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ABSTRACT
The aim of this paper is to contribute to advancing the academic debate on dependent financialisation through a focus on East-Central Europe. In doing so, the paper identifies the role of Europeanisation as a driver of dependent financialisation using the Baltic States of Estonia, Latvia and Lithuania as case studies.
The paper makes two main contributions to the literature on dependent financialisation. First, it argues that, through the establishment of ‘financial chains’, dependent financialisation creates asymmetric co-dependencies and bilateral risks between the ‘dependent’ economies in the (semi-)periphery and the financial actors in core countries. While the (semi-)peripheral economies become dependent on capital flows from the core countries, the profits of financial actors in the core become increasingly dependent on their operations in the (semi-)periphery. In turn, the growing instability created by the process of dependent financialisation in the (semi-)periphery creates a source of risk for financial actors in core countries, which can spread to the rest of the economy. Second, the paper suggests that dependent financialisation is a dynamic phenomenon that displays strong pro-cyclical features. Thus, the cycles of expansion and retreat of dependent financialisation in (semi-)peripheral countries are linked to their economic performance, as well as to the conditions in international financial markets.
Acknowledgements
This research has received funding from the European Research Council (ERC) Consolidator Grant under the European Union’s Horizon 2020 research and innovation programme (Grant agreement No. 683197) via GEOFIN project (www.geofinresearch.eu), and from the European Regional Development Fund (ERDF) via PostDocLatvia, project agreement Nr. 1.1.1.2/VIAA/3/19/491.
Additionally, the author wishes to thank GEOFIN’s Principal Investigator, Dr. Martin Sokol, and GEOFIN colleagues for their valuable contributions and support, as well and the journal editors and the two blind reviewers for their excellent comments.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 Throughout this paper, the terms ‘Baltic states’, ‘Baltic Republics’, ‘Baltic countries’ and ‘Baltics’ are used interchangeably.
2 Estonia was invited to open accession negotiations in 1997, while Latvia and Lithuania, in 1999.
3 The term ‘financial markets’ is used to refer to a broad range of financial actors other than commercial banks, including investment banks, pension funds, sovereign welfare funds, insurers, mutual funds, hedge funds, private equity firms, asset managers, etc.
4 For the sake of simplicity, in this analysis FDI is attributed to ´financial markets’, although in reality it is carried out by a broad range of foreign actors.
5 European Systemic Risk Board, ‘Mission & establishment’. Available online at: https://www.esrb.europa.eu/about/background/html/index.en.html.
6 World Bank, World Development Indicators Database ‘Exports of goods and services (% of GDP). Available online at: https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS
7 Even Latvia, after requesting a sizeable bailout loan, managed to repay the loan ahead of schedule and keep public debt low (Eglitis Citation2013).
8 OECD, ‘Financial Indicators – Stocks; Private sector debt, as a percentage of GDP’. Available online at: https://stats.oecd.org/index.aspx?queryid=34814.