Financialization, economic growth and social inequalities: Theoretical approach

Abstract

This research paper aims to provide a theoretical analysis of the relationship between the development of economic financialization, economic growth and income distribution, through a review of the state of the art. Over the last fifty years, financialization has undergone an unprecedented expansion, affecting all sectors of the economy. At the same time, the structure of financial activities has undergone major transformations, notably a significant reduction in the share of credit allocated to businesses, in favor of that destined for households.The expansion of the financial sphere has been accompanied by a marked slowdown in the growth of the real economy and a widening of income inequalities. The global economic crisis of 2008, triggered by malfunctions in the financial markets, highlighted the profound fragility of the real economy, resulting in massive losses of income and jobs. The event also revealed the inability of stock markets to supply the real economy with fresh capital, raising fundamental questions about the impact of financialization on both economic growth and income distribution.

This article sets out to provide some answers to these questions, drawing on theoretical and empirical research carried out in recent years. Analyses conclude that there is a strong link between the expansion of the financial sphere and the reduction in productive investment, in the sense that financialization diverts economic resources towards speculative and short-term activities, to the detriment of the long-term investments needed for sustainable economic growth. It also contributes to growing income inequality, through polarization of employment and wage stagnation in non-financial sectors.

Keywords: Financialization, economic growth, social inequalities

JEL Classification: E44

Paper type: Theoretical Research