Problems and Priorities of Strengthening Economic Security Using it Management: Structural Modeling Approach

Introduction

The economic security of the country is one of the components of national security. It plays a significant role in ensuring sustainable economic development, implementing effective social policies, maintaining an appropriate level of competitiveness in an international economic interdependence. The essence of economic security is that it is the material basis of national sovereignty and determines the real possibilities for other types of security.

According to the Ministry of Economy of Ukraine, in 2010-2019 the economic security of Ukraine was in the zone of unsatisfactory condition. The average value of the level of economic security for 10 years was 40 percent, in 2019 - 43 percent, and the first half of 2020 - 41 percent.

The main components of economic security are financial security, industrial security, investment and innovation security, international economic security, macroeconomic security.

Literature review

The study of economic security is one of the topical issues, and special attention is paid to the issues of economic security of individuals, enterprises, society and the state. (Brown & Bowman, 2020) investigated the issues of economic security and dignity. The issues of assessing and ensuring economic security are discussed in (Gryshova et al., 2020), (Greer, 2021), (Hacker et al., 2014), (Kahler, 2004), (Shumilo et al., 2021).

Economic security has different aspects, their research has been carried out in many papers. In particular financial security investigated in (Brychko & Olejarz, 2019), (Davydenko et al., 2019), (Kaminskyi & Versal, 2018), (Lukianenko & Dadashova, 2016), industrial security in (Petrunenko et al., 2021), (Starychenko et al., 2020), (Zhylinska et al., 2020), investment and innovation security in (Ramazanov et al., 2020), (Hryhoruk et al., 2021), (Matviychuk et al., 2019), (Stępnicka et al., 2020), (Zherlitsyn et al., 2021) international economic security in (Odehnal & Neubauer, 2020), (Vlasenko et al., 2020), (Zakharova et al., 2020), macroeconomic security in (Guryanova et al., 2020 ), (Heiets et al., 2006), (Merkulova et al., 2018).

Methodology

Various methods are used to measure the state of economic security: monitoring of the main socio-economic indicators and comparing them with the limit values; expert evaluation; scenario analysis; optimization; game-theoretic; multidimensional statistical analysis; theory of artificial neural networks, etc.

The comparative approach is based on a comparison with the indicators of analog countries. Such indicators are comparability of economic development; comparative solvency of the population; coverage of social expenditures by wages; the level of shadowing of the economy; export (import) dependence of the economy; concentration of commodity exports (imports); duration of export operations; attractiveness of investing; protection of investors' interests and others.

The advantage of the comparative approach is a comprehensive assessment of economic security. Its disadvantage is the difficulty of comparison, associated with the analysis of different environments of countries.

A structured approach to the assessment of economic security involves the analysis of its functional components. The main disadvantage of this approach is the uncertainty of the distribution of the weight of the components of economic security.

The targeted approach to assessing economic security involves the harmonization of goals and methods to achieve these goals, namely the assessment of the degree of provision of conditions for sustainable development. The advantage of this approach is the simplicity of interpretation of the evaluation of the results. The targeted approach allows for preventive measures.

The paper considers the tripartite links between public debt, foreign direct investment, and Ukraine's GDP over the past 20 years (1999-2019). Also, in the model as independent variables are used data on unemployment, %, population, million people, exports of goods and services, million US dollars, foreign exchange reserves, million US dollars, inflation rate, %, openness of the economy, %. Data were obtained from the World Bank website in the section World Development Indicators (Worldbank, 2021).

Results

Economic security assessing: challenges, threats, priorities

The level of economic security is extremely fluid in time, the nature and list of challenges and threats change frequently. Therefore, it is objectively necessary to develop a mechanism for assessing the state of economic security and consistently adjusting the country's strategic national priorities. The assessment of the economic security of Ukraine during 2010-2019 presents in Tabl 1.

Table 1. Assessment of economic security

Ensuring economic security in the strategic development of the country is a multifaceted complex problem that involves:

- active management actions on the part of public authorities with the aim of sustainable economic development;

- the dominance of preventive measures in ensuring economic security;

- continuous improvement of methods of combating illegal economic activity.

Ensuring economic security, considered in a strategic context, is possible only if a set of measures is combined, which includes a wide range of areas of interrelated development of the economy and society, both in the domestic and international spheres. The main tasks to ensure economic security are presented in Table 2.

Table 2. Economic security development strategy

Tasks should be formed not only at the strategic level, but also when planning individual programs and projects, which should meet the objectives of the country's economic security strategy and indicate the following:

- what risks are expected during the implementation of the program and how they can be compensated;

- exactly what requirements of security strategies are implemented in this program;

- what are the indicators of the limit values established for these;

- requirements, and to what extent the implementation of the corresponding program ensures the achievement of fixed values or approximation to them.

