An estimation of the economic growth effect of offshore banking in Caribbean islands

The dissertation conducts an econometric evaluation of the economic growth benefit of offshore banking in host countries. A neoclassical growth model is provided to demonstrate how an offshore commercial sector can facilitate economic growth through its provision of additional labor income. Based on a sample of 15 Caribbean countries, and banking data on non-resident asset and liability positions, an empirical growth model is estimated to test the hypothesis of whether the offshore banking sector has a positive causal relationship with the growth rate of national income in host countries.;The econometric results show that the offshore banking sector does have a positive effect on economic growth in host countries. The regression estimates further show that the relationship between the offshore banking sector and economic growth is dependent on the share of income used for domestic investment. The dissertation concludes that the development of an offshore commercial sector can be used as a policy for economic growth. However, the growth benefits of housing an offshore sector are small.