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Jednak, Sandra; Dmitrovic, Veljko; Damnjanovic, Vesna

Article Intellectual as a Driver of Economic Development

Economic Review: Journal of Economics and Business

Provided in Cooperation with: Faculty of Economics, University of Tuzla

Suggested Citation: Jednak, Sandra; Dmitrovic, Veljko; Damnjanovic, Vesna (2017) : Intellectual Capital as a Driver of Economic Development, Economic Review: Journal of Economics and Business, ISSN 1512-8962, University of Tuzla, Faculty of Economics, Tuzla, Vol. 15, Iss. 2, pp. 77-84

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INTELLECTUAL CAPITAL AS A DRIVER OF ECONOMIC DEVELOPMENT Sandra Jednak1 2 3

, Veljko Dmitrović , Vesna Damnjanović

ABSTRACT: become resources for obtaining economic devel- opment and competitiveness in developed coun- There are different factors for obtaining tries (Ilic et al. 2016, Herciu and Ogrean 2015) economic development. In contemporary and less developed countries (Seleim & Bontis economics, and intellectual capital 2013). Investments in education, research and have become necessary for achieving economic development, new technology and development. and development of bring positive economic performances like high- intellectual capital bring benefits and advance er productivity, economic growth, prosperity, job the economy. The main aim of the paper is to creation, and competitive advantages. present the concept of intellectual capital as a driver of economic development. Selected The aim of the paper is to present IC as a driver indicators for measuring intellectual capital and of economic development. It is based on IC of knowledge and their influence on the economic nation as a resource of economic development in development have been presented. The impact of different countries. The observed countries are intellectual capital on economic development is selected developed and developing countries. different based on the level of national economy Even though the main limitation is the lack development. Intellectual capital is a driver of of many studies of IC of the nation in these economic development in advanced economies, countries as well as the measurement of IC, while in developing countries it is not so the correlation is performed between IC and dominant. indicators of economic development (GDP per

Key words: intellectual capital, knowledge, Global competitiveness index) in the observed economic development, knowledge based countries.capita, inflation, The analysis unemployment, shows that HDI,IC is aand driver WEF of economy economic development and there is a correlation between national IC and indicators of economic JEL Classification: O10, 030, J24 advanced economies, while in developing countriesdevelopment. it is not Furthermore, so dominant IC because is a driver there inis 1. INTRODUCTION

According to Lisbon strategy (2000) under Afterno statistical Introduction, significance Section to 2confirm gives an it. overview which the European Union (EU) becomes “the of the concept of knowledge and IC. Section most competitive knowledge based economy in 3 focuses on economic development of the the world”, followed by Europe 2020 strategy observed countries. Section 4 provides (2010) that aims to obtain smart, sustainable correlation analysis between IC and indicators and inclusive growth, factors that lead to eco- of economic development in the selected nomic development are directed to knowledge and intellectual capital (IC). Knowledge and IC analysis are given in Conclusion. countries. Summary and final marks of the

1 University of Belgrade, Faculty of Organizational Sciences; Jove Ilica 154, 110000 Belgrade, Serbia; Email: [email protected]

2 University of Belgrade, Faculty of Organizational Sciences; Jove Ilica 154, 110000 Belgrade, Serbia; Email: [email protected]

3 University of Belgrade, Faculty of Organizational Sciences; Jove Ilica 154, 110000 Belgrade, Serbia; Email: [email protected]

Economic Review – Journal of Economics and Business, Vol. XV, Issue 2, November 2017 77 /// /// Call for papers

