The stagnation-financialization paradox Understanding a modern puzzle through complex systems

The goal of this dissertation is to investigate the root causes of the “stagnation-financialization paradox”, i.e., a situation in which the economy manifests a tendency to stagnation in a context of financial expansion. After a brief introduction presenting an overview of the thesis, in the second chapter I carry out an empirical analysis in order to examine the extent to which the tendency to maximize shareholder value, fuelled by stock-based manager compensation, has led U.S. firms to divert resources from real investment to share repurchases to boost stock prices. Based on the evidence brought to the fore by the second chapter, the third chapter presents a macro-financial agent-based model that aims to explore the conditions under which the tendency to maximize stock market value at the micro level may give rise to a disconnect between financial markets and the real economy at the macro level. The main finding is that in order for such a paradox to emerge, it is necessary that the corporate sector is able to generate high profits despite slowing growth. This led me to further investigate the role of market power in relation with income distribution and growth. Building a macroeconomic agent based model with endogenous technical change and knowledge accumulation, the fourth chapter analyzes the underlying causes of the recent increase in market concentration, by focusing on the interplay of technical change and market power, and the resulting macroeconomic consequences in terms of higher inequality and lower growth.