Institutional Regulation of Productivity in the Shift from Tangible to Intangible Assets: Evidence grom Latvia

Abstract

The institutional-sociological approach views the economy as a system in which relations between economic entities are shaped by economic and non-economic factors, among which technical and economic factors play an exceptional role. The concept of ‘institution’ is interpreted very broadly: it includes the state, corporations, trade unions, competition, monopolies, taxes, sustainable ways of thinking, and legal norms. Representatives of the institutional approach are united by a characteristic methodological principle: an expansive interpretation of the subject of economic theory, the so-called interdisciplinary approach. They also share a common practical recommendation: the requirement for ‘social control’ over the market economy (Coase, 1960). This school of economic thought focuses (in contrast to the classical school) not on the processes of production and circulation, but on the system of economic organisation and management, as well as social and historical aspects. According to representatives of this school, the economy is a playing field. The final outcome of the ‘game’ is determined by the parameters, or ‘institutions,’ that exist on this field. By adjusting them, it is possible to influence the behaviour of the ‘players’ (who make economic decisions independently). The degree of perfection of the rules of the game developed by society determines the level of prosperity of the individual, the firm and society. Moreover, the nature of scientific publications in this area (Buchanan et.al., 1987; Furubotn & Richter, 2000) suggests that this is precisely how neoinstitutionalism will continue to develop in the near future. The authors of the article have devoted considerable attention in a number of publications to the institutional development of the banking sector of the Latvian economy (Baltgailis et.al., 2018; Menshikov et.al., 2019).

The increasing importance of intangible costs has become a significant factor influencing productivity dynamics in modern economies. In Latvia, this process coincided with financial sector reforms that affected investment and credit availability. At the same time, other macroeconomic factors – including fluctuations in external demand and demographic decline – also influenced the country’s economic performance. However, institutional changes in financial regulation may have amplified these effects by limiting investment flows, particularly those directed toward intangible assets such as research, education, and digital infrastructure.

 Keywords: digital platforms; transaction costs, institute, productivity, intangible assets, systemic problems.