Global finance and the growth of offshore financial centers: The manx experience

The globalization of the world economy and the concomitant increasing complexity of the global financial system has resulted in a large number of relatively small places functioning as offshore financial centers (OFCs). OFCs provide an alternative avenue for capital to be invested (literally) in offshore markets. This paper argues that these small places have to strive hard to link in to the global economy in a reputable fashion and have to do so through the creation of spatially focused financial regulation and supervision. The importance of the constructs of trust, knowledge, reputation, and networks in the functioning of offshore financial services is explored. A conceptual framework is developed to illustrate how OFCs link in to the global economy along three dimensions: regulation, location, and function. A case study of the rise of the Isle of Man as an OFC provides empirical evidence regarding global-local linkages and the importance of creating an appropriately balanced regulatory regime.