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PKSG Working Paper Series

Working Paper PKWP1616

Financialisation in emerging economies: a systematic overview and comparison with Anglo-Saxon economies

August 2016

Ewa Karwowski, Engelbert Stockhammer

Financialisation research has originally focussed on the US experience, but the concept is now increasingly applied to emerging economies (EMEs). There is a rich literature stressing peculiarities of individual country experiences, but little systematic comparison across EMEs. This paper fills this gap, providing an overview of the debate and identifying six financialisation interpretations for EMEs. These different interpretations stress (1) financial deregulation (2) foreign financial inflows, (3) asset price volatility, (4) the shift from bank-based to market-based finance, (5) business debt, and (6) household indebtedness. We construct and compare measures of the six financialisation interpretations across a sample of 17 EMEs from Latin America, emerging Europe, Africa and Asia, contrasting them with the US and UK, two financialised economies. We find considerable variation in financialisation experiences of EMEs. Asset price volatility is found across continents. Asia has been more exposed to capital inflows, stock markets have gained importance and private sector debt risen. In emerging Europe financial deregulation has been more pronounced with lower levels but strong increases in household debt. The picture is similar in South Africa, the African EME in the sample, where household debt is comparatively high. Financialisation in Latin America is weaker according to our measures.

Keywords: financialisation, emerging markets, financial instability, asset price volatility, heterodox economics

JEL classification: B50: Current Heterodox Approaches: General E30: Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) F34: International Lending and Debt Problems G01: Financial Crises G12: Asset Pricing; Trading Volume; Bond Interest Rates G15: International Financial Markets

Download: Working Paper PKWP1616