Financialisation and Real Investment in the European Union: Beneficial or Prejudicial Effects?

This article presents an empirical analysis of the relationship between financialisation and real investment for non-financial corporations using panel data composed of 27 European Union countries over 19 years (1995 to 2013). On the one hand, financialisation leads to a rise in financial investments, diverting funds from real investments (‘crowding out’ effect); on the other, pressures from shareholders to intensify financial payments restrict the funds available for new real investments. We estimate an aggregate investment equation with the traditional variables (lagged investment, profitability, debt, cost of capital, corporate savings and output growth) and two further measures of financialisation (financial receipts and financial payments). The findings demonstrate that financialisation has damaged real investment in European Union countries, mainly through the channel of financial payments, either by interest or dividend payments. It is also found that the prejudicial effects of financialisation on investment were more severe in the pre-2007 crisis period. It is concluded that financialisation contributed to a slowdown of real investment by 1 to 8 per cent in the full and pre-crisis period, respectively. During the pre-crisis period, financialisation was the main driver of the slowdown of investment in the European Union.     

Dimensions and Determinants of Financialisation: Comparing OECD Countries since 1997

ABSTRACT

The financialisation literature has grown over the past decades. Despite a generally accepted definition, financialisation has been used to describe different phenomena. We distinguish between financialisation of non-financial companies, households and the financial sector and use activity and vulnerability measures. We identify seven financialisation hypotheses in the literature and empirically investigate them in a cross-country analysis for 17 OECD countries and two time periods, 1997–2007 as well as 2008–17. We find different financialisation measures are only weakly correlated, suggesting the existence of distinct financialisation processes. There is strong evidence that financialisation is linked to asset price inflation and correlated with a debt-driven demand regime. Financial deregulation encourages financialisation. There is limited evidence that market-based financial systems are more financialised. Foreign financial inflows do not seem a main driver. We do not find indication that an investment slowdown precedes financialisation. Our findings suggest financialisation should be understood as a variegated process, playing out differently across economic sectors and countries.     

Quantitative Easing Forever? Financialisation and the Institutional Legitimacy of the Federal Reserve’s Unconventional Monetary Policy

Scholars of financialisation have argued that the emergence of finance-led grow regimes requires new instruments for effective conduct of economic policy. In this scholarship, central banks have been seen as the most promising actors to utilise one of the most synergetic policies, the maintenance of high and stable prices of financial assets. Since the financial crisis of 2007–8, central banks of the developed world have adopted various unconventional monetary policy measures that serve this function. But will these unconventional measures become institutionally legitimate and institutionalised as conventional practice, as suggested necessary by scholars of financialisation? In this paper, we answer to this question by studying the institutional legitimation of the Federal Reserve’s Quantiative Easing (QE) programmes. We argue that the QE programmes have been legitimated successfully but with institutional legitimation strategies, which cause institutional pressures that question the potential of QE from becoming a regular policy instrument and practice.     

新卡莱茨基学派对当代资本主义金融危机的研究

2008年的金融危机在对世界经济造成极大破坏的同时,也引发了经济学界的广泛思考。新卡莱茨基学派以收入分配为起点,对金融主导的资本主义体制的矛盾性和脆弱性进行了系统性分析,提出了一套涵盖危机成因、传导机制和对策等方面的完整的理论体系。新卡莱茨基学派认为,20世纪80年代以来金融主导的资本主义体制进一步激化了资本主义生产社会化和生产资料私人占有之间的矛盾,造成了收入分配差距扩大并使企业对短期金融投资的偏好大于对长期固定资本的投资,导致了社会总需求不足和经济停滞的趋势。为了保持经济增长,以美国为代表的一些西方发达资本主义国家采取了放松金融管制、鼓励低收入家庭扩大债务来支撑消费的措施,最终引发了金融危机,并且通过外贸渠道和金融渠道将危机扩散至全球。对新卡莱茨基学派关于当代资本主义金融危机研究进行梳理,或许能够为促进新时期我国经济体制改革提供有益借鉴。     

Predictability of sustainable investments and the role of uncertainty: evidence from a non-parametric causality-in-quantiles test

