Financial centers in the Asia-pacific region: an empirical study on australia, Hong Kong, Japan and Singapore


  • J.P.A. Sagaram
  • J. Wickramanayake



Bank, Regulation


The objective of this study is to empirically examine the status and sustainability of Australia, Hong Kong, Japan and Singapore as financial centers in the Asia-Pacific region. The sample period under investigation is from 1977 to 2002. This paper attempts to provide empirical evidence on significant factors such as taxes, economic activity, assets and liabilities of banks, regulation, socio-economic factors (education and quality of life) and the tax treatment of foreign institutions, that determine the status and sustainability of the above four financial centers. Although extensive research on financial centers has been conducted, there seems to be no empirical research focused on the above factors especially for Australia, Hong Kong, Japan and Singapore. This study uses three modeling approaches. Under the first approach: estimates of an error-correction model show the existence of a long-run relationship between the variables in the four financial centers. In the second approach: estimated pooled (panel) regression model indicates that majority of the variables under investigation are statistically significant when tested collectively for all four financial centers. Results of the third model show the importance of socio-economic and government intervention variables such as the education system, government economic policies, quality of life, the regulatory environment and the tax treatment of foreign corporations for the status and sustainability of financial centers. The main policy implication of this study is that business friendly government policies promoting economic growth and socio-economic development are important for healthy growth of financial centers.


JEL Codes: E44, F31, G10, G18, G20, G28



ARIZE, A.C. (1994), "Modelling the demand for broad money in the United States", Atlantic Economic Journal, vol. 22, no. 3, pp. 37-51.

AUSTRALIAN BUREAU OF STATISTICS (2002), The Australian Economy, December 18.

AUSTRALIAN FINANCIAL MARKETS ASSOCIATION (2002), Australian Derivatives Market Turnover Profile, December.


AUSTRALIAN STOCK EXCHANGE (2002), Stock Market Capitalistion, November.

AUSTRALIAN TAX OFFICE (2002), Time Series Tax Rates, 18 October.

AXISS AUSTRALIA (2002), Derivatives Trading in Australia (Data File), December.

AXISS AUSTRALIA (2002), The Australian Equity Market (Data File), December.

AXISS AUSTRALIA (2002), The Australian Foreign Exchange Market (Data File), December.

AXISS AUSTRALIA (2002), Investment Management in Australia (Data File), December.

AXISS AUSTRALIA (2002), The Australian Debt Securities Markets (Data File), December.

AXISS AUSTRALIA (2002), Axiss Markets Perspective, December.

BALTAGI, B.H. (1995), Econometric Analysis of Panel Data, John Wiley and Sons, New York. 48 BNL Quarterly Review

BANERJEE, A., J.J. DOLADO and R. MESTRE (1998), "Error-correction mechanism tests for cointegration in a single-equation framework", Journal of Time Series Analysis, vol. 19, no. 3, pp. 267-83.

BANERJEE, A., J.J. DOLADO, D.H. HENDRY and G.W. SMITH (1986), "Exploring equilibrium relationships in econometrics through state models: some Monte Carlo evidence", Oxford Bulletin of Economics and Statistics, vol. 48, no. 3, pp. 253-77.

BANK FOR INTERNATIONAL SETTLEMENTS (2002), BIS Quarterly Review, September.

BATTELINO, R. (2002), "Australia as a capital exporter", Reserve Bank of Australia Bulletin, August 29, pp. 18-23.

BOSWIJK, P. and P.H. FRANSES (1992), "Dynamic specification and cointegration", Oxford Bulletin of Economics and Statistics, vol. 54, no. 3, pp. 369-81.

CHOI, S.-R., A. TSCHOEGL and C.-M. YU (1986), "Banks and the world's major financial centres", Weltwirtschaftliches Archiv, Bd 122, Nr 1, pp. 48-64.

CHOI, S.-R., A. TSCHOEGL and C.-M. YU (1996), "Banks and the world's major banking centres", Weltwirtschaftliches Archiv, Bd 132, Nr 4, pp. 774-93.

CHOW, G.C. (1960), "Tests for equality between sets of coefficients in two linear regressions", Econometrica, vol. 28, no. 3, pp. 591-605.

DAVIDSON, J., D.F. HENDRY, F. SRBA and S. YEO (1978), "Econometric modeling of the aggregate time-series relationships between consumers' expenditure and income in the United Kingdom", Economic Journal, vol. 88, no. 352, pp. 661-92.

DAVIS, E.P. (1990), "International financial centers – An industrial analysis", Bank of England Discussion Paper, no. 51, September, pp. 1-23.

DICKEY, D. and W. FULLER (1981), "Likelihood ratio statistics for autoregressive time series with a unit root", Econometrica, vol. 49, no. 4, pp. 1057-72.

DUFEY, G. and I.H. GIDDY (1978), "Financial centers and external financial markets", in The International Money Market, Prentice-Hall, Engllewood Cliffs, pp. 35-47.

ENGLE, R.F. (1982), "Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation", Econometrica, vol. 50, no. 1, pp. 987-1007.

FOCK, S.T. and A.C. WONG (2001), "Post-East Asian financial crisis: challenges and opportunities for banking and financial services sector in Singapore", Review of Pacific Basin Financial Markets and Policies, vol. 4, no. 4, pp. 495-521.

