Financialization Is Marketization!
Abstract
In this paper, we study the impact of financialization on the rise in inequality in 18
OECD countries from 1970 to 2011 and measure the respective roles of various forms
of financialization: the growth of the financial sector; the growth of one of its subcomponents,
financial markets; the financialization of non-financial firms; and the financialization
of households. We test these impacts using cross-country panel regressions
in OECD countries. As dependent measures we use Solt’s (2009) Gini index, the World
Top Incomes Database, and OECD inter-decile inequality measures. We show first that
the share of the finance sector within the GDP is a substantial driver of world inequality,
explaining between 20 and 40 percent of its increase from 1980 to 2007. When we
decompose this financial sector effect, we find that this evolution was mainly driven
by the increase in the volume of stocks traded in national stock exchanges and by the
volume of shares held as assets in banks’ balance sheets. By contrast, the financialization
of non-financial firms and of households does not play a substantial role. Based on this
inequality test, we therefore interpret financialization as being mainly a phenomenon of
marketization, redefined as the growing amount of social energy devoted to the trade of
financial instruments on financial markets.
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