S. Jednak, V. Dmitrović, V. Damnjanović 2. THE CONCEPT OF KNOWLEDGE AND Generally, creates and INTELLECTUAL CAPITAL maximizes IC. IC covers both explicit and tactic knowledge (Akpinar and Akdmeir 2000, p.338). Developed countries are directed and depend Knowledge, IC and knowledge management are on information, knowledge and skills at a related. Knowledge is source of IC therefore IC higher level. Their aim is the establishing of is source of innovation. Innovation increases the knowledge (based) economy. They run productivity, income, living standard and a continuous process of transforming their prosperity of a nation. economies towards activities and knowledge- based sectors. Economic activities in the IC is “the value of company`s employee knowledge (based) economy are primarily knowledge, business training and any focused on manufacturing and services, proprietary information that may provide especially in knowledge based industries. These the company with a competitive advantage” activities are based on intangible assets i.e. (Investopedia 2017). There are different knowledge and intellectual capital. According structures and sub categories of IC. According to endogenous growth theory, economic growth to Edvisson and Malone model (Bontis 2001) and development are obtained thought the rise of IC has two key sub categories: knowledge and innovation. Creation, movement and Structural capital. Structural capital and application of knowledge bring innovation, comprises Market (also denoted as Consumer growth and development (Marcin 2013). or Relation) capital and Organizational capital, Moreover, investments in knowledge create while Organizational capital has two sub new knowledge and ideas that improve other components: Process capital and Renewal production factors, productivity and income rise. (Innovation) capital. Human capital is the In this way, there is an opportunity for using the stock of knowledge, habits, skills and personal knowledge as a factor of economic growth and attributes and competencies in performing development. In the knowledge-based economy, labour activities. Structural capital refers to knowledge can be analyzed throughproduction non-human storehouses as infrastructure, (R&D), transmission (education and training) hardware, software, process and that and transfer/application (disseminating provide work of human capital. Organizational knowledge, providing inputs for problem- capital is organisational philosophy and solving, and innovation) (OECD 1996, p.21), and capability; it is organisational structure, , be resource, product or system. In conclusion, . Market (Consumer or Relation) knowledge has direct or indirect effects on the capital refers to relationships with customers, economic growth and development. vendors and others. Process capital presents procedures, programs and techniques, while Besides this, knowledge can be explicit and IC is , patents, tactic (Nonaka and Takeuchi 1995). Explicit (Marcin 2013, p. 290). Human, relation, process knowledge rests on the tactic knowledge (Collins and innovation capitals usually act together on economic performances and have multiple knowledge embodied in documents, books, effects. journals,2010, p.5). system, Explicit process, knowledge etc. It is is obtained a codified by education, so it is available to anybody and can Intellectual capital (IC) is mostly analysed at be transferred to others (Nonaka and Takeuchi the business level, and its role is to enhance 1995). Tactic (implicit) knowledge is based on the experience and intuition. It isof personal However, some studies cover research of IC at nature based on person’s experiences and thefinancial national capital level. and National other business IC is “knowledge outcomes. it is hard to get it (Jednak and Kragulj 2015). According to Dhanaraj et al. (2004) tactic growth and development” (Bontis 2001). knowledge is accumulative and helps to explain Thebased value capital and which ranking influences of national on the IC economic provide explicit knowledge. Knowledge management a direction for economies to benchmark and creates, transfers, uses and accumulates invest in appropriate intangible assets and knowledge in order to improve companies’ performances (Tilchin and Essawi 2013). influence further economic development (Lin & Edvinsson 2010, p. 8, Wisniewski & Wildowicz- /// 78 Economic Review – Journal of Economics and Business, Vol. XV, Issue 2, November 2017 Intellectual capital asCall a driver for papers of economic development ///