In this article, we examine sustainable investments returns predictability based on the U.S. Dow Jones Sustainability Index (DJSI) and a wide set of uncertainty and financial distress indicators for the period 2002:01–2014:12. To this end, we employ a novel non-parametric causality-in-quantile approach that captures non-linearities in returns distribution. Based on our findings we conclude that the aggregate economic policy uncertainty (EPU) indicator and some components have predictive ability for real returns of the U.S. sustainable investments index. Moreover, if we split our sample to before and after the global financial crisis our results suggest that predictors carry causal information for real returns only in the after-crisis period. Finally, some marginal evidence of predictability from sovereign debt is also observed at the lower and upper ends of the conditional distribution of the real returns of sustainable investments. Our results might entail policy implications for investors and market authorities.     

Fundamentals and Sovereign Risk of Emerging Markets

We empirically assess the relative importance of various economic fundamentals in accounting for the sovereign credit default swap (CDS) spreads of emerging markets during 2004–2012, which encompasses the global financial crisis of 2008–2009. Inflation, state fragility, external debt and commodity terms of trade volatility were positively associated, while trade openness and a more favourable fiscal balance/GDP ratio were negatively associated with sovereign CDS spreads. Yet the relative importance of economic fundamentals in the pricing of sovereign risk varies over time. The key factors are trade openness and state fragility in the pre‐crisis period, the external debt/GDP ratio and inflation in the crisis period, and inflation and the public debt/GDP ratio in the post‐crisis period. Asian countries enjoy lower sovereign spreads than Latin American countries, and this gap widened during and after the crisis. Trade openness was the biggest factor behind Asia's lower sovereign spreads before the crisis, and inflation during and after the crisis. The results imply that external factors were paramount in pricing sovereign risk prior to the crisis, but internal factors associated with the capacity to adjust to adverse shocks gained prominence during and after the crisis.     

Global dynamics,capabilities and the crisis

The financial crisis started in 2007–8, initially in the US, but its consequences have been felt throughout the global economy. However, its effects were far from uniform. While parts of Asia and Africa continued to grow fast, Europe experienced a large set back. This paper emphasizes three important factors: differences across countries in technological development; differences in capacities to exploit the opportunities offered by technology; and differences in the ability to compete in international market. A formal model, based on this approach, is developed and applied to data for 100 countries in the period 1997–2012. Empirical indicators reflecting the various factors are developed, a dataset constructed and econometric estimates of the model performed. The results are used to explore the factors behind the slowdown in economic growth, with a particular emphasis on the continuing stagnation in Europe. A major factor turns out to be the increased financialization of the economy. The negative effect of the growth of finance prior to the crisis is especially pronounced for the countries that suffered most during the crisis.     

商品金融化与产品定价机制变革——从近代欧洲大宗商品交易中心形成过程谈起

近年来,在金融全球化背景下,商品金融化趋势愈加显著。商品金融化并非新生事物,早在近代欧洲,一些大宗商品贸易已开始被赋予金融属性。本文从近代欧洲大宗商品交易中心的形成过程的历史视角研究商品金融化与产品定价机制变革关系,对荷兰的大宗商品交易中心发展过程及商品金融属性的表现特征研究发现,各类金融衍生工具在近代初期已从商品交易中发展起来,并在阿姆斯特丹商品市场上大量应用。由于过分依赖资本收益,国内产业衰落,荷兰商品交易中心地位没能保持下去,在工业革命前半个世纪甚至更早,欧洲商品交易中心从阿姆斯特丹转移至伦敦。从交易中心的形成与转移,可以看到商品金融化进程中基本条件的意义与作用,以及商品金融化问题的本质。这同时揭示出当代商品金融化趋势与产品定价机制变革的关系。     

The influence of capital controls on long run growth: Where and how much?

