Should the government establish an offshore banking center within its jurisdiction? This question is one which many governments have faced and answered in the affirmative. The number of countries which have established such offshore centers has perhaps given rise to a common perception not only that the benefits must outweigh the costs, but also that the benefits of hosting financial centers are quite substantial. I present a framework here for evaluating the benefits and costs, direct and indirect, of hosting a financial center. At the same time I review the existing evidence to assess the net position and thus the implications for the supply of financial centers. The result is an assessment that, although the benefits are slight, the costs of hosting a center in small countries are often slighter. Thus, we see the frequent creation of such centers in open, island economies.

The Benefits and Costs of Hosting Financial Centers

This article attempts to identify the emerging pattern of Foreign Direct Investment (FDI) and/or international production in the Asian Pacific region. The internationalisation of production has accelerated in the Asian Pacific region as competitive advantage has shifted and as protectionist measures have changed traditional source patterns. The Asian Pacific region has evolved into an interactive international production system comprising three tiers of countries: Japan, the four Asian Newly Industrialized Countries (ANICs), and the four developing countries of the Asian Pacific region (Indonesia, Malaysia, the Philippines and Thailand). The fundamental economic reality which has molded this system is the dynamic complementarity in location advantages of the three tiers.

Intraregional foreign direct investment in the asian pacific region

Offshore banking centers (OBCs) have developed during the last few decades to the point where they have come to play a major role in the innovative world of international finance. This phenomenal growth can be attributed to several factors: the restrictive policies and regulatory procedures in banking in some industrial developed countries, expansion of international trade, impact of the recycling of petrodollars and the borrowing requirements of developing countries. These phenomena, combined with a telecommunications revolution which enables banking institutions to access large quantities of current financial information and to disseminate it via a global network, have accelerated the growth of the OBCs. In turn, this OBC expansion has contributed to the development of world finance and the world economy in a number of ways.

The Economic Impact of Offshore Banking Centers on the Host Countries

The purpose of this paper is to evaluate the costs and benefits of offshore banking operations. Specifically the objective of the paper is to assess the impact of offshore banking on the economic development of primary international banking centers such as New York, Montreal, and Vancouver, as well as secondary centers such as Singapore, Hong Kong, and Panama.

Phillip Donald Grub

Papers

East Asia Dimensions of International Business