traditional society (low productivity and (2015) present IC concept from a regional agriculture sector) across industry to service perspective.Giegiel 2014). Ståhle Marcin (2008) (2013) describes and Rusu-Tanasă tools and sector that enhances productivity and income. methods of identifying and measuring IC and its economic impact. Seleim & Bontis (2013) In developed countries economic development show the relationship between national IC is based on knowledge. Traditional factors as and economic performances in less developed land, labour and capital are not the primary countries. They claim that relational capital source of economic growth and development. is a critical component in obtaining economic However, these factors are still dominating in performance. In studies by Stam & Andriessen developing countries. Due to rapid changes (2009) and Andriessen & Stam (2005), the and new technologies, developed countries have focused on the service sector, while investment in IC pays off; human and structural developing countries focus on agriculture capitalauthors go compose together; IC theindex high and value find theof IC following: does not and manufacturing sector. Agriculture and guarantee increased productivity; there is the manufacturing do not enable high value added, growth of value of IC in all EU (EU-15 and EU- higher , productivity, income and living standard. To obtain a higher level countries are behind Japan and the USA. Nordic of development, developing countries should EU19) countries countries. have Furthermore, the best performance the EU observed of the utilise the practice, capital and technologies value of IC. Lin & Edvinsson (2008) got similar from developed countries as well as establish results about Nordic countries. institutions. Due to lack of domestic capital, foreign capital is seen as the main force However, there are some limitations in research of relation between IC and economic developing countries should be coherent with theof EU economic and the world. development. In order toFurthermore, achieve this the study of impact of national IC on economic aim, developing countries or those in transition development.performance. TheThe first second limitation limitation is the lackis the of should provide the knowledge based economy. measurement of national IC as well as the lack They should invest in knowledge, education, of the data for many countries. IC cannot be research and development, and new advanced measured directly, but rather through a set technologies. In this way, innovation could of indicators that present sub components - be obtained and raise productivity, income human, relation, process and innovation capital. and living standard. However, this path is not Several measurement and assessment of IC are possible for all developing countries because of the lack of capital, saving and external well as personal composite index because there isdeveloped no single by and UN, unique World Bank, index. EU, Some OECD, countries WEF as Investments are mostly present in traditional are provided with their own measurement. factorssources (land, for financing labour and economic capital) development. and sectors (agriculture and industry).

3. ECONOMIC DEVELOPMENT Economic development is a broader category than economic growth. Since the process of The level of economic development is different economic development is multidimensional, in various countries. The goal of economic there are many indicators of economic development is the availability of goods and development. No single indicator measures services, increasing the standard of living economic development. Gross domestic and rise of social and economic choices for product (GDP) is still the primary indicator. individuals. There are economic (land, labour, However, there are others that need to be taken capital, technology) and non-economic factors into consideration to show the right level of economic development. Besides GDP, there the achievement of economic progress. Based on(institutional, these factors, social there and are value) strategies that influence based on natural resources, capital or labour. Also, competitivenessare: GDP per capita, index, inflation, poverty, unemployment, inequality, each economy starts its development from literacy,Human Developmentetc. Index (HDI), WEF Global

Economic Review – Journal of Economics and Business, Vol. XV, Issue 2, November 2017 79 /// /// Call for papers

S. Jednak, V. Dmitrović, V. Damnjanović 4. INTELLECTUAL CAPITAL AND ECONOMIC DEVELOPMENT indictors are complicated and multidimensional. DifferentThe approaches types ofto findingcomposite appropriate index are and created single Since the late 1990s, IC has started to be and used by Andriessen & Stam (2005), Ståhle explored as a factor for enhancing economic performances and creation of wealth. Different Edvinsson (2017). Edvinsson (2017) is created models are applied at national level (Stam the(2008), National Lin & Intellectual Edvinsson Capital(2010), (NIC) Užienė index (2014), and & Andriessen 2009, Pulic 2005, Lin, C. Y. Y. presented it for the selected countries as the & Edvinsson, L. 2010). IC bears advantage driver of country’s economic growth (http:// performances and creation of wealth especially in a few studies. infor developed a country countries and it such influences as the Nordic economic ones. bimac.fi/nic/). This approach and data are used Human capital is an input of economic growth. The aim of this paper is to calculate the It is followed by structural capital that gives correlation between NIC and economic support to human capital in infrastructure, development. NIC was used from Edvinssons’ databases, processes, patents, structure and (2017) and the available data for 2011 innovation in order to implement and obtain certain goals. Appropriate measurement of same year, indicators for economic development each capital and its use can enable better for 47 countries (http://bimac.fi/nic/). For the guidelines and direct investments as well as the performance of a company or a nation. were taken from the World Bank data, including indexGDP per (HDI) capita was PPP, taken Inflation from the(annually UN while %) andthe However, as it has been noticed, neither IC nor GlobalUnemployment Competitiveness (Total %). Index Human (GCI) development was taken economic development have a single indicator. 2012. Table 1 provides the correlation between NICfrom theand World selected Economic indicators Forum ofReport economic 2011- eachFor IC, sub the category,most used there indicators are sets are theof indicators.composed development forall the countries. indicators that contain IC sub categories. For Table 1. Correlation between NIC and selected indicators of economic development, all countries

