This paper makes an empirical analysis of the relationship between financialisation and real investment by Portuguese non-financial corporations from 1977 to 2013. In theory, while financialisation leads to a rise in financial investments by non-financial corporations and thus deviates funds from real investment, it also intensifies the pressure for financial payments and therefore restricts the funds available for real investment. We estimate an aggregate investment function including standard variables (profitability, debt, cost of capital, savings rate and output growth) and two measures of financialisation (financial receipts and financial payments). The paper concludes that there is a long-term investment equation, and finds evidence that the process of financialisation has hampered real investment largely as a result of financial payments. The paper also identifies that debt is detrimental to real investment.

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Financialisation,Investment,Vector Error Correction Model