BI partner in project on how companies deal with economic uncertainty.

21 December 2020

Understanding how companies adapt to uncertainty can help policymakers design effective economic policy.

The world is becoming less predictable and more volatile. Headline examples include the United States’ increased focus on domestic matters and trade wars, the British decision to leave the EU and increasing Chinese power.

In order to map how this affects firms, Janis Berzins and Pawel Gola from BI Norwegian Business School join colleagues from Lithuania, Latvia, Estonia and Hong Kong in the project ‘Micro-level responses to socio-economic challenges in the face of global uncertainties’.

The Research Council of Lithuania has awarded the project € 840 000, of which BI Norwegian Business School will receive € 218 000. The project starts in January 2021 and will run through February 2024.

“The project will contribute to the public debate and will aid policymakers of small open economies such as the Baltic States, Norway, Iceland, and Lichtenstein”, says Associate Professor Janis Berzins.

“The overall project addresses broad socio-economic challenges by analyzing in detail how firms adjust to trade and broad economic shocks in terms of their labor allocations, human capital and technology investments”, Berzins continues.

Understanding what kind of adjustments are implemented in response to growing uncertainty can guide economic policy makers in deciding what alterations to policy making should be done to maximize society’s welfare.

“For example, if firms in a small open economy expect a trade war between major global players, they will start to implement adjustments. How should the government react? Should they provide financial incentives to speed these adjustments up? Or should they counter them? This will, of course, partly depend on how these micro-level adjustments affect macro-level variables like unemployment and wage inequality, which is precisely what this project strives to establish”, says Assistant Professor Pawel Gola.

In addition to the policy impact, the project will construct new databases and make them available to other researchers in future work to answer questions on topics related to labor economics, innovation economics, international trade, and macroeconomics.

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