Sectoral Net Lending in Six Financial Centers
This paper documents the evolution of net flows of saving across sectors in six financial centers: the United States (1947-2011), the United Kingdom (1991-2010), France (1971-2011), the Netherlands (1980-2011), Germany (1995-2011), and Switzerland (1995-2011). The paper has two main goals. First, we document the evolution of the allocation of funds between financial instruments and capital accumulation at the level of aggregate sectors during the recent decades. Second, we assess whether the recent expansion of finance, propelled by financial innovation and deregulation, has corresponded to a greater need for external funds to finance the accumulation of private, non-residential capital.

We find that non-financial corporations have reduced their reliance on external finance for capital expenditures in the United States after 1980 and in the European countries in the 2000s — to the point that non-financial corporations became net lenders in the United Kingdom, Germany, and Switzerland during that period. The lower use of funds by non-financial corporations was, in almost all cases, associated with lower demand for productive investment as a share of GDP. In turn, household net lending collapsed in the United States in 1980-2007, and in the United Kingdom and the Netherlands in the 2000s. Despite lower demand for external funds from non-financial corporations as a share of GDP, financial corporations expanded net lending in almost all these countries, a change chiefly associated with higher retained earnings.

Our findings suggest deep changes in the financial behavior of aggregate sectors in recent decades, complementing recent analyses that call into question the social benefits of large and complex financial systems (e.g.: Crotty, 2009; Panizza et al., 2012; Crotty and Epstein, 2013), as well as recent analyses of the ’financialization’ of non-financial firms (e.g.: Lazonick and O’Sullivan, 2000; Stockhammer, 2004; Orhangazi, 2008; Davis, 2013).

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