Economic security structural modeling

The investigation of the relationship between public debt, foreign direct investment and economic growth allows to assess the characteristics of economic security. In order to study the relationships between GDP, public debt and foreign direct investment, a system of structural equations (1) is proposed, which consists of three equations:

,

,                                                                                        (1)

,

where GDP –  real GDP per capita, US dollars;

PD – public debt, million US dollars;

FDI –  foreign direct investment, million US dollars;

UR –  unemployment rate,%;

POP – population, million people;

EXP – exports of goods and services, million US dollars

RSV – gold and foreign exchange reserves, million US dollars;

INF – inflation rate, %;

OPN – indicator of economic openness, % .

The structural econometric model (1) investigate the impact of foreign direct investment on gross domestic product (GDP), the impact of gross domestic product on public debt, as well as the impact of public debt and GDP on foreign direct investment.

For investigation the relationships between analytical data, we use a system of simultaneous equations, in which we recognize the variables as follows: dependent variables are denoted by y, independent variables x with the corresponding indices:

,

,                                                                                              (2)

,

where GDP – y1; PD – y2; FDI – y3; UR – x1; POP – x2; EXP –  x3; RSV– x4; INF – x5; OPN –  x6.

Thus, the system of simultaneous equations consists of three equations, in which there are 3 resulting variables (y) and 6 factor variables (x), which affect the resulting variable. However, several endogenous variables in some equations become exogenous variables in other equations, which indicates that this system of equations can be considered a system of simultaneous equations of the simulative econometric model, which we will study in the course of work. Thus, the classical least squares method cannot be used to study the relationships between these features, which complicates the task somewhat.

The first equation of the simulative model allows us to study the impact of foreign direct investment on economic growth. Increasing foreign direct investment is likely to accelerate economic growth, while the accumulation of public debt will slow economic development and reduce FDI inflows into the country. Thus, in this model, the value of GDP per person is influenced by FDI, as well as other selected variables, namely the unemployment rate and population.

The second equation of the system shows the interaction between gross domestic product per capita and public debt. This part of the equation explains how public debt operates at a certain value of GDP per person, as well as such factor variables as exports and total reserves.

The third equation of the model considers the determinants of foreign direct investment. Public debt has a significant negative impact on foreign direct investment, as its growth harms the “vision” of a foreign investor and creates negative expectations for the future economy, resulting in reduced FDI inflows. However, some scientists see the opposite positive relationship in this. In addition, inflation and the openness of the economy can also to some extent affect foreign investment and are therefore included in the analysis. But this indicators does not explain the foreign direct investment, that’s why the GDP was also included into the equation.

Before estimating of the unknown parameters of the model and applying the necessary method of analysis, we check whether the data of the equation are identified. For this, we use the mandatory condition of identification (order condition) - the number of exogenous variables removed from the equation must be not less than the number of endogenous variables it contains, reduced by one: k-ki≥mi-1.

Table 3. Verification of the identification of the equations of the simulative model of economic security

The results in Table 3 show that all three equations of the system are over-identified, ie for some structural parameters we can get more than one value. This suggests that the two-step least squares method can be used for such equations.

For estimation of the unknown parameters of the simulative model, we use the two-step least squares method, given that all our equations are overidentified.

To begin, repeat the recording of the original model in abbreviated form in a condensed form (3):

,

,                                           (3)

,

In this case, the analysis is performed not for the actual values of the resulting features (y), but for their theoretical values (ỹ).

,

,                    (4)

,

We use the previously obtained equations to find the appropriate theoretical values of endogenous variables (ỹ), which will be necessary for further analysis. Substituting the theoretical values of the resulting variables into structural equations, we estimate the parameters of structural equations by the method of two-step least squares:

,

,                                                                     (5)

.

The constructed structural model is adequate and can be used to forecast economic security.

Discussions

Estimation of model parameters allows to reach the following conclusions:

• 1% reduction in the unemployment rate will increase real GDP per capita by $ 44.3;
• an increase in foreign direct investment of $ 1 million will increase GDP per capita by $ 0.19;
• an increase in exports of goods and services by $ 1 million will reduce public debt by $ 1.51 million;
• an increase in real GDP per capita by $ 1 will increase public debt by $ 60 million;
• 1% increase in inflation will reduce FDI by $ 21.88 million.

Strengthening economic security can be considered the most priority consequence of the functioning of the financial market and its segments in terms of studying the integration interaction between them.

Conclusion

One of the important conditions for the sustainable development of the national economy is the timely response to threats from environmental factors and the definition of clear methods for assessing the level of threats to the state by one or another factor.

The creation of an effective system of economic security makes it possible to identify threats to national economic interests promptly and to prevent damage to the socio-economic system as a whole.

The result of ensuring economic security, which can be obtained by achieving the goal can be considered to increase resistance to internal and external factors.

Conflict of interest

The authors declare no potential conflict of interest regarding the publication of this work. In addition, the ethical issues including plagiarism, informed consent, misconduct, data fabrication and, or falsification, double publication and, or submission, and redundancy have been completely witnessed by the authors.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article