Working Paper Number
A growing literature suggests that ‘financialization’ may weaken the performance of non-financial corporations and constrain the growth of aggregate demand. This paper evaluates (some of) the claims that have been made using two alternative approaches (one derived from Skott (1981, 1988, 1989) and one from Lavoie and Godley (2001-2002)) and two different settings (a labor-constrained setting and a dual-economy setting). All models are in a structuralist / post Keynesian tradition and pay explicit attention to financial stock-flow relations. The results are insensitive to the precise specification of household saving behavior but depend critically on the labor market assumptions (labor-constrained vs. dual) and the specification of the investment function (Harrodian vs stagnationist).
Skott, Peter and Ryoo, Soon, "Macroeconomic implications of financialization" (2007). Economics Department Working Paper Series. 41.