Financial Sector Bargaining Power, Aggregate Growth and Systemic Risk

18 Pages Posted: 14 Nov 2018

See all articles by Emanuele Ciola

Emanuele Ciola

Fondazione Eni Enrico Mattei (FEEM), Milan; University of Brescia - Department of Economics and Management

Date Written: October 23, 2018

Abstract

During the last three decades Western economies have been characterized by an increasing role played by the financial sector. This process, called financialization, has been associated with lower economic growth, increased inequality and declining financial stability. In this article I develop a simple framework to study the effects of financialization on aggregate growth and systemic risk. The main driver of this mechanism is the bargaining power of intermediaries. Indeed, financial institutions, by absorbing a larger quota of income from their borrowers, can reduce the incentive for new entrepreneurs to enter in the market. Because of that, both the long-term potential growth rate and the overall stability of the system can be negatively affected by an overdeveloped financial sector.

Keywords: financialization, entrepreneurship, firm financing, growth, systemic risk

JEL Classification: E44, G32, O43

Suggested Citation

Ciola, Emanuele, Financial Sector Bargaining Power, Aggregate Growth and Systemic Risk (October 23, 2018). Available at SSRN: https://ssrn.com/abstract=3271563 or http://dx.doi.org/10.2139/ssrn.3271563

Emanuele Ciola (Contact Author)

Fondazione Eni Enrico Mattei (FEEM), Milan ( email )

Corso Magenta 63
20123 Milan
Italy

University of Brescia - Department of Economics and Management ( email )

Contrada Santa Chiara 50
BRESCIA, BS 25122
Italy

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