This paper makes an empirical analysis of the relationship between the labour income share and both financialisation and other related variables in Portugal from 1978 to 2012. We estimate an equation for the labour share that includes standard variables (technological progress, globalisation, education and business cycle) and variables to capture the effect of financialisation. We formulate the hypothesis that the financialisation process may lead to a rise in the inequality of functional income distribution through three channels: the change in the sectorial composition of the economy (due to both the increase in the weight of the financial activity and the decrease in government activity), the diffusion of shareholder value governance practices and the weakening of trade unions. Our results show that the financialisation process as an indirect long-term effect on the labour share through its impact on government activity and trade union density. The paper also finds evidence supporting the traditional explanations for functional income distribution, namely globalisation, education and business cycle. FUNCTIONAL INCOME DISTRIBUTION IN PORTUGAL: THE ROLE OF FINANCIALISATION AND OTHER RELATED DETERMINANTS ABSTRACTThis paper makes an empirical analysis of the relationship between the labour income share and both financialisation and other related variables in Portugal from 1978 to 2012. We estimate an equation for the labour share that includes standard variables (technological progress, globalisation, education and business cycle) and variables to capture the effect of financialisation. We formulate the hypothesis that the financialisation process may lead to a rise in the inequality of functional income distribution through three channels: the change in the sectorial composition of the economy (due to both the increase in the weight of the financial activity and the decrease in government activity), the diffusion of shareholder value governance practices and the weakening of trade unions. Our results show that the financialisation process as an indirect long-term effect on the labour share through its impact on government activity and trade union density. The paper also finds evidence supporting the traditional explanations for functional income distribution, namely globalisation, education and business cycle.

The purpose of this paper is the conduction of a time series econometric analysis in order to examine empirically the relationship between the financial system and economic growth in Portugal from 1977 to 2016. The Portuguese financial system has experienced a strong wave of privatisations, liberalisations and deregulations since the adhesion of Portugal to the European Economic Community in 1986, which has not favoured a sustained path of strong economic growth since then. The growth of the financial system played even a crucial role in the recent sovereign debt crisis in Portugal, casting doubts on the conventional hypothesis on the financegrowth nexus. The paper estimates a linear growth model and a non-linear growth model, which includes four proxies for the financial system (money supply, credit, financial value added and stock market capitalisation) and four further control variables (inflation, government consumption, trade openness and education). The paper finds a negative linear relationship between the banking system and Portuguese economic growth, a positive linear relationship between the stock markets and Portuguese economic growth, a concave quadratic relationship between the banking system and Portuguese economic growth, and a convex quadratic relationship between the stock markets and Portuguese economic growth. This suggests that Portuguese policy makers should canalise efforts to decrease the importance of banking system and to increase the importance of stock markets in order to support more robust economic growth in the coming years.

EEv vo ol lu ut ti io on n o of f t th he e f fi in na an nc ci ia al l s se ec ct to or r --t th hr re ee e d di if ff fe er re en nt t s st ta ag ge es s: : R Re ep pr re es ss si io on n, , d de ev ve el lo op pm me en nt t a an nd d f fi in na an nc ci ia al li is sa at ti io on n E Ev vo ol lu ut ti io on n o of f t th he e f fi in na an nc ci ia al l s se ec ct to or r --t th hr re ee e d di if ff fe er re en nt t s st ta ag ge es s: : R Re ep pr re es ss si io on n, , d de ev ve el lo op pm me en nt t a an nd d f fi in na an nc ci ia al li is sa at ti io on n _ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ ABSTRACTThis paper makes a systematic literature review on the evolution of the financial sector in the last decades all over the world, but especially in the more developed countries. This evolution was marked by three different stages, reflecting different impacts of the financial sector on the real economy and on society. The first stage -financial repression -is characterised by the existence of several regulations and restrictions on the financial sector, which proved to be detrimental to support economic growth. This legitimised the financial liberalisation and deregulation of the financial sector in the recent years, representing the second stage -financial development. Consequently, there was a strong growth of the financial sector in subsequent years, originating an excessive financial deepening and casting doubts around the advantages provided by the financial sector. In fact, excessive financial deepening weakened or reversed the relationship between savings and investments. The large growth of the financial sector and its deleterious effects are commonly referred as financialisation, constituting the third stage. The paper concludes that it is necessary to engage in a fourth stage in the coming years -definancialisation -in order to re-establish a more supportive relationship between the financial sector and economic growth and presents several policy recommendations around this matter.

