The Post-Keynesian Model of the firm in an open economy: Financialisation and firms' target profit rates in developing and emerging economies

Candelaria Fernández Tucci

No 261/2025, IPE Working Papers from Berlin School of Economics and Law, Institute for International Political Economy (IPE)

Abstract: This paper extends the post-Keynesian model of the firm to an open-economy context to investigate the determinants of firms' target profit rates in developing and emerging economies (DEEs) and the ways in which these rates have been affected by the financialisation phenomenon. Our findings show that firms' intrinsic vulnerabilities, persistent risks, and tighter financial constraints-stemming from the hierarchical structure of the international monetary system-lead to structurally higher target profit rates in DEEs compared to those in advanced economies. At the microeconomic level, we show that financialisation, in the form of increasing foreign indebtedness, can induce the firm to raise profitability targets through the finance, preference, and distribution transmission channels. Moreover, by establishing the link between the microeconomic effects of financialisation with its macroeconomic implications, we identify the conditions under which the changes in firm behaviour induced by financialisation generate either the same macroeconomic outcomes or micro-macro fallacies, giving rise to a paradox of profits, a paradox of growth, a paradox of risk and a paradox of liquidity.

Keywords: target profit rates; financialisation; theory of the firm; foreign indebtedness; portfolio dollarisation (search for similar items in EconPapers)
JEL-codes: D21 E12 F33 F41 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-fdg, nep-hme, nep-opm and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ipewps:330332

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