Financialization and Demand Regimes in Advanced Economies

TY - CHAP

T1 - Financialization and Demand Regimes in Advanced Economies

AU - Stockhammer, Engelbert

AU - Kohler, Karsten

PY - 2020/2

Y1 - 2020/2

N2 - We analyze the implications of financialization for domestic demand formation by linking the concept of financialization to the post-Keynesian analysis of demand regimes. We examine how the financialization of households in advanced economies gave rise to distinct but interdependent demand regimes. In the Anglo-Saxon and southern European countries, financialization in the form of property price inflation and rising household debt contributed to the development of a debt-driven demand regime with large current account deficits. Economic development in eastern Europe was shaped by catching-up through foreign direct investment from northern Europe and accompanied by worsening current account positions. Northern Europe, in contrast, relied on an export-driven demand regime with a weaker role for financialization. The export-driven demand regime relies on the financialization of southern Europe and the Anglo-Saxon countries, which helped create export demand for northern Europe. We argue that this constellation of demand regimes gives rise to divergent economic performance and macroeconomic instability. While with deleveraging the growth effects of the debt-driven model have gone into reverse, the fundamental configuration has not changed since the crisis.

AB - We analyze the implications of financialization for domestic demand formation by linking the concept of financialization to the post-Keynesian analysis of demand regimes. We examine how the financialization of households in advanced economies gave rise to distinct but interdependent demand regimes. In the Anglo-Saxon and southern European countries, financialization in the form of property price inflation and rising household debt contributed to the development of a debt-driven demand regime with large current account deficits. Economic development in eastern Europe was shaped by catching-up through foreign direct investment from northern Europe and accompanied by worsening current account positions. Northern Europe, in contrast, relied on an export-driven demand regime with a weaker role for financialization. The export-driven demand regime relies on the financialization of southern Europe and the Anglo-Saxon countries, which helped create export demand for northern Europe. We argue that this constellation of demand regimes gives rise to divergent economic performance and macroeconomic instability. While with deleveraging the growth effects of the debt-driven model have gone into reverse, the fundamental configuration has not changed since the crisis.

KW - Financialization

KW - demand regimes

KW - post-Keynesian economics

UR - https://www.routledge.com/The-Routledge-International-Handbook-of-Financialization-1st-Edition/Mader-Mertens-van-der-Zwan/p/book/9781138308213

M3 - Chapter

SN - 1351390368

T3 - Routledge International Handbooks

BT - The Routledge International Handbook of Financialization

PB - Routlege

ER -