NIC GPD_pc_PPP Unemployment HDI GCI

Pearson Correlation 1 .010 Inflation-.484(**) -.240 .806(**) .905(**) Sig. (2-tailed) .949 .001 .104 .000 .000 NIC N 47 47 47 47 47 47 Pearson Correlation .010 1 -.107 -.241 -.079 .066 Sig. (2-tailed) .949 .474 .103 .599 .657 PPP

GPD_pc_ N 47 47 47 47 47 47 Pearson Correlation -.484(**) -.107 1 .000 -.377(**) -.543(**) Sig. (2-tailed) .001 .474 .998 .009 .000

Inflation N 47 47 47 47 47 47 Pearson Correlation -.240 -.241 .000 1 -.123 -.387(**) Sig. (2-tailed) .104 .103 .998 .409 .007 ment

Unemploy- N 47 47 47 47 47 47 Pearson Correlation .806(**) -.079 -.377(**) -.123 1 .615(**) Sig. (2-tailed) .000 .599 .009 .409 .000 HDI N 47 47 47 47 47 47 Pearson Correlation .905(**) .066 -.543(**) -.387(**) .615(**) 1 Sig. (2-tailed) .000 .657 .000 .007 .000 GCI N 47 47 47 47 47 47

** Correlation is significant at the 0.01 level (2-tailed). /// 80 Economic Review – Journal of Economics and Business, Vol. XV, Issue 2, November 2017 Intellectual capital asCall a driver for papers of economic development ///

There is a correlation between NIC and economic development. However, statistical strong positive correlation is between NIC the% of highest the world parts GDP. of NIC In inthe their USA GDP. it is According about 70 and HDI (r=0.806) and GCI (r=0.905), p< 0.01. to%, allwhile databases, in the EU Nordic 52%. Nordiccountries countries (Denmark, have Also, there is a statistical negative correlation and Switzerland have the highest NIC, development,Sweden, Finland, HDI Norway,and GCI. theThese Netherlands) countries between NICNIC andand GDP Inflation per capita (r=-0,240), PPP (r=0,010), p< 0.01. have oriented their economies towards the Furthermore, there is a positive correlation . The service sector and knowledge based industries are important for but not statistically significant. Correlation obtaining economic growth and development. between NIC and Inflation is negative and not Also, sub categories of IC take part in achieving statistically significant due to p value (p=0.104). are analyzed, the results are not statistically contributes to innovation and economic growth. When developed and less developed countries AccordingGDP (Bilen-Katić to Andriessen & Radovanović & Stam (2005), 2014). most NIC observed countries include developed or less developed countries improve the value of IC developedsignificant. countries It should whilebe emphasised the number that of thosemost and register the growth of investment in IC. that are not developed is very small (Tables 2 The strategies for growth at national, regional and 3). Due to this, the results could be unusual. and business levels are necessary due to the direction of further activities and development. According to Bimac NIC (2014), NIC explains The concepts and strategies of innovation in GPD formation and GDP growth. The results SMEs have a role in enhancing performances show that intangible capital accounts for 45

(Milutinović et al. 2015). Table 2. Correlation between NIC and selected indicators of economic development, developed countries NIC GDPpcPPP Unemployment HDI GCI

developed developed developed developed developed developed Inflation Pearson Correlation 1 .066 -.250 -.267 .158 .637(**) Sig. (2-tailed) .777 .274 .241 .495 .002 NIC

developed developed N 21 21 21 21 21 21 Pearson Correlation .066 1 -.237 -.257 .244 -.144 Sig. (2-tailed) .777 .301 .260 .287 .533 developed developed