The financial crisis in East Asia generated a revival of interest in the merits of financial openness. The ensuing debate on the benefits of openness has focused more on short and medium run issues than on the long run effects. Within the empirical literature on economic growth, little or no attention has been paid to the effects of financial openness. Contrary to the orthodox position, the few results that exist suggest that capital controls have no effect on economic growth. This paper argues that this conclusion emerges from a failure to account for underlying differences across countries with similar degrees of capital controls. We show that the degree of ethnic and linguistic heterogeneity in a country plays a significant role in explaining the effects of controls on economic growth. For countries with relatively higher degrees of ethnic heterogeneity, the effects are particularly adverse whereas for countries with high degrees of homogeneity, capital controls actually have a net positive effect on economic growth. On balance, more developing countries suffered due to controls than not. Within the sample of 57 non-OECD countries that did implement controls for the period 1975–1995, as many as 39 saw a reduction in their growth rates. This result is robust to a number of variables commonly used in the economic growth regressions.     

A dynamic approach to analysing the effect of the global crisis on nonperforming loans: evidence from the Turkish banking sector

This article analyses the effect of the global crisis on the determinants of nonperforming loans (NPLs) in the Turkish banking sector by using dynamic panel estimation techniques. Empirical findings suggest that NPLs present persistence, which is more evident after the crisis, while other regressors have also persistent effects in the post-crisis period. Moreover, NPLs are mostly shaped by bank-specific variables before the crisis, whereas, after the crisis, NPLs are also driven by macroeconomic and policy-related variables. In particular, the post-crisis significance of GDP, policy rate and sovereign debt shows that robust economic activity, tight monetary policy and strong fiscal balances restrict NPLs, thereby enhancing financial stability. The significance of inflation in both sub-periods shows that commitment to price stability objective is indispensable for limiting NPLs and promoting financial stability. In the period ahead, the speed and the direction of normalization in global monetary policies may determine the course of financial conditions, which, therefore, have implications regarding NPL dynamics and financial stability.     

危机损失、经济复苏与金融结构比较——什么样的金融体系更能摆脱危机

本文从比较分析视角出发,研究在应对金融危机的过程中,不同的金融结构对经济增长的作用。我们利用57个国家从1960到2009年的面板数据检验了金融结构、金融发展水平与经济增长之间的相互联系。研究结果表明,只有当金融发展水平较高的经济体选择市场导向的金融结构时,才能降低金融危机的损失,提高经济复苏速度,而金融发展水平较低的经济体的最佳选择则是银行导向的金融结构。最后,本文结合中国的现实情况提出了相关的政策建议。     

Subordinated Financial Integration and Financialisation in Emerging Capitalist Economies: The Brazilian Experience

This paper analyses the recent changes in financial practices and relations in emerging capitalist economies (ECEs) using the example of Brazil. It argues that in ECEs these financial transformations, akin to the financialisation phenomena observed in Core Capitalist Economies (CCEs), are fundamentally shaped by their subordinated integration into a financialised and structured world economy. To analyse this subordinated financialisation, the paper draws on the framework of international currency hierarchies. It shows by means of two specific processes how the existence of a hierarchic international monetary system has changed the financial behaviour of domestic economic agents, and with it the structure of the financial system. The first process highlights the phenomenon of reserve accumulation and the changing behaviour of domestic banks. The second points to ECEs’ sustained external vulnerability and its impact on the operations of Brazilian non-financial corporations. The paper also shows that not only were these financial transformations shaped by ECEs’ subordinated financial integration, but also that it was these financialisation tendencies themselves which contributed to cementing existing hierarchies and further deepened existing asymmetries between ECEs and CCEs.     

International aid and financial crises in donor countries

The recent global financial crisis placed new economic and fiscal pressures on donor countries that may have long-term effects on their ability and willingness to provide aid. Not only did donor-country incomes fall, but the cause of the drop — the banking and financial-sector crisis — may exacerbate the long-term effect on aid flows. This paper estimates how donor-country banking crises have affected aid flows in the past, using panel data from 24 donor countries between 1977 and 2010. We find that banking crises in donor countries are associated with a substantial additional fall in aid flows, beyond any income-related effects, at least in part because of the high fiscal costs of crisis and the debt hangover in the post-crisis periods. Aid flows from crisis-affected countries are estimated to fall by 28% or more (relative to the counterfactual) and to bottom out only about a decade after the banking crisis hits. In addition, our results confirm that donor-country incomes are robustly related to per-capita aid flows, with an elasticity of about 3. Findings are robust to estimation using either static or dynamic panel data methods to account for possible biases. Because many donor countries, which together provide two-thirds of aid, were hit hard by the global recession, this historical evidence indicates that aggregate aid could fall by a significant amount (again, relative to counterfactual) in the coming years. We also explore how crises affect different types of aid, such as social-sector and humanitarian aid, as well as whether strategic interaction among donors is likely to deepen or mitigate the fall in aid.     

