Are Financial Centres Worthwhile?
The Times of London reported earlier this month that London was the most successful financial services industry in the world with record net exports of £19 billion ($33 billion).
I was struck by the smallness of this number. If this is what the world's premier financial centre can achieve, then is it at all worthwhile for a country to promote itself as a regional or global financial centre? For example, does it make any sense for India to build Mumbai up as a regional financial centre? Perhaps not.
It is reasonable to assume that in a few years time, India‘s software and BPO exports will be above $33 billion. On the other hand, any new financial centre will have a fraction of the net exports of London. Not only will it be smaller, it will most probably not have institutions like Lloyds of London which contribute significantly to those net exports (insurance accounted for a third of London's net exports). We might be better off importing financial services and exporting software!
My colleague, Prof. Sebastian Morris, points out however that the advantage from having a regional financial centre is likely to last for a very very long time. If London‘s experience is any guide, that is certainly true. If we present value all that, it might make the whole effort worthwhile. But Prof. Morris also adds that the real sector of the UK economy may have lost out in the pursuit of London‘s interest as a financial centre. If we subtract that, where does that leave us?
Posted at 12:05 pm IST on Thu, 28 Jul 2005 permanent link