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Evolution of the financial sector – three different stages: repression, development and financialisation

Publication . Barradas, Ricardo

This paper makes a systematic literature review on the evolution of the financial sector in the last decades all over the world, but especially in the more developed countries. This evolution was marked by three different stages, reflecting different impacts of the financial sector on the real economy and on society. The first stage – financial repression – is characterised by the existence of several regulations and restrictions on the financial sector, which proved to be detrimental to support economic growth. This legitimised the financial liberalisation and deregulation of the financial sector in the recent years, representing the second stage – financial development. Consequently, there was a strong growth of the financial sector in subsequent years, originating an excessive financial deepening and casting doubts around the advantages provided by the financial sector. In fact, excessive financial deepening weakened or reversed the relationship between savings and investments. The large growth of the financial sector and its deleterious effects are commonly referred as financialisation, constituting the third stage. The paper concludes that it is necessary to engage in a fourth stage in the coming years – de-financialisation – in order to re-establish a more supportive relationship between the financial sector and economic growth and presents several policy recommendations around this matter.

2015-12Working paper

Open access

Financialization and Portuguese real investment: a supportive or disruptive relationship?

Publication . Barradas, Ricardo; Lagoa, Sérgio

The 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.

2015-09Working paper

Open access

Functional income distriibution in a small European country: the role of financialisation and other determinants

Publication . Barradas, Ricardo; Lagoa, Sérgio

This paper provides an empirical analysis of the relationship between the labour income share and financialisation, as well as other related variables in Portugal from 1978 to 2012. We estimate an equation for the labour share that includes standard variables (technological progress, globalisation, education and business cycle) and variables to capture the effect of financialisation. We formulate the hypothesis that the financialisation process may lead to a rise in the inequality of functional income distribution through three channels: the change in the sectoral composition of the economy (due to both the increase in the weight of financial activity and the decrease in government activity), the diffusion of shareholder value governance practices and the weakening of trade unions. Our results show that the financialisation process has an indirect long-term effect on the labour share through its impact on government activity and trade union density. The paper also finds evidence supporting the traditional explanations for functional income distribution, namely globalisation, education and business cycle.

2015-10Working paper

Open access

Drivers of private consumption in the era of financialisation: new evidence for the European Union countries

Publication . Barradas, Ricardo

This paper provides an empirical assessment of the effects of financialisation on private consumption using panel data for all 28 European Union countries from 1995 to 2015. According to the post Keynesian literature, financialisation exerts two contradictory effects on private consumption, notably a negative one linked to the fall of households’ labour income and a positive one related to the increase of households’ (financial and housing) wealth. A private consumption equation was estimated by including three variables linked to financialisation (labour income, financial wealth and housing wealth) and five additional control variables (lagged private consumption, short-term interest rate, long-term interest rate, inflation rate and unemployment rate). Our results confirm that financialisation has been detrimental to private consumption in the EU countries as a whole, and more specifically in the Euro area countries, as the beneficial wealth effect has not been sufficient to compensate for the prejudicial income effect. The fall of households’ labour income has even been the highest constraint on private consumption in the Euro area countries

2017-12Working paper

Open access

A Sustentabilidade do Sistema de Pensões em Portugal

Publication . Barradas, Ricardo; Lagoa, Sérgio

O objetivo principal deste trabalho é analisar as características atuais do sistema de pensões em Portugal, as principais reformas efetuadas e as perspetivas de evolução, procurando identificar propostas de melhoria. Entre 1995 e 2014, o peso da despesa com pensões na economia registou em Portugal um dos maiores aumentos da área do euro, e em 2014 situou-se entre os mais elevados. Em face desta evolução, foram realizadas reformas importantes, nomeadamente a partir de 2002, que melhoraram a sustentabilidade financeira do sistema de pensões e o colocaram, genericamente, em linha com os melhores sistemas da OCDE em termos da promoção da eficiência microeconómica e da existência de um fator de sustentabilidade demográfica, tendo sido possível manter uma capacidade de substituir rendimento superior à média europeia. Apesar de algumas melhorias no combate à pobreza, este continua a ser um dos elementos onde a margem de melhoria ainda é significativa. Em termos financeiros, as reformas realizadas permitem que as perspetivas a longo prazo (2060) não sejam de agravamento do défice financeiro, apesar de este persistir, à semelhança do que ocorre na UE. Assim, as necessidades de melhoria do sistema continuam presentes, sendo apresentadas algumas propostas ao longo do trabalho.

2019-05Working paper

Open access