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

Abstract

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 the continents. Asia has been more exposed to capital inflows, stock markets have gained importance and private sector debt has 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

Disclosure statement

The authors report no conflicts of interest. The authors alone are responsible for the content and writing of this article.

Notes

Notes

1 Foster (2007) argues that the term was either coined by Arrighi (1994) in his The Long Twentieth Century or by Phillips (1994) in Arrogant Capital which contains a chapter dedicated to ‘The Financialization of America’.

2 While some work refers to the financialisation of developing and emerging economies (such as Bonizzi 2013), the actual focus of this research agenda are EMEs, i.e. middle-income countries. Many developing (i.e. poor) countries have such rudimentary financial systems that it would be difficult to speak of their financialisation, which implies both a certain size as well as sophistication of the financial sector.

3 We use the terms ‘financial deregulation’ and ‘financial liberalisation’ interchangeably. We measure two distinct interpretations of financialisations linked to deregulation. First, we account for financial reforms (captured by the financial reform index) and second, we measure the extent of foreign financial inflows which are facilitated by deregulation.

4 Brazil, India, Indonesia, Mexico, Russia and Turkey.

5 The G7 include Canada, France, Germany, Italy, Japan, the UK and US.

6 In response to the economic and financial crises of the 1980s in many developing and emerging economies the IMF and the World Bank developed a ‘standard’ policy package that was prescribed to distressed countries. This became known as the Washington Consensus due to the geographical location of the two institutions. At the centre of these standard policies are deregulation, liberalisation, privatisation and fiscal policy discipline (see Williamson 1990).

7 The coefficient of variation (CV) is defined as the ratio of standard deviation (σ) to expected value (μ): . The CV is a scale-invariant measure, which is advantageous when assessing volatility (Allison 1978).

8 South Korea started even earlier, in 1978 (Arestis and Glickman 2002).