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Empirical Analysis of an Influence of Financialization on Investment in Spain

Student: Anastasiia Kuzmina

Supervisor: Ivan V. Rozmainsky

Faculty: St.Petersburg School of Economics and Management

Educational Programme: Economics (Bachelor)

Year of Graduation: 2020

In this paper, we analyzed the impact of financialization on physical investment in Spain. Over the past decades, the global economy has been financialized, that is, the financial sector is ahead of the real sector in development. In this regard, there is a need for a more thorough study of the impact of financialization on investment. At the moment, there are a lot of macro-studies of financialization, but few people consider this issue at the level of firms and their domestic investments, studies in Spain are even smaller. This work aims to analyze the relationship between financialization (its indicators: financial payments and financial income) and physical investment using the example of non-financial firms in Spain. To achieve the goal, an econometric analysis was performed in this work. Using data from a sample of non-financial companies for 2005-2019, a negative relationship was found between real investment and financialization. Firstly, an increase in financial returns crowds out real investments by changing incentives of company managers and redirecting funds from real investments in financial ones. Secondly, the increase in financial payments to financial markets also negatively affects real investments, reducing the available domestic funds, as well as reducing the horizons of planning the management of the company. These two factors help to explain the negative relationship between investment and financialization. The obtained results met the initial expectations and confirmed the conclusions from the empirical literature.

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