The elusive banker. Using hurricanes to uncover (non-) activity in offshore financial centers

Abstract

This study investigates if the high international financial positions in offshore financial centers (OFCs) are in fact due to specialized human capital and tailored financial service products as their governments and financial service providers claim. Exploiting the natural experiment of Caribbean and Pacific hurricanes, reactions of economic activity are compared to reactions in variables capturing different aspects of the financial system. Local activity as measured by a newly constructed monthly nightlight dataset decreases by 30% on average for at least 6 months. However, neither the interbank market nor international investors react. Such reactions are visible, however, on non-OFC islands. Only in daily incorporations is an effect visible on OFCs. This suggests that the financial activities leading to the large international capital positions of OFCs take place elsewhere and only simpler tasks are taking place on the Island.

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