Presentation Title

Financialization and Its Effects on Economic Growth: Hobbled by Deregulation?

Presentation Type

Oral Presentation

School

School of Sciences and Social Sciences

Discipline

Economics

Mentor

Armagan Gezici

Abstract

In the aftermath of the unprecedented global financial collapse in 2008, the public remains skeptical of financial institutions. Much of the lead-up to this crisis has its roots in the steady expansion of the financial sector in highly-developed economies. This transformation has seemingly permanently shifted the economic landscape of nonfinancial businesses towards unproductive financial investments. Using macroeconomic data for 217 countries, this study tests the hypothesis that financial development has a negative effect on average GDP growth post-2008 by employing OLS regression estimation. While controlling for additional influences on growth such as education, inflation, private investment, and government expenditure, the study's preliminary results indicate that the rise of finance has impaired growth. Further testing utilizes OECD country data in a time-series model measuring financialization over the period between 1980-2015. Extracting from these models the estimated effect of financialization will help guide policy concerning the regulation of the financial sector.

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Financialization and Its Effects on Economic Growth: Hobbled by Deregulation?

In the aftermath of the unprecedented global financial collapse in 2008, the public remains skeptical of financial institutions. Much of the lead-up to this crisis has its roots in the steady expansion of the financial sector in highly-developed economies. This transformation has seemingly permanently shifted the economic landscape of nonfinancial businesses towards unproductive financial investments. Using macroeconomic data for 217 countries, this study tests the hypothesis that financial development has a negative effect on average GDP growth post-2008 by employing OLS regression estimation. While controlling for additional influences on growth such as education, inflation, private investment, and government expenditure, the study's preliminary results indicate that the rise of finance has impaired growth. Further testing utilizes OECD country data in a time-series model measuring financialization over the period between 1980-2015. Extracting from these models the estimated effect of financialization will help guide policy concerning the regulation of the financial sector.