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Financialization of the United States economy and its effects on capital accumulation: A theoretical and empirical investigation

Ozgur Orhangazi, University of Massachusetts Amherst


In this dissertation, I explore the origins and consequences of the dramatic rise in the size and importance of financial markets in the U.S. economy since the late 1970s. I focus on the impacts of this process of 'financialization' on the operations of the non-financial corporate sector. Specifically, I investigate the consequences for non-financial firms of increasing financial investment and incomes on the one hand and rising financial market pressure on their management on the other. I document the stylized facts about financialization in Chapter 2 and then move to provide a historical perspective on the evolution of financialization and its proximate causes, including financial liberalization and innovation, changes in financial institutions and low profitability in the non-financial sector, in the third chapter. This chapter also presents a brief discussion of the previous finance capital era of the late 19th and early 20th centuries and the regulated financial markets era of the post-World War II period. Next, I compare various theoretical and empirical perspectives on financialization in an attempt to clarify the limits of our knowledge of financialization and outline what we know about the phenomenon and what we do not. In chapters 5 to 7, I further explore the relationship between the financial and non-financial sectors of the economy and focus on the effects of financialization on capital accumulation. Financialization can have two negative impacts on capital accumulation. Increased financial investment and financial profit opportunities can crowd out real investment by directing funds away from real investment and contributing to managerial short-termism, and the increase in financial payments can decrease real investment by decreasing the amount of available funds for real investment, shortening the planning horizons of firm management, and increasing uncertainty. Chapter 5 provides the theoretical framework for analyzing the relationship between financialization and capital accumulation, Chapter 6 presents an aggregate time-series analysis, and Chapter 7 carries the analysis to the firm-level. Through aggregate and firm-level data analyses, I provide econometric evidence that the increase in non-financial corporations' (NFCs) financial investment rates and payments to financial markets has had negative effects on the real investment rates of NFCs.

Subject Area

Economics|Economic theory|Finance

Recommended Citation

Orhangazi, Ozgur, "Financialization of the United States economy and its effects on capital accumulation: A theoretical and empirical investigation" (2006). Doctoral Dissertations Available from Proquest. AAI3242371.