Financialization describes an economic process in which exchange is facilitated through financial instruments rather than real goods and services. It has led to greater revenues and incomes in the financial sector compared to other sectors. There are four periods of financialization dating back to the early 1900s, with the current period beginning in the 1970s and contributing to the Great Recession. Financialization affects macroeconomics and microeconomics by changing financial market structures and influencing corporate behavior and economic policy. It can help build economies by facilitating investment and growth, but it also increases wealth inequality and can divert focus from real industry.

1. FINANCIALIZATION
PREPARED BY NURLAN GARAAHMADLI
WORLD ECONOMY

2. WHAT IS FINANCIALIZATION?
• Financialization describes an economic process in which exchange is
facilitated through financial instruments. Funding can easily convert real
goods, services, and risks into currency, and thus make it easier for people to
rationalize their assets and income streams.
• Financialisation affects both macroeconomics and microeconomics by
changing the structure and management of financial markets and influencing
corporate behavior and economic policy.

3. Finanialization has also
led to a greater increase
in revenues in the
financial sector than in
other sectors of the
economy. The income of
individuals working in
the financial sector has
increased
disproportionately
compared to employees
in other sectors.

4. HISTORY OF FINANCIALIZATION
There are 4 period of financialization
the first, from the 1900s to 1933 (early financialization)
the second, from 1933 to 1940 (transitory phase)
the third, between 1945 and 1973 (definancialization)
and the fourth period begins in the early 1970s and leads to the Great Recession
(complex financialization).

5. FINANCIALIZATION OF THE ECONOMY
• Financialization reflects the growing importance of finance, financial markets and financial institutions
for the functioning of the economy.
There are 2 broad themes at the level of Financialization
1. An equity-oriented orientation has led to fundamental changes in corporate strategies and structures,
which have encouraged outsourcing and corporate disaggregation, while at the same time increasing
the above compensation.
2. Second, financialization has shaped patterns of inequality, culture, and social change in the broader
society. These changes are based on a wide-ranging shift from financial institutions to financial
markets, such as through capitalization.

6. HOW DOES FINANCIALIZATION AFFECT THE ECONOMY?
• Financialization affects both macroeconomics and microeconomics by
changing the structure and management of financial markets and influencing
corporate behavior and economic policy. It has also caused incomes to
increase more in the financial sector than in other sectors of the economy.
Financial instruments were quick to generate quick returns, so they invested
in software that facilitated this approach, rather than investing in expensive
bricks and mortar needed to build factories. They also supported products
that could be sold at Wal-Mart and produced abroad.

7. HOW FINANCIALIZATION HELPS BUILD ECONOMIES
• Financial services are also an important source of exports. Financialization has
also occurred in many other countries around the world, even in emerging
markets such as Mexico and Turkey. In the world, the growth of
banking, asset management, insurance, and venture capital —the
components that make up the financial sector—can contribute to growth in
other sectors of the economy as well. Large and liquid financial markets
facilitate investment and growth financing and protect purchases and
investments through insurance. Funding has also led to significant job growth
in the financial sector, and these jobs are expected to continue to grow.

8. WHAT IS FINANCIALIZATION BUSINESS?
Financing is a process in which financial markets, financial institutions and financial elites have a
greater influence on economic policy and economic outcomes. Funding changes the functioning
of the economic system at both the macro and micro levels.
Its principal impacts
 increase the importance of the financial sector in relation to the real sector
 transfer income from the real sector to the financial sector
 increase income inequality and contribute to wage stagnation

9. Financialization is provided
through three different
channels
1. changes in the structure
and operation of
financial markets
2. changes in the behavior
of non-financial
corporations
3. changes in economic
policy

10. WHAT IS COMMODITY FINANCIALIZATION
• Financialization of commodities has led to increase in price volatility of the commodities.
Commodity price volatility has been a serious concern for most economies and primarily for
agrarian economies. Massive and unexpected changes in commodity prices have caused
major shocks in the economy. The result of this funding was that commodities previously
used to show a negative correlation with other traditional asset classes began to show a
positive correlation, thus raising questions about their potential as a means of diversification.

11. ADVANTAGES OF FINANCIALIZATION
 Increased use of financial intermediaries
 Increased use of futures markets
 An increased importance placed on the financial sector
 It can also be used to generate more and more profits through financial
channels, rather than through trade and commodity production.

12. DISADVANTAGES OF FINANCIALIZATION
 Increased wealth inequality. Wages in the finance sector have risen faster than the non-
finance sector.
 Focusing on finance can hurt investment in real goods and industry.

14. HOW ARE UNIVERSITIES AFFECTED BY FINANCIALIZATION?
• Funding for higher education has also had an impact. Many modern
universities rely on tuition fees more than public funding to cover their costs.
This has forced some schools to borrow heavily to pay for luxury facilities and
student housing to attract more potential students.