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Financialization: Dimensions and determinants. A cross-country study

Author

Listed:
  • Karwowski, Ewa

    (Kingston University London)

  • Shabani, Mimoza

    (University of East London and School of Oriental and African Studies)

  • Stockhammer, Engelbert

    (Kingston University London)

Abstract
The financialisation literature has grown over the past two decades. While there is a generally accepted definition, effectively financialisation has been used to describe very different phenomena. This paper proposes a multi-faceted notion of financialisation by distinguishing between financialisation of non-financial companies, households and the financial sector and using activity as well as vulnerability measures of financialisation. We identify seven financialisation hypotheses in the literature and empirically investigate them in a cross-country analysis for 17 OECD countries for the 1997-2007 period. We find that different financialisation measures are only weakly correlated, which suggests the existence of distinct financialisation processes. There is strong evidence across all sectors that financialisation is closely linked to asset price inflation and correlated with a debt-driven demand regime. Financial deregulation encourages financialisation, especially in the financial and household sector. By contrast, there is limited evidence that market-based financial systems tend to be more financialised, meaning financialisation can occur with large banks. Foreign financial inflows do not seem to be a main driver. We do not find indication that a secular investment slowdown precedes financialisation. Overall, our findings suggest that financialisation should be understood as variegated process, playing out differently across economic sectors in different countries.

Suggested Citation

  • Karwowski, Ewa & Shabani, Mimoza & Stockhammer, Engelbert, 2017. "Financialization: Dimensions and determinants. A cross-country study," Economics Discussion Papers 2017-1, School of Economics, Kingston University London.
    • Handle: RePEc:ris:kngedp:2017_001
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    References listed on IDEAS

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    2. Karwowski, Ewa, 2017. "Corporate financialisation in South Africa: From investment strike to housing bubble," Economics Discussion Papers 2017-7, School of Economics, Kingston University London.
    3. Kohler, Karsten & Guschanski, Alexander & Stockhammer, Engelbert, 2018. "Verteilungseffekte von Finanzialisierung," Greenwich Papers in Political Economy 23471, University of Greenwich, Greenwich Political Economy Research Centre.
    4. Marwil J. Dávila-Fernández & Lionello F. Punzo, 2018. "Some New Insights on Financialisation and Income Inequality," Department of Economics University of Siena 792, Department of Economics, University of Siena.
    5. Claudius Gräbner & Philipp Heimberger & Jakob Kapeller & Bernhard Schütz, 2018. "Structural Change in Times of Increasing Openness," wiiw Working Papers 143, The Vienna Institute for International Economic Studies, wiiw.
    6. Claudius Gräbner & Philipp Heimberger & Jakob Kapeller & Bernhard Schütz, 2020. "Structural change in times of increasing openness: assessing path dependency in European economic integration," Journal of Evolutionary Economics, Springer, vol. 30(5), pages 1467-1495, November.
    7. Faruk Ülgen, 2021. "Public good, collective action and financial regulation," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(1), pages 147-167, March.
    8. Klapkiv Lyubov & Ulgen Faruk, 2022. "An Evolutionary Perspective on the Endogenous Instability of Capitalist Dynamics," Central European Economic Journal, Sciendo, vol. 9(56), pages 291-308, January.
    9. Davies, Clementine, 2021. "Financialisation and rental housing: A case study of Berlin," IPE Working Papers 153/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    10. Engelbert Stockhammer & Karsten Kohler, 2019. "Financialization and demand regimes in advanced economies," Working Papers PKWP1911, Post Keynesian Economics Society (PKES).
    11. Shromona Ganguly, 2021. "Financialization of the Real Economy: New Empirical Evidence from the Non-financial Firms in India Using Conditional Logistic Model," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(3), pages 493-523, September.
    12. Hannes Warnecke-Berger, 2022. "The financialization of remittances and the individualization of development: A new power geometry of global development," Environment and Planning A, , vol. 54(4), pages 702-721, June.
    13. Hanying Qi, 2019. "A New Literature Review on Financialization," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 7(2), pages 40-50.
    14. Costas Lapavitsas & Aylin Soydan, 2020. "Financialisation in developing countries: Approaches, concepts, and metrics," Working Papers 240, Department of Economics, SOAS University of London, UK.

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    More about this item

    Keywords

    financialisation; cross country analysis; financial deregulation; property prices;
    All these keywords.

    JEL classification:

    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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