The Economic Growth Effect of Offshore Banking in Host Territories: Evidence from the Caribbean

Following the success of renowned Caribbean offshore centers, several small islands have enacted offshore banking policies as a strategy for increasing economic growth. Several empirical studies have assessed the growth effect of such policies, but none accounts for sector size when estimating its growth impact. This study contributes to this literature by estimating the magnitude of offshore activity in each territory, and using this estimate as a continuous variable in an economic growth model. The results provide support for the hypothesis that facilitating offshore banking stimulates economic growth in host islands, and that the benefit is proportional to sector size. (C) 2012 Elsevier Ltd. All rights reserved.