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.