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The Rise of Unemployment in Europe

A Keynesian Approach

Engelbert Stockhammer

This book offers a long overdue and refreshing Keynesian approach to the rise of European unemployment. It critically discusses the NAIRU theory and presents econometric evidence to assess the relative importance of capital investment and labor market institutions. The author also explores the reasons for the slowdown in capital accumulation, and is able to establish a clear link between changes in the financial sector, changes in corporate governance and investment expenditures.
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Chapter 6: Financialization and the Slowdown of Capital Accumulation

Engelbert Stockhammer


6.1 INTRODUCTION We established in the previous chapter our hypothesis that financialization will lead to a change in management priorities that translates into less investment. In this chapter we will carry out empirical tests of this hypothesis. Before we can do so, we review the literature on investment functions and their empirical estimation. This is necessary to establish variables that need to be controlled for in our estimations. Throughout this chapter we will use the terms ‘investment’ and ‘accumulation’ almost synonymously: accumulation is investment normalized by the capital stock. We test the hypothesis by means of aggregate annual investment data for the business sector for Germany, France, the UK and the USA. We find our argument that financialization is negatively related to accumulation clearly confirmed for France and the USA and, at less satisfactory levels of statistical significance, for the UK. Only in Germany do the estimations indicate the opposite sign from what we predicted. This may however be reconciled with our argument by the fact that shareholder value orientation is much less advanced in Germany than in other countries. As to the economic significance of our results, calculation confirms that financialization may in fact have been a major force in the slowdown in accumulation. The chapter is structured as follows. The first section contains the literature review on investment. We will discuss the rationales behind the most frequently found variables: output, profits and the cost of capital. The debate has long focused on the...

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