Financialization, Trade, and Investment Agreements: Through the Looking Glass or Through the Realities of Income Distribution and Government Policy?

This paper assesses the effects of trade and investment agreements on income distribution and government policy. The critical process underpinning these effects is the rise of ‘financialization’. Global patterns of greater financialization and of worsening functional income distribution as well as tighter fiscal stances are identified in the data. Tests are conducted by combining financial statistics with databases of bilateral investment agreements and free trade agreements, as well as data generated by the UN Global Policy Model that encompasses several fiscal policy instruments. The empirical validation of these relationships brings to the fore the policy-oriented debate about the purported benefits of modern-era ‘comprehensive’ trade and investment agreements such as TTIP, TTP and CETA. The authors corroborate the findings of their respective earlier studies of these agreements and reiterate their call for caution. To preserve policy space and to avert increases of inequality, policy-makers should resist pressures to get their economies locked in such agreements and should look instead for sustainable forms of international policy coordination.