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- Financialization and Portuguese real investment: a supportive or disruptive relationship?Publication . Barradas, Ricardo; Lagoa, SérgioThe article makes an empirical analysis of the relationship between financialization and real investment by Portuguese nonfinancial corporations from 1979 to 2013. In theory, while financialization leads to a rise in financial investments by nonfinancial corporations and thus deviates funds from real investment, it also intensifies the pressure for financial payments and therefore restricts the funds available for real investment. We estimate an aggregate investment function including control variables (profitability, debt, cost of capital and output growth) and two measures of financialization (financial receipts and financial payments). The study concludes that there is a long-term investment equation, and finds evidence that the process of financialization has hampered real investment largely as a result of financial payments. The article also finds that profitability and debt are both detrimental to real investment.
- Financialisation and real investment in the European Union: beneficial or prejudicial effects?Publication . Barradas, RicardoThis 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.
- Financialisation and Real Investment in the European Union Using a Country-Level Analysis: Beneficial or Prejudicial Effects?Publication . Barradas, RicardoThis paper makes an empirical assessment of the relationship between financialisation and real investment by non-financial corporations using panel data composed of 27 European Union countries over 19 years (from 1995 to 2013). On one hand, financialisation leads to a rise in financial investments, deviating 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 (profitability, debt, cost of capital, savings rate and output growth) and two further measures of financialisation (financial receipts and financial payments). Findings show that financialisation has damaged real investment in European Union countries, mainly through the channel of financial payments either in interest or dividend payments. It is also found that the prejudicial effects of financialisation in investment are more marked in more financialised countries. In addition, it is concluded that debt has a harmful effect on real investment as the increasing levels of non-financial corporations' indebtedness prevent the use of new debts to finance real investments.
- Financialisation and the financial and economic crises: the case of PortugalPublication . Barradas, Ricardo; Lagoa, Sérgio; Leão, Emanuel; Mamede, RicardoThe notion of 'financialisation' broadly refers to the growing weight of finance in contemporary economies. Taking this into account, the present study focus on the long-run macroeconomic development and recent financial and economic crisis of the Portuguese economy. Contrary to Greece, Ireland, and Spain, the dismal performance of the Portuguese economy is not solely a post-subprime crisis phenomenon. The sharp discontinuity in GDP growth around the turn of the century is a distinctive feature of Portugal in the EU context and, although several factors account for this discontinuity, the process of financialisation of the Portuguese economy is an essential part of the explanation. This process in Portugal was essentially characterised by a large increase in bank credit to the private sector, resulting from a combination of demand- and supply-side factors that produced a wide availability of credit at historically low interest rates. Thus, we suggest that the Portuguese experience can be labelled a ‘debt-led domestic demand growth’ model. However, after 2000 the Portuguese economy experienced a succession of shocks, and an exhaustion of the domestic debt-led growth at a much earlier stage than other countries, resulting in a sharp economic slowdown, with negative consequences for public finances. The high levels of public and private indebtedness were a decisive factor behind the steep rise in the Portuguese sovereign bonds interest rates between 2010 and 2012. Finally, we assess the impact of financialisation in the current account, investment, consumption, and inequality; articulating these domains with the general growth model. Our conclusion is that the increase in the importance of finance ended having a clear negative impact on the three former domains, while the negative impact on income inequality was less pronounced.
- Financialization and Portuguese real investment: a supportive or disruptive relationship?Publication . Barradas, Ricardo; Lagoa, SérgioThe article makes an empirical analysis of the relationship between financialization and real investment by Portuguese nonfinancial corporations from 1979 to 2013. In theory, while financialization leads to a rise in financial investments by nonfinancial corporations and thus deviates funds from real investment, it also intensifies the pressure for financial payments and therefore restricts the funds available for real investment. We estimate an aggregate investment function including control variables (profitability, debt, cost of capital and output growth) and two measures of financialization (financial receipts and financial payments). The study concludes that there is a long-term investment equation, and finds evidence that the process of financialization has hampered real investment largely as a result of financial payments. The article also finds that profitability and debt are both detrimental to real investment.