Abstract
Abstract This contribution provides a theoretical explanation of the accumulation process, which focuses on the presence of correlations between physical and financial investment, and how the latter could affect the former. It also accounts for the influence of the cost of external finance and the impact of financial uncertainty as proxied by the interest rate and the exchange rate respectively; thereby utilising the Keynesian notion of conventions in the determination of investment. Our model is estimated by applying the difference GMM and the system GMM to a panel of 14 OECD countries from 1970 to 2010.
Highlights
The development of the financial sector since the financial liberalisation process, which started in the early 1970s, and the great evolution of financial investment during this period, suggests that serious consideration of this complex phenomenon is in order
In an attempt to overcome the impossibility of knowing the future, introduces businessmens expectations that relate to several aspects. The latter are: a) aggregate demand, which is the engine of the model; b) capacity utilization, which is the most important indicator of the level of economic activity and provides the opportunity to model expectations about future demand; c) a proxy of financial uncertainty, which accounts for expectations about the exchange rate; and d) the stock market, whose development provides new kinds of business opportunities
The purpose of this paper is to analyse the accumulation path in capitalist economies, where financial markets have become one of the fundamental pillars of the system, especially so after the financialisation process, which began in the early 1970s
Summary
The development of the financial sector since the financial liberalisation process, which started in the early 1970s, and the great evolution of financial investment during this period, suggests that serious consideration of this complex phenomenon is in order This should enable one to extend the Keynesian investment function, which does not fully account for the links between financial elements and the real economy. This higher amount of internal funds has not promoted the expected acceleration of the path of capital accumulation.
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