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Income distribution, growth and financialization: the Italian case

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  • Domenica Tropeano

    (University of Macerata)

Abstract

The paper investigates whether the current decline of the Italian economy could be traced back to financialization. In principle financialization could not be so important for an economy in which many firms are not quoted in the stock exchange and for which shareholders' interests should not matter. The author argues that financialization may have deep effects in such an environment by changing the perceived financial norm and the target return on capital. The author draws on a model by Lavoie (1995) extending it to an open economy. She uses this model by looking at the effects of an appreciation, thus replicating the appreciation of the euro in the last years and its possible effects on the Italian economy. The results of such an appreciation would be a fall in the rate of growth, accumulation and in the realized rate of profit. This picture, however, does not fit in well with some stylized facts. In Italy, the rate of growth and the capital accumulation have slowed down while the rate of profit and the profit share have clearly increased. The increase concerns the average profit share and the average profit rate while indeed the profit rate is declining in the manufacturing sectors, but rising in the services sector. At this point a different interpretation is presented, which is no more based on the financialization hypothesis but rather on the increase in the degree of monopoly power in the Italian industrial sectors, given the increase in the mark-up. This process would have been favoured by the privatization process of previously public enterprises. The author shows what might have happened by using a model by Dutt (1995) with two sectors. In this model in the long-run the accumulation of capital is still governed by aggregated utilization and profitability, but the allocation of capital among sectors and their growth depends on the profit rate differential. The profit rate differential might have shifted resources to the service sectors, which would have been favoured by the privatization process. In this case, financialization would be a consequence of the increase in monopolistic competition, which in turn could be responsible for the decline.

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Paper provided by Macerata University, Department of Finance and Economic Sciences in its series Working Papers with number 65-2011.

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Date of creation: Apr 2011
Date of revision: Apr 2011
Handle: RePEc:mcr:wpdief:wpaper00065

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  1. Marc Lavoie, 2003. "Kaleckian Effective Demand and Sraffian Normal Prices: Towards a reconciliation," Review of Political Economy, Taylor & Francis Journals, vol. 15(1), pages 53-74.
  2. Levrero Enrico Sergio & Stirati Antonella, 2005. "Distribuzione del reddito e prezzi relativi in Italia 1970-2002," Politica economica, Società editrice il Mulino, issue 3, pages 401-434.
  3. Bugamelli Matteo & Tedeschi Roberto, 2007. "Exporters' Pricing Strategies: the Case of Italy," Politica economica, Società editrice il Mulino, issue 3, pages 321.
  4. Roberto Torrini, 2005. "Profit Share and Returns on Capital Stock in Italy: the Role of Privatisations behind the Rise of the 1990s," CEP Discussion Papers dp0671, Centre for Economic Performance, LSE.
  5. Marc Lavoie, 1995. "Interest Rates In Post-Keynesian Models Of Growth And Distribution," Metroeconomica, Wiley Blackwell, vol. 46(2), pages 146-177, 06.
  6. Engelbert Stockhammer, 2006. "Shareholder value orientation and the investment-profit puzzle," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 28(2), pages 193-215, January.
  7. Blecker, Robert A, 1989. "International Competition, Income Distribution and Economic Growth," Cambridge Journal of Economics, Oxford University Press, vol. 13(3), pages 395-412, September.
  8. Lavoie, M., 1992. "The Kaleckian Model of Growth and Distribution and its Neo-Ricardian and Neo-Marxian Critiques," Working Papers 9201e, University of Ottawa, Department of Economics.
  9. Eckhard Hein & Till van Treeck, 2007. "'Financialisation' in Kaleckian/Post-Kaleckian models of distribution and growth," IMK Working Paper 07-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  10. Peter Skott & Soon Ryoo, 2007. "Macroeconomic implications of financialization," UMASS Amherst Economics Working Papers 2007-08, University of Massachusetts Amherst, Department of Economics.
  11. F. Daveri & C. Jona-Lasinio, 2006. "Italy’s decline: getting the facts right," Economics Department Working Papers 2006-EP01, Department of Economics, Parma University (Italy).
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