FINANCIALIZATION OF GDP - DYSFUNCTION OF THE REFERENCE MEASURE
FINANCIALIZATION OF GDP - DYSFUNCTION OF THE REFERENCE MEASURE

Summary/Abstract: Financialization is one of the most important trends limiting the sustainable development of economies. Despite of growing significance of finance in market economy, the perception of these new phenomena is not unambiguous. Theoretical discussion over financialization oscillates between acceptance of natural evolution of the market economy towards growing importance of financial sector on the one hand, and warnings of destructive role of finance in economic, social and ethical aspects of sustainable development on the other hand. A framework of the discussion over financialization should embrace pursuing the answers to the following key questions: what are the key drivers of financialization, what are the key symptoms, what is its impact on real economy and finally how to cope with it. To make financialization manageable, however, it must be measurable in the first place. Applied measures should take into account primarily the scale of financialization (total size of financial assets, employment in financial sector, revenues from the financial activity of the real industry and so on) and secondarily, its impact on the economic growth. The most commonly used measures that address the above mentioned both aspects of financialization refer to the GDP aggregate. This can provoke the question about reliability of the obtained outcomes. Starting from the second half of the twentieth century, the set of economic inputs used to calculate the GDP began to skew rapidly towards finance. Therefore, there is a fear that, on the one hand, the scale of financialization is underestimated and, on the other hand, its impact on economic development is overappreciated. The main aim of the paper is to present the key constituents of GDP with a particular focus on those, directly and indirectly originating from the financial sector. Review of literature will be conducted to identify the key implications of financialization of the GDP for selected aspects of macroeconomic debate. Finally, the paper will lead to a conclusion, that despite being imperfect, the GDP fulfils its role of a reference measure in assessing the scale of financialization. However, to evaluate the impact of financialization on economic growth and other aspects of real economy, it should be replaced with another reference aggregate which would be free from the overwhelming impact of finance.

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