Abstract
Within the context of financialization, this empirical study sheds some light on the distributional aspects of the existing intra-capitalist conflict between financial and industrial capital and its concomitant impact, via investment, on the macroeconomy. In doing so, bounds-test cointegration techniques in conjunction with Granger causality tests provide the econometric framework upon which the respective models are tested. Annual time series were used spanning from 1971 to 2012, for the UK. The empirical evidence is in line with the theoretical exposition insofar as investment decisions by industry are significantly conditioned by industrial profit. Moreover, the distribution of profits between industry and finance, in conjunction with policy objectives, appears to be playing an instrumental role in affecting capital accumulation.
Highlights
In view of the preceding analysis, an inspection of some preliminary statistical data will enable us to visualize the trends in income distribution in an advanced economy such as that of the United Kingdom
In the same line of argument, Hein (2013) in a study examining the channel through which financialization or finance-dominated capitalism affects macroeconomic performance found that “financialization and neoliberalism have contributed to the falling labour income share since the early 1980s through three main Kaleckian channels: (1) a shift in the sectoral composition of the economy; (2) an increase in management salaries and rising profit claims of the rentiers, and in overheads; and (3) weakened trade union bargaining power” (p. 11)
Even though the autoregressive distributed lag (ARDL) methodology does not require pre-testing for unit roots, the standard unit roots tests - Augmented Dickey-Fuller (ADF), PP and KPSS - have been employed to ensure that the variables are not I(2), in which case, the computed F-statistic for the existence of a cointegration relationship would have been invalid (Peasaran, Shin, and Smith 2001)
Summary
The new finance-oriented world order of the post-Golden Age era is characterized by a significant move towards global integration of financial markets through liberalization of capital This transition has not ensured that the resources and wealth produced amongst nations, social classes or any other group of society can be distributed optimally. Werner Bonefeld (1995) and Smithin (1996) argue that it was the “revenge of the rentiers” and the politics of money that caused the breakdown of the historically unique compromise between the competing economic interests of capital and labour during the Golden Age. The liberalization as well as the abolishment of capital controls by many advanced economies since the 1970s has been a major institutional development that has altered financial relations and established an effective mechanism, through which, financial markets have dictated economic policy. Macroeconomic management could be disrupted by speculative capital movements, due to differences in the patterns of the implemented domestic policies and the resulting changes in the interest and inflation rates among national economies
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