Financialization Is Marketization! A Study of the Respective Impacts of Various Dimensions of Financialization on the Increase in Global Inequality

Olivier Godechot

Sociological Science, June 29, 2016
DOI 10.15195/v3.a22

Abstract

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In this article, I study the impact of financialization on the rise in inequality in 18 OECD countries from 1970 to 2011 and measure the respective roles of various forms of financialization: the growth of the financial sector; the growth of one of its subcomponents, financial markets; the financialization of non-financial firms; and the financialization of households. I test these impacts using cross-country panel regressions in OECD countries. I show first that the share of the finance sector within the GDP is a substantial driver of world inequality, explaining between 20 and 40 percent of its increase from 1980 to 2007. When I decompose this financial sector effect, I find that this evolution was mainly driven by the increase in the volume of stocks traded in national stock exchanges and by the volume of shares held as assets in banks’ balance sheets. By contrast, the financialization of non-financial firms and of households does not play a substantial role. Based on this inequality test, I therefore interpret financialization as being mainly a phenomenon of marketization, redefined as the growing amount of social energy devoted to the trade of financial instruments on financial markets.

Creative Commons LicenseThis work is licensed under a Creative Commons Attribution 4.0 International License.
Olivier Godechot: Sciences Po / MaxPo and OSC-CNRS, Axa Chair Holder
Email: olivier.godechot@sciencespo.fr

Acknowledgements: I am very grateful to Moritz Schularick for sharing his precious data on debt (Jordà and al., 2014). I would like to thank Alex Barnard, Emanuele Ferragina, Neil Fligstein, Elsa Massoc, Cornelia Woll and Nicolas Woloszko for comments on this article.

  • Citation: Godechot, Olivier. 2016. “Financialization Is Marketization! A Study of the Respective Impacts of Various Dimensions of Financialization on the Increase in Global Inequality” Sociological Science 3: 495-519.
  • Received: November 23, 2015
  • Accepted: March 16, 2016
  • Editors: Jesper Sørensen, Kim Weeden
  • DOI: 10.15195/v3.a22

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