The Coevolution of Finance and Property Rights: Evidence from Transition Economies

Abstract

Abstract:The transition from communism to capitalism was necessarily accompanied by a sudden and abrupt increase in the financialization of society. This increase occurred in an environment that, even now, still has little experience with or expertise in financialization. Given that financialization occurred simultaneously with the growth and evolution of other political and economic institutions, the question arises: What was the effect on these other nascent institutions like property rights? This article empirically analyzes the relationship between financialization and property rights in transition countries. Using a unique monthly database of twenty transition countries over a period from 1989 to 2012, this article finds that the influence of financialization depends on which definition of "financialization" is used. In particular, increases in basic financial intermediation improved property rights. However, higher-order "financialization," proxied here by the size of capital markets and the wages in the financial sector, appeared to have a negative impact on the development of broad-based property rights in transition.

Institutions and trade‐related inequality

“…In particular, the relationship between trade openness and inequality is weakly negative, while property rights show a slightly positive but insignificant correlation with inequality (and the interaction between the two is also insignificant). Part of the reason behind this change can be attributed to what the two metrics of property rights are measuring: as Hartwell (2017) notes, the ICRG measure can be thought of as a measure of potential property rights, encompassing legislation and the like, while contract‐intensive money is a metric of realized property rights, including enforcement and expectations. In this sense, what our two sets of results are thus capturing are two different effects, the effect of well‐written property rights legislation on inequality and the effect of well‐enforced rights on the same.…”

Special issue on Financialization and the future of central banking: Institutions, processes and consequences

“…In its broadest definition, financialization typically refers to “the increasing dominance of the finance industry in the sum total of economic activity, of financial controllers in the management of corporations, [and] of financial assets among total assets” (Dore, 2002: 116–117). Gerald Epstein (2005: 3) adds that financialization may also capture “the growing dominance of capital market financial systems over bank-based financial systems,” a point that Ronald Dore (2002: 117) implied when describing “the stock market as a market for corporate control.” Finally, according to Krippner (2005: 181), “financialization reflects the increasing political and economic power of a rentier class.” It is this last definition that appears to be most broadly understood in the recent financialization literature (Hartwell, 2017; van der Zwan, 2014), wherein the pursuit of financial accumulation contributes to unstable financial systems and comes at the expense of wage earners.…”

The relative importance of regional institutions and external finance for small business investment: evidence from Vietnam

“…bank loans and informal loans) in determining firm investment. This consideration is based on the recent literature showing that institutional and financial variables may not be independent of each other (Hartwell, 2017; Marcelin and Mathur, 2014). Hence, our argument that we cannot obtain a meaningful answer as to which of the two factors are more important to firm investment by naïvely comparing each to the other.…”