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Document Title
Dinâmia’CET-IUL Working Paper Nº 2014/06
Year (definitive publication)
2014
Language
English
Country
Portugal
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Abstract
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.
Acknowledgements
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Keywords
Financialisation,Investment,Vector Error Correction Model
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