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Explaining the Historic Rise in Financial Profits in the US Economy

Costas Lapavitsas and Ivan Mendieta-MuÃ’oz ()
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Ivan Mendieta-MuÃ’oz: Department of Economics, SOAS, University of London, UK

Authors registered in the RePEc Author Service: Ivan Mendieta-Muñoz

No 205, Working Papers from Department of Economics, SOAS, University of London, UK

Abstract: The ratio of financial to non-financial profits in the US economy has increased sharply since the 1970s, the period that is often called the financialisation of capitalism. By developing a two-sector theoretical model the ratio of financial to non-financial profits is shown to depend positively on the net interest margin and the non-interest income of banks, while it depends negatively on the general rate of profit, the non-interest expenses of banks, and the ratio of the capital stock to interest-earning assets. The model was estimated empirically for the post-war period and the results indicate that the ratio has varied mainly with respect to the net interest margin, although non-interest income has also played a significant role. The results confirm that in the course of financialisation the US financial sector has been able to extract rising profits through interest differentials and non-interest income, while the general rate of profit has remained broadly constant.

Keywords: Rise in financial profits; financialisation; U.S. economy (search for similar items in EconPapers)
JEL-codes: E11 E44 G20 (search for similar items in EconPapers)
Pages: 47
Date: 2017-10
New Economics Papers: this item is included in nep-ban, nep-his, nep-hme and nep-mac
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