Unanswered Questions on Financialisation in Developing Economies


The discussions of the processes behind the growing importance of finance, financial transactions and financial motives, as well as the sustainability of the financial systems, have been located in the critical political economy debate of financialisation and neoliberalism (Crotty, 2003; Epstein, 2005; Fine, 2013; Lapavitsas, 2013; Palley, 2016; Sawyer, 2013; Stockhammer, 2004).

The analysis of financialisation in developing and emerging economies (DEEs) is relatively novel (Bonizzi, 2013). It is rooted in earlier discussions about the risks of financial globalisation and liberalisation (Akyuz & Boratav, 2005; Barbosa-Filho, 2005; Crotty & Lee, 2005; Frenkel & Rapetti, 2009; Grabel, 2003; O’Connell, 2005; Palma, 1998; Taylor, 1998), including the Latin American Structuralist literature on the hegemonic role of the US dollar and its financial and monetary implications for DEEs (Belluzzo, 1997; Braga, 1997; Fiori, 1997; Miranda, 1997; Tavares, 1997); the debate on capital account liberalisation and capital market integration (Cohen, 1996; Rodrik, 1998; Stiglitz & Ocampo, 2008; Strange, 1994); and the Minsky-inspired currency and boom bust dynamics of financial crisis in developing economies (Arestis & Glickman, 2002; de Paula & Alves, 2000; Dymski, 1999; Kregel, 1998; Schroeder, 2002).

Recently, a literature has emerged which looks more directly at the financialisation of DEEs. One strand of this literature has focused on its international dimension, particularly the ability of both foreign and domestic actors to exploit interest rate differential and exchange rate volatility and the political economy implications of such a process (Hardie, 2012; Kaltenbrunner, 2010, 2015; Kaltenbrunner & Painceira, 2009; Powell, 2013). This aspect of DEE financialisation is associated with, and reinforced by, the capital flows dependency of many DEEs, which demands appropriate economic policies that guarantee and contribute to generate attractive financial returns (Becker, Jäger, Leubolt, & Weissenbacher, 2010; Medialdea, 2013). Indeed, a key issue in this literature is the extent to which DEE governments have been compelled to provide liquidity to financial markets, as financial investors have a significant influence on the domestic currency, weakening central banks exchange rate management and contributing to exchange rate volatility (Datz, 2008; G. Epstein & Yeldan, 2008; Kaltenbrunner, 2010, 2015; Kaltenbrunner & Painceira, 2015; Painceira, 2010, 2011; Papadatos, 2009). This is closely associated with growing national public debt, which has been understood as a core feature of financialisation in DEEs, as government bonds are used to mitigate and protect the country against investor speculation, usually by accumulation of foreign exchange reserves and their use as hedge mechanism (Alves, 2017; Correa, Vidal, & Marshall, 2012; Ertürk, 2003; Hardie, 2012; Painceira, 2009, 2010).

Another strand of the literature has sought to map the financialisation phenomena encountered in the Anglo-Saxon core onto DEEs. For example, empirical evidence has been used to show the transformation of non-financial corporations (NFCs), i.e., their shift from being primarily involved in real sector activities to becoming financial actors themselves. The debate draws attention to the costly efforts to increase shareholder value, which induces NFCs to decrease productive investments, which negatively affects employment and wages, and increases their vulnerability to (international) market conditions (Araújo, Bruno, & Pimentel, 2012; Correa & Vidal, 2012; Demir, 2007; Farhi & Borghi, 2009; Kalinowski & Cho, 2009; Karwowski, 2012; Powell, 2013; Rossi, 2013; Seo, Kim, & Kim, 2012; Tan, 2014). Further, the literature shows that NFCs in DEEs have also started to rely on long-term bond issuance rather than bank borrowing (Becker et al., 2010; Kaltenbrunner & Karacimen, 2016; Lee, 2012; Powell, 2013; Rethel, 2010). Related analyses have examined financialisation in DEEs from the perspective of changes in the financial sector, such as the entry of foreign banks in DEEs and the adoption of practices found in financialised developed countries, in particular, lending to individuals for mortgages and consumption and the creation of new tradable financial securities based on these cash flows (Ashman, Fine, & Newman, 2010; Cho, 2010; dos Santos, 2013; Gabor, 2010; Karwowski, 2012; Lapavitsas, 2009; Sagemann & Reese, 2011; Aitken, 2014; Mawsdley, 2017).

The above reflects a rising interest in the issue of DEE financialisation, its manifestations, drivers and implications. However, despite this rising interest, many questions still remain unanswered. For example, what, if any, are the specific features of financialisation in DEEs? Can domestic public debt (Alves, 2017; Painceira, 2009) or high interest rates (Becker et al., 2010) or a subordinate aspect (Powell, 2013) be such a feature? What is the link between DEEs’ specific financialisation features and their ‘real’ international integration into international production networks? Does mapping the phenomena encountered in the Anglo-Saxon core onto DEEs overlook the structural differences of these economies and, therefore, their different financialisation practices and features? Also, can financialisation processes be compared between DEEs? What are the roles of different institutions, policies and indeed locational factors in shaping these processes? Can the notion of “variegated financialisation” be helpful in these respects (Brown et al, 2017; Lai and Daniels, 2017)? Similarly, is financialisation driven rather by international factors or by autonomous domestic political economy processes (Lai and Daniels; 2017, Lapavitsas, 2009, 2013; Lapavistas and Powell, 2013)? Empirically, is it possible to delineate financial development and deepening from financialisation in DEEs, and to what extent can it be quantified (Karwowski and Stockhammer, 2017)?

With these questions in mind, a workshop on How to conceptualise Financialisation in Developing and Emerging Economies? Manifestations, Drivers and Implications will be hosted at Girton College, University of Cambridge, 13-14 December 2018. For more details, please, see the call for papers.

We will be delighted to see you there!

Carolina Alves, Bruno Bonizzi, Annina Kaltenbrunner


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Photo: Rafael Matsunaga


2 thoughts on “Unanswered Questions on Financialisation in Developing Economies

  1. The financial aspect of macroeconomics is but a small part about how it works and developers need to see the Big Picture before entering into this controversial matter. My recent book “Consequential Macroeconomics” looks at the whole subject as a seamless reality and in a truly scientific way. It shows us how the social system works and this knowledge is vital before entering into the financial aspects (which are included). Write to chesterdh@hotmail.com for a free 310 page e-copy and begin at the beginning of what was a pseudo-science and is now a true one.


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