From Wall Street to Brazil: The Financialization of the Brazilian Economy as a Driver of Increasing Inequalities

Abstract: The Brazilian economy is now financialized, where the finance sector and its priorities have become increasingly dominant in all aspects of the economy. At the same time, the country has been facing extremely high levels of inequality and is currently the 8th most unequal country in the world. This thesis aims to analyze the associations between the process of financialization and inequality trends in Brazil, and therefore discuss how it may affect income distribution and economic development in the country. Guided by the Post-Keynesian Institutionalism framework, the research will include a methodology that investigates how the configuration of the Brazilian financial system across time has come to influence inequality in the country through five main channels. Namely, they are a) unemployment; b) a decline in private investments within the productive sector; c) unsustained economic growth; d) the worsening of welfare policies; e) a higher probability of a financial crisis. Building upon the previous literature and the data collected, the study finds the process of financialization has served as an obstacle to reducing the income gap in Brazil by two means. Firstly, by promoting a shift away from investments in productive capital to those in financial investments and services, which is signaled by an inverse correlation between the rate of financialization of the Brazilian economy and the rate of fixed productive capital accumulation. And secondly, by altering the dynamics of social spending in the Brazilian welfare system through a recommodification process. Lastly, this study finds that while a number of developed economies have gone through a financialization process, Brazil is unique due to its harmful trajectory to detriment of its economic development and equity.