GDPpcPPP N 21 21 21 21 21 21 Pearson Correlation -.250 -.237 1 .028 -.451(*) -.190 Sig. (2-tailed) .274 .301 .903 .040 .410 Inflation

developed developed N 21 21 21 21 21 21 Pearson Correlation -.267 -.257 .028 1 -.107 -.407 Sig. (2-tailed) .241 .260 .903 .644 .067 ment

developed developed N 21 21 21 21 21 21 Unemploy- Pearson Correlation .158 .244 -.451(*) -.107 1 -.218 Sig. (2-tailed) .495 .287 .040 .644 .342 HDI

developed developed N 21 21 21 21 21 21 Pearson Correlation .637(**) -.144 -.190 -.407 -.218 1 Sig. (2-tailed) .002 .533 .410 .067 .342 GCI

developed developed N 21 21 21 21 21 21

** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed).

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S. Jednak, V. Dmitrović, V. Damnjanović Table 2 shows developed countries and NIC developing countries are similar as it is in the positively correlated with the variables GDP research of Seleim & Bontis (2013). Still, NIC per capita PPP (r = 0.066), Unemployment (r and unemployment are positively correlated = -0.267), HDI (r = 0.158) and GCI (r=0.637), in developing countries even though that is not (r = -0.260). There is no the case in developed countries. The knowledge is used for creating innovation (new product, Theseexcept resultswith inflation are associated with the research technology, process, etc.) and it should raise ofstatistical Lin & significantEdvinsson except2010. Table to GCI 3 (p< presents 0.01). production so as to decrease unemployment to. less developed countries with NIC positively If other traditional resources have been taken in correlated with variables GDP per capita PPP the analysis, the results would probably show (r = 0.130), Unemployment (r = 0.111), HDI (r that they have a dominant role in economic = 0.228 ), GCI (r=0.725) development. It could be concluded that IC is a (r = -0.482) driver of economic development in developing except to GCI (p< 0.01)., except These with results inflation for countries, but it is not such a dominant resource. . There is no statistical significant

Table 3. Correlation between NIC and selected indicators of economic development, developing countries NIC GDPpcPPP Unemployment HDI GCI

developing developing developing developing developing developing Inflation Pearson 1 .130 -.482 .111 .228 .725(**)

Correlation

NIC Sig. (2-tailed) .687 .113 .732 .477 .008

developing developing N 12 12 12 12 12 12 Pearson .130 1 -.252 -.170 -.242 .422 Correlation Sig. (2-tailed) .687 .430 .597 .448 .172 GDPpcPPP developing developing N 12 12 12 12 12 12 Pearson -.482 -.252 1 -.067 .150 -.839(**) Correlation Sig. (2-tailed) .113 .430 .837 .641 .001 Infaltion Infaltion developing N 12 12 12 12 12 12 Pearson .111 -.170 -.067 1 -.206 -.034 Correlation Sig. (2-tailed) .732 .597 .837 .520 .916 developing

Unemplyment Unemplyment N 12 12 12 12 12 12 Pearson .228 -.242 .150 -.206 1 -.173 Correlation

HDI Sig. (2-tailed) .477 .448 .641 .520 .591

developing developing N 12 12 12 12 12 12 Pearson .725(**) .422 -.839(**) -.034 -.173 1 Correlation

GCI Sig. (2-tailed) .008 .172 .001 .916 .591

developing developing N 12 12 12 12 12 12

** Correlation is significant at the 0.01 level (2-tailed).

/// 82 Economic Review – Journal of Economics and Business, Vol. XV, Issue 2, November 2017 Intellectual capital asCall a driver for papers of economic development ///

