Financialisation and Macroeconomic Regimes in Emerging Capitalist Countries Before and After the Great Recession

Abstract

In recent years, diverging demand and growth regimes received greater scholarly attention. Particularly, the intersection between variants of Comparative Political Economy and the post-Keynesian macroeconomic analysis provides a promising avenue for understanding the main dynamics of various growth regimes. Yet, the majority of these studies focused on the global North. We expand this analysis to the global South by examining eight large emerging capitalist economies (ECEs), Argentina, Brazil, China, India, Mexico, Russia, South Africa, and Turkey, during the periods 2000–2008 and 2009–2019. In so doing, we not only uncover the main demand and growth regimes of ECEs for the two periods but also link them to the main trends in the demand and growth regimes of developed capitalist economies (DCEs) for both periods. One main finding of our research is that ECEs did not follow the same path as DCEs after the Great Recession. While there was a clear shift in the demand and growth regimes of DCEs toward export orientation, the main pattern in the ECEs remained as the continuation of a trend that already emerged before the 2007–09 crisis, i.e., domestic demand-led regimes associated with considerable financial deficits of domestic private and/or public sectors. Finally, we provide some observations on the puzzle of resilient domestic demand-led regimes in ECEs.

Keywords:

• Argentina
• Brazil
• China
• demand and growth regime
• emerging capitalist countries
• financialization
• India
• Mexico
• post-Keynesian economics
• Russia
• South Africa
• Turkey

JEL CLASSIFICATIONS:

• E11
• E12
• E65
• F65

Acknowledgements

The authors thank two anonymous referees and the editors of the journal for their comments and suggestions. Previous versions of the paper were presented at the Institute for International Political Economy (IPE) Online Workshop “Macroeconomic Regimes: Post-Keynesian and Critical Political Economy Perspectives” in March 2021 and at the 25th conference of the Forum for Macroeconomics and Macroeconomic Policies (FMM) in October 2021 in Berlin, and the authors are most grateful for the comments and suggestions by the participants. They also thank the other members of the Growth Regime Working Group of the IPE for helpful discussions. The usual disclaimers apply.

Notes

1 For an appreciation but also an outline of some of the shortcomings of Baccaro and Pontusson’s (2016) paper, see Hein, Paternesi Meloni, and Tridico (2021).

2 For a comprehensive literature review of the VoC, the post-VoC, and the CCC approaches, as well as the three waves of CPE analysis, see Nölke (2016).

3 In their paper, Baccaro and Pontusson (2016) apply post-Keynesian macroeconomics using the term “growth models.” However, we will refer to “(demand and) growth regimes” or “macroeconomic regimes” as this terminology has become established in post-Keynesian macroeconomics. Unless otherwise stated, these terms can be considered interchangeable. We will review the post-Keynesian literature on the demand and growth regimes in detail in the following section.

4 For a detailed review, see Schedelik et al. (2021).

5 See, for example, Hein (2012), Hein (2019), Hein and Mundt (2012), Stockhammer (2010, 2012, 2015), van Treeck and Sturn (2012), the contributions in Hein, Detzer, and Dodig (2015, 2016), and several others. These macroeconomic features of financialisation have been derived from the broad and extensive literature on changes in the structure, institutions and power relationships in modern capitalism since the early 1980s. Some overviews can be found in Guttmann (2016), Palley (2013), Sawyer (2013/14) and van der Zwan (2014).

6 See Hein (2015) and Kohler, Guschanski, and Stockhammer (2019) for overviews on the empirical evidence of the effects of financialisation on income distribution.

7 See Davis (2017) for a recent review of empirical evidence on the effects of financialisation on investment in the capital stock.

8 Econometric research based on demand-driven post-Kaleckian distribution and growth models has shown that most of the DCEs, tend to be wage-led, that is a falling wage share will dampen aggregate demand and growth (Hein 2014, chapter 7; Hartwig 2014; Onaran and Galanis 2014).

9 See, for example, the empirical studies on financialisation, inequality, household debt and consumption by Cynamon and Fazzari (2008, 2013), Kim (2013), Stockhammer and Wildauer (2016) and van Treeck (2014).

10 For a derivation of these regimes in simulated stock-flow consistent models see Belabed, Theobald, and van Treeck (2018) and Detzer (2018), and for a stylized Kaleckian model see Hein (2018).

11 See, for example, the analysis in Hein (2012, chapter 6) and Stockhammer (2015)

12 See also Hein (2012, chapters 6 and 8, 2013a, 2013b) and Hein, Truger, and van Treeck (2012).

13 Different allocations of countries to regimes across the studies are due to different time periods and slightly changing specifications of criteria.

14 For a more detailed analysis of the drivers of the shift of regimes, introducing different labels for the post-crisis regimes, see Kohler and Stockhammer (2021). They examine in particular the requirements of deleveraging in the context of a financial boom bust cycle, the role of fiscal policies and the relevance of price and non-price competitiveness for exports in order to explain the emergence of the different post-crisis regimes. Hein, Paternesi Meloni, and Tridico (2021) have focussed on the role of welfare state policies, labor market institutions and income distribution, too, in order to grasp the shift of regimes. However, here is not the place for further developing these interesting lines of research.

15 Our procedure does not exclude the possibility of alternative breaking points for ECEs’ demand and growth regimes, e.g., the fall in commodity prices in 2014 or the end of the global financial cycle in 2013.

16 The role of capital movements can be defined as the common denominator for various forms of dependent financialisation. They have been studied extensively since the Asian Crisis in the late 1990s. For instance, Arestis and Glickman (2002, 258) introduced a Minskyan approach to explain the Asian Crisis by arguing that “financial liberalization has acted as the key euphoria-inducing factor,” which rapidly shifted financing conditions from speculative to super-speculative. Kaltenbrunner and Painceira (2015) improved this Minskyan approach by including the more recent experiences of ECEs.

17 For the “new forms of international vulnerability” of ECEs as a result of further financial integration, see the examples of the Brazilian (Kaltenbrunner and Painceira 2015) and South African (Isaacs and Kaltenbrunner 2018) cases.

18 Different indicators can be used to grasp the financialisation experiences of ECEs. Here, we mostly follow Karwowski’s (2020) selection.

Additional information

Notes on contributors

Ümit Akcay

Ümit Akcay is Lecturer at the Berlin School of Economics and Law with a Ph.D. in development economics.

Eckhard Hein

Eckhard Hein is Professor or Economics at the Berlin School of Economics and Law and a Co-Director of the Institute for International Political Economy (IPE).

Benjamin Jungmann

Benjamin Jungmann is Research Associate at the Institute for International Political Economy at the Berlin School of Economics and Law.