债务危机应对路径的美欧国际比较

金融危机后为刺激经济复苏,各国采取了非常态经济刺激计划,为债务危机埋下了隐患。美欧主权债务危机问题逐步升级,引起了世界各国的广泛关注。为应对此次债务危机,各国都相继采取了不同措施。本文列举了美欧各国应对危机的路径,并对其进行分析比较,在此基础上总结了债务危机给中国发展的几点启示。     

The Nature of Capitalist Money and the Financial Links Between Debt-Led and Export-Led Growth Regimes

The aim of this article is to develop a consistent theoretical approach to the financial links between the so-called debt-led (DLG) and ‘export-led’ (XLG) growth regimes. Assuming the endogenous supply of money and the unstable dynamics of financial markets, the leveraging process of DLG regimes is taken as an inherent dynamic of developed domestic financial systems, without the need of any external capital inflow. Foreign inflows are not a requisite for such expansions; however, attracted by high expected returns, they can play a key role in fueling DLG cases. Alternatively, current-account imbalances are not an indicator of the international financial flows but rather a side effect stemming from the productive, financial and trade links between DLG and XLG countries. Based on this approach, we study the relationship between changes in credit and current-account balances in several countries before and after the crisis of 2008. Both the observed general relationship of these variables for most of the countries, as well as some specific national cases ‘out of the norm’ are fundamental for understanding the national and international financial links between DLG and XLG models.     

Financial integration faced with the crisis: comparative cases of Greece and Portugal

The recent economic and financial crisis affected many countries in the world in several aspects. Studies of crisis impacts on different aspects of economies would be useful to better understand the actions of each part faced with crisis, as well as the influences of each part on others. In the present research, we studied and compared the international financial integration level and its variations caused by the recent crisis for Greece and Portugal that are strongly affected. Using the Feldstein–Horioka thesis and applying ARDL model with error correction, we measured the financial integration level of these two countries. Also, using simulation, we verified how such a level can be changed by the crisis. We found that the Greece’s financial integration level is affected by the recent crisis, while this crisis has not affected the Portugal’s financial integration level. Moreover, the results for both cases were somehow considered as support for the Feldstein–Horioka initial hypothesis.     

Foreign Direct Investment and External Financing Conditions: Evidence from Normal and Crisis Times

In this paper, we investigate the effects that external financing conditions in source and destination countries have on foreign direct investment (FDI) in normal and crisis times, using a difference‐in‐differences approach. We find that the financial development of the source and destination countries has a strong positive impact on the relative volume of FDI in financially vulnerable sectors in normal times. However, during the 2008–2010 global financial crisis, the relative volume of FDI in financially vulnerable sectors fell relatively more in financially developed source and destination countries, most notably if these countries experienced a credit crisis.     

Relevance of the EU Banking Sector to Economic Growth

Using panel estimates and a sample including all 28 European Union (EU) countries, this paper seeks to improve upon the existing literature with empirical evidence on the role that banking institutions can play in promoting economic growth. Banking sector performance is proxied by relevant operational, capital, liquidity and asset quality financial ratios. Economic growth is represented by the annual gross domestic product (GDP) growth rate. The estimations take into account the recent international financial crisis and consider three panels: one for the time period 1998–2012, a second one for the years before the crisis (1998–2006) and another for the subinterval 2007–2012. The results allow us to draw conclusions not only about the importance of the various financial ratios to economic growth but also regarding reactions to the recent crisis.     

The global financial crisis and protectionism: Substitution from tariffs to non-tariff measures

This study empirically investigates the relationships between tariffs and non-tariff measures before and after the global financial crisis (GFC). The panel analysis is based on traded products of 70 countries from 1997 to 2015. For developed countries, we find that tariffs and non-tariff measures were complementary before the crisis, but they became substitutional afterward. We do not find such shift for developing countries. We also run the analysis by income levels and by types of products and observe differential effects of the GFC on the relationship between the two trade policies.