Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/330332 
Year of Publication: 
2025
Series/Report no.: 
Working Paper No. 261/2025
Publisher: 
Hochschule für Wirtschaft und Recht Berlin, Institute for International Political Economy (IPE), Berlin
Abstract: 
This paper extends the post-Keynesian model of the firm to an open-economy context to investigate the determinants of firms' target profit rates in developing and emerging economies (DEEs) and the ways in which these rates have been affected by the financialisation phenomenon. Our findings show that firms' intrinsic vulnerabilities, persistent risks, and tighter financial constraints-stemming from the hierarchical structure of the international monetary system-lead to structurally higher target profit rates in DEEs compared to those in advanced economies. At the microeconomic level, we show that financialisation, in the form of increasing foreign indebtedness, can induce the firm to raise profitability targets through the finance, preference, and distribution transmission channels. Moreover, by establishing the link between the microeconomic effects of financialisation with its macroeconomic implications, we identify the conditions under which the changes in firm behaviour induced by financialisation generate either the same macroeconomic outcomes or micro-macro fallacies, giving rise to a paradox of profits, a paradox of growth, a paradox of risk and a paradox of liquidity.
Subjects: 
target profit rates
financialisation
theory of the firm
foreign indebtedness
portfolio dollarisation
JEL: 
D21
E12
F33
F41
Document Type: 
Working Paper

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