Financialization and Government Borrowing Capacity in Emerging Markets

Abstract

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Securities exchanges: Subjects and agents of financialization

“…But their actions are anything but neutral. As index providers, exchanges for instance decide about countries' inclusions or exclusions into their indices, yielding considerable power over investment flows (Alloway et al, 2017), whereas by enabling hedging and exit possibilities (Hardie, 2012) or by deciding on clearing house collateral frameworks they can have a significant impact on countries' refinancing operations (Genito, 2019) -in both instances constraining governments' behaviors and nudging them towards conforming with a neoliberal rulebook of disintermediated, 'free' capital markets that exchanges organize (see for instance, Doll, 2019). Overall, exchanges have been central in the politics of financialization and financial regulation.…”

Financialization with Chinese characteristics? Exchanges, control & capital markets in authoritarian capitalism

“…For Epstein (2005, p. 3), financialization 'means the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies', while Pike and Pollard (2010, p. 30) define financialization as the 'growing influence of capital markets, their intermediaries and processes in economic and political life'. Other scholars also attribute a significant role to capital markets in financialization processes, be it in the dissemination of marketbased financial activities and practices (Aglietta and Breton, 2001), the rise of shareholder value-oriented corporate governance (Williams, 2000), or 'the increased ability to trade risk' (Hardie, 2012). At the heart of and as a precondition of many aspects of financialization stand capital markets and their development.…”

“…This has also been picked up in debates about the relationship between financialization and the state. Previously, many scholars argued that financialization often results in a relative loss of state power vis-à-vis finance (Strange, 1998) and the effects on developing economies are often described as potentially negative with financialization for instance decreasing their borrowing capacity and thereby policy space (Hardie, 2012) or deepening existing power asymmetries between states (Bortz and Kaltenbrunner, 2018). But stemming from earlier discussions on transformations of the developmental state, more recent scholarship has highlighted that financial market development has often been actively facilitated by states (Thurbon, 2016).…”

‘What is patient capital and who supplies it?’

“…Regulation and accounting rules may also likely significantly raise the cost of exit. For example, accounting rules related to the investment accounts of banks (Hardie 2012), or to the matching of liabilities with known future obligations by pension and insurance companies (e.g., Bank of England 2014, 27), may act as significant disincentives to exit. Investors seeking to outperform a particular index face internal restrictions on 'off index' investment that limit exit (Hardie 2012).…”

“…Smaller fund investors can exit more easily than either index-followers or very large funds (Davis 1995, 170), and so are less loyal. For the many fund managers seeking to outperform a particular index, internal restrictions on 'off index' investment that can limit exit from large investments (Hardie 2012), and the size of investments, can increase exit costs. As with other investors focused on other stakeholders, SRI loyalty may be higher than other fund managers, but they must also make financial returns to attract funds.…”