ABSTRACT
We assess in this chapter the empirical evidence behind the contention that capital flows from nonfinancial to financial investments responded to profitability differentials between the two sectors. We further argue that adjusting the actual measures of nonfinancial corporate profitability for capacity utilization strengthens the view of a falling trend. It follows that the higher yields found in financial markets relative to nonfinancial corporate investments prompted the transfer of capital funds to that sector. After the mid-1980s, the falling share of value-added in US manufacturing, once the center of the nonfinancial corporate sector, extended to the nonfinancial corporate sector as a whole. Consequently, the falling share of nonfinancial corporate value-added in total corporate value-added reflected the structural changes brought on by the ascendance of finance.
