Offshore Banking and Economic Growth: A Cross-Country Analysis

This paper investigates the effect of an offshore banking sector on economic growth. For this purpose, we specified a growth equation for the 41 countries that report their external positions to the Bank for International Settlements and evaluated how the size of an offshore banking sector, measured by external assets or liabilities contributed to the countries' per capita income growth. The distinctive features of this paper are that compared to previous studies, we used more comprehensive data and more flexible empirical specifications to investigate the effects of offshore banking. We find that the size of an offshore banking sector and economic growth have a nonlinear relationship, and the growth effect tends to increase as the scale of offshore banking increases.