The financial sector has acquired great prominence in most developed economies. Some authors argue that the growth of finance is at the root of the financial and economic difficulties of the past decade. This paper aims to analyse this claim by looking at financialisation in the European periphery, focusing on the Portuguese case. The emergence of this phenomenon is contextualised from a historical, economic and international perspective. Based on the analysis of several indicators, the paper concludes that the Portuguese economy exhibits symptoms of financialisation that are typically found in Southern European countries and that these differ significantly from the patterns characterising financialisation processes in more advanced economies. The paper discusses how the increasing importance of financial actors and motives in the Portuguese economy played a decisive role in the emergence of the crisis.

FFi in na an nc ci ia al li is sa at ti io on n i in n t th he e E Eu ur ro op pe ea an n P Pe er ri ip ph he er ry y a an nd d t th he e S So ov ve er re ei ig gn n D De eb bt t C Cr ri is si is s: :

This is the peer reviewed version of the following article: Barradas, R. (2017). Financialisation and real investment in the European Union: beneficial or prejudicial effects?. Review of Political Economy.

This paper conducts an empirical analysis of the relationship between financialization and neoliberalism and the labor share using panel data composed of twenty-seven European Union countries over nineteen years (from 1995 to 2013). Adopting a Kaleckian perspective, framed in the post-Keynesian literature, financialization and neoliberalism exert a negative influence on the labor share through three different channels: the change in the sectorial composition of economies (the increasing importance of financial activity and the decreasing importance of general government activity), the proliferation of shareholder value orientation, and the deterioration of general workers’ bargaining power. We estimate a labor share equation with the traditional variables (lagged labor share, technological progress, globalization, education, and output growth) and four further measures of financialization and neoliberalism (financial activity, general government activity, shareholder value orientation, and the trade union density rate). The findings show a disruptive relationship between financialization and neoliberalism and the labor share in European Union countries, mainly through the channels of general government activity and shareholder value orientation. It is also found that financialization and neoliberalism have contributed to a fall in the labor share in European Union countries. The technological progress was the main driver of the fall in the labor share in European Union countries, while the output growth was the main supporter. This suggests that the trend of decline in the labor share could intensify in the future taking into account the fears of potential secular stagnation in the current era of financialization and neoliberalism. JEL Classification: C23, D33, E25, E44

The aim of this paper is to conduct a time series econometric analysis in order to empirically evaluate the role of financialisation in the slowdown of labour productivity in Portugal during the period from 1980 to 2017. During that time, the Portuguese economy faced a financialisation phenomenon due to the European integration process and the corresponding imposition of a strong wave of privatisation, liberalisation and deregulation of the Portuguese financial system. At the same time, Portuguese labour productivity exhibited a sustained downward trend, which seems to contradict the well-entrenched mainstream hypothesis on the finance–productivity nexus. Based on the post-Keynesian literature, we identify four channels through which the phenomenon of financialisation has impaired labour productivity, namely weak economic performance, the fall in labour’s share of income, the rise of inequality in personal income and an intensification of the degree of financialisation. The paper finds that lagged labour productivity, economic performance and labour income share positively impact labour productivity in Portugal, while personal income inequality and the degree of financialisation negatively impact labour productivity in Portugal. The paper also finds that the main triggers for the slowdown of labour productivity in Portugal are the degree of financialisation and personal income inequality over the last decades.