Fri Jun 22nd, 2007 at 11:01:51 AM EST
The Anglo Disease was introduced by Jérôme here and here, and defined (by allusion to the "Dutch Disease", but referring directly in the case of the US/UK to the financial services industry) as a situation in which an "industry with much higher returns... made investment in other sectors relatively unprofitable and eventually generated economic hardship". A recent (April 2007) working paper from the International Monetary Fund throws an interesting sidelight on the question - with a bang.
It's by Ahmed Zoromé and is entitled Concept of Offshore Financial Centers: In Search of an Operational Definition. As his title suggests, Zoromé works on the definition of Offshore Financial Centres (OFC), often called (perhaps mistakenly) tax havens.
In recent years, there has been an increasing recognition of the need to improve the understanding of the activities of offshore financial centers (OFCs) because these centers have captured a significant proportion of global financial flows. <...>
Notwithstanding this focus, there is no unanimity on what constitutes an OFC.
Zoromé examines the definitions proposed so far (by academics or by the IMF), and concludes:
All the definitions examined above tend to equate OFCs with a regulatory and taxation phenomenon and do not differentiate OFCs based on distinctive (preferably measurable) macroeconomic features they have developed as a result of the cross-border nature of their financial intermediation.
He offers this definition:
An OFC is a country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy.
Zoromé both examines the reliability of the data - excluding insurance from financial services because of problems of incomplete data - and works through the formulae that might turn the general definition into better metrics than those previously used.. He separates a high-income group of countries from a low-to-middle group, and gives them different treatment with the same aim of calculating a ratio of financial services exports to GDP. He then uses the standard deviation as the threshold beyond which a country may be considered an OFC.
For the high-income group, we find (lo and behold!):
The United Kingdom makes the list of OFCs.
How significant is this? Well, it's one guy doing some statistics according to rules he thinks are solid. It's a working paper, so does not officially represent the views of the IMF (though it may form the basis of future IMF doctrine). Anyway, does it matter so very much if we call the UK a tax haven or Offshore Financial Centre? (Well, that one's a debatable question, imo...)
But - re the Anglo Disease - it does show that the ratio of financial service exports (that part of the financial services industry, outside insurance in this case, that caters for external clients) to overall GDP is relatively high - in a country whose GDP places it in the top bunch of the world's economies. The UK is the largest economy in Zoromé's list.
The second sidelight (next week) will come from another IMF working paper and some Bank of England reports.