5. CONCLUSION REFERENCES

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S. Jednak, V. Dmitrović, V. Damnjanović 13. Lin, C. Y. Y., & Edvinsson, L. (2008). National intellectual capital: comparison of the Nordic countries. Journal of Intellectual Capital, 9(4), 22. ofRusu-Tanasă, Regions and M. Countries. (2015). Intellectual Procedia Economics Capital a 525-545. andStrategic Finance Factor, 27, of 369-374. Socio-Economic Development AUTHOR GUIDELINES 14. Lin, C. Y. Y., & Edvinsson, L. (2010). National 23. Seleim, A., & Bontis, N. (2013). National intellectual capital: A comparison of 40 countries. intellectual capital and economic performance: Springer Science & Business Media. empirical evidence from developing countries. ABSTRACT Knowledge and Process Management, 20(3), This document contains information and instructions for preparing and formatting the papers 15. Lisbon strategy (2000) 131-140. for the Economic Review. The text of the abstract should not exceed 300 words, headed with 16. Marcin, K. (2013). Intellectual capital as a the word 'Abstract', capital letters, in bold, Font: Times New Roman, Font size: 11 pt., italic. 24. Ståhle, P. (2008). National intellectual capital key factor of socio-economic development of Paper length 5000 – 7000 words as an economic driver–perspectives on regions and countries. Procedia Economics and Inspired by Finance, 6, 288-295. Keywords: keyword 1, keyword 2, keyword 3 (Font: Times New Roman; Font size: 12 pt.) Knowledge in , Swedish School of 17. Marcin, K. (2013). Intellectual capital is a Economicsidentification and andBusiness measurement. Administration, Helsinki, JEL: http://www.aeaweb.org/journal/jel_class_system.php#M key factor in socio-economic development of 94-121. regions and countries. Procedia Economics and 25. Stam, C., & Andriessen, D. (2009). Intellectual Finance, 6, 288-295. Capital of the European Union 2008: Measuring 1. THE PAPER'S TITLE the Lisbon Strategy for Growth and Jobs. Concepts And Importance of Strategic Electronic Journal of Knowledge Management, The title of the paper is to be positioned in the third line of the paper, as shown in the 18. InnovationMilutinović, in R., SMEs: Stošić, B.,Evidence & Mihić, from M. (2015).Serbia. 7(4). example. Management: Journal Of Sustainable Business 26. Tilchin, O., & Essawi, M. (2013). Knowledge And Management Solutions In Emerging Title of the paper: Times New Roman, 14 pt, Bold, Capital Letters. management through organizational culture Economies, 20(77), 35-42. change. International Journal of Business 19. Nonanko, I., & Takeuchi, H. (1995). The Administration, 4(5), 24. 2. THE PAPER'S STRUCTURE knowledge-creating company: How Japanese companies create the dynamics of innovation. an indicator of the wealth of nations: the case of Authors should, in the paper structure, focus their attention on introduction, previous Oxford University Press 27. theUžienė, Baltic L. (2014).States. Procedia-Social National intellectual and Behavioral capital as research on the topic, research methodology, discussion and conclusion. 20. OECD (1996).The knowledge based economy. Sciences, 156, 376-381. OCDE/GD(96)102

National Intellectual capital (nic) new metrics. 3. MARGINS AND PAGE FORMAT national and regional levels: case study–Croatia 28. ReviewWisniewski, of Business P., & Wildowicz-Giegiel, and Economics Studies A. (2014)., (4). 21. andPulic, the A. European (2005). Union. Value creationIntellectual efficiency Capital for at Papers should be prepared in accordance with the following guidelines: Communities, Elsevier, Oxford. Margins: top 2.54 cm, bottom 3.81 cm, left 2.54 cm, right 2.54 cm. Body of the text (excluding abstract): Font: Times New Roman, 12 pt, Normal, Paragraph alignment: justified, single spaced. Text paper (excluding abstract) should be in Times New Roman font, 12 pt., Normal, justified to the left and right margins.

4. TITLES

The main headings are to be numbered with Arabic numerals 1., 2., 3., …, Font: Times New Roman 12 pt. , Capital Letters, Paragraph Alignment: Left; A new paragraph should be separated by a blank line.

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