group for

Crépon et al. France Productivity peaks at 25-34, and de-

Haltiwanger et al. Productivity increases until 55, and

Ilmakunnas and Finland Productivity peaks at around 40, and

Region/Country Productivity Age Productivity

Table 2. An Empirical Overview of Productive Older Workers

TUNISIAN DEMOGRAPHIC CHANGE AND CONSEQUENCES ON LABOUR MARKET

Demographic Shifts and Age Structure Change1

Labour Productivity Shift

Diagram 1. Tunisian labour productivity growth change (1962-2014)

MODEL AND DATA SPECIFICATION

Empirical model specification

Labor force aged 15 − 29 Labor force aged 30 − 49 Labor force aged 50 − 64

α + θ1YLt + θ2 PLt + θ3 ALt + θ 4 Et + θ5OPt + θ6Wt + θ7 K t + β8U t + Zt

Where, zt is the error term.

ECONOMETRIC METHODOLOGY AND ESTIMATION RESULTS

Where, zt is the error term. T-statistics are presented in parentheses.

Estimation Vector Error Correction

The Probability value of the unit roots tests (P-value)

Table 4. Unit Root Tests*

Base regression: Model 1 Model 2

D(Prod) D(YL) D(PL) D(AL) D(E) D(W) D(K) D(OP) D(U)

Note2: Model (2)

Table 7. Vector Error Correction: Model 2

PROMENE U STAROSNOJ STRUKTURI POPULACIJE I RADNA

ANTECEDENTS OF MOBILE BANKING:

Jovana Savić*, Aleksandra Pešterac

Faculty of Economics, University of Kragujevac, PhD students

Abstract: Article info:

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT

Demographic characteristics Number Percentage

Variable Cronbach’s Alpha

Table 2. Reliability analysis

Performance Eﬀort Social Facilitating Intention

Independent variable β Sig VIF

Variable Statements Source

ANTECEDENTE MOBILNOG BANKARSTVA:

CAUSAL LINK BETWEEN EMPLOYMENT AND RENEWABLE ENERGY

Mukhtar Wakil Lawan*, Matthew Oladapo Gidigbi

School of Management and Information Technology,

Abstract: Article info:

Order of Integration and Optimal Lag Selection

1 Data set available at http://dx.doi.org/10.17632/3pp84yf7yf.1

λtrace =− T Σni = r +1 ln (1 −  i ) (2)

Granger Causality Model

EMPIRICAL RESULTS AND DISCUSSION

Unit Root Test and Optimal Lag Selection Results

Lag FPE AIC SC HQ

Model Diagnostic Test Results