FUJITA, Y. and S. OSAKI (1995), "Asia's securities markets in the 21st century", Nomura Research Institute Quarterly, April, pp. 23-36.

GODFREY, L.G (1978), "Testing for higher order serial correlation in regression equations when the regressors include lagged dependent variables", Econometrica, vol. 46, no. 6, pp. 103-10.

GOLDBERG, M. (1991), "Asia Pacific international financial centres", The International Journal of Bank Marketing, vol. 9, no. 5, pp. 4-10.

GOLDBERG, M., R. HELSEY and M. LEVI (1988), "On the development of international financial centers", Annals of Regional Sciences, vol. XXII (special Festschrift issue), February, pp. 81-94.

GRANGER, C.W.J. (1983), "Co-integrated variables and error-correcting models", University of California, San Diego, Discussion Paper, no. 83-13a.

GRANGER, C.W.J. and P. NEWBOLD (1974), Forecasting Economic Time-Series, Academic Press, New York.

GUJARATI, D.N. (2003), Basic Econometrics, 4th ed., McGraw-Hill, New York.

HALL, S.G. (1986), "An application of Granger and Engle two-step procedure to United Kingdom aggregate wage rate", Oxford Bulletin of Economics and Statistics, vol. 48, no. 3, pp. 229-39.

HENDRY, D.F. (1979), "Predictive failure and econometric modelling in macroeconomics: the transactions demand for money", in P. Ormerod ed., Economic Modelling: Current Issues and Problems in the U.K. and the U.S., Heineman, London, pp. 217-42.

HENDRY, D.F. and N.S. ERICSSON (1991), "An econometric analysis of the UK money demand in monetary trends in the United States and the United Kingdom", The American Economic Review, vol. 81, no. 1, pp. 8-38.

HO, R. (1991), "Hong Kong as and international financial center", in R.Y.-K. Ho,

R.H. Scott and M.K. Lewis eds, The Hong Kong Financial System, Oxford University Press, Hong Kong, pp. 381-405.

HODJERA, Z. (1999), "The Asian currency market: Singapore as a regional financial centre", in M.K. Lewis ed., The Globalisation of Financial Services, Edward Elgar, Northampton, pp. 360-92.

HUAT, T.C. (1982), "Singapore as an international financial center", East Asia Dimensions of International Business, Prentice Hall, Sydney, pp. 29-44.

IMD - INSTITUTE OF MANAGEMENT DEVELOPMENT (Switzerland) (2003), accessed in May 2003.

IMD - INSTITUTE OF MANAGEMENT DEVELOPMENT (Switzerland) (2003), accessed in May 2003.

IMF (2000), "Offshore financial centres", International Monetary Fund Background Paper, May 23, pp. 1-19.

ITO, T. (1997), "Japan's economy needs structural change", Finance and Development, June, pp. 16-19.

JARQUE, C.M. and A.K. BERA (1980), "Efficient tests for normality, homoscedasticity and serial independence of regression residuals", Economics Letters, vol. 6, no. 3, pp. 255-59.

JIN, N.K. (1996), "Singapore as a financial centre; new developments, challenges and prospects", NBER-East Asian Seminar on Economics, vol. 5, pp. 360-92.

JOHANSEN, S. and K. JUSELIUS (1990), "Maximum likelihood estimation and inference on cointegration – With application to the demand for money", Oxford Bulletin of Economics and Statistics, vol. 52, no. 2, pp. 169-210.

KAUFMAN, G.G. (2001), "Emerging economies and international financial centres", Review of Pacific Basin Financial Markets and Policies, vol. 4, no. 4, pp. 365-77.

KINDLEBERGER, C. (1974), "The formation of financial centers: a study in comparative economic history", Princeton Studies in International Finance, no. 36. 50 BNL Quarterly Review

KREMERS, J.J.M., N.R. ERICSSON and J.J. DOLADO (1992), "The power of cointegration tests", Oxford Bulletin of Economics and Statistics, vol. 54, no. 3, pp. 325-48.

LEE, H.L. (2001), "Financial centers today and tomorrow: a Singapore perspective", International Monetary Conference, Singapore, June, pp. 1-6.

LESSARD, D. (1993), Singapore as an International Financial Center, Nanyang Technological University, Singapore.

LEVINE, R. (2004), "Finance and growth: theory and evidence", National Bureau of Economic Research Working Paper, no. 10766, September.

MCGAHEY, R., M. MALLOY, K. KAZANAS and M. JACOBS (1990), "What makes a financial center?", in Financial Services, Financial Center: Public Policy and the Competition for Markets, Firms and Jobs, Westview Press, Boulder, pp. 15-76.

MEHRA, Y.P. (1991), "An error-correction model of the U.S. M2 demand", Federal Bank of Richmond Economic Review, vol. 77, no. 3, pp. 3-12.

MONETARY AUTHORITY OF SINGAPORE (2002), Macroeconomic Review, vol. 1, no. 2. MONTES, M.F. (1999), "Tokyo, Hong Kong and Singapore as competing financial centres", Journal of Asian Business, vol. 18, no. 1, pp. 153-68.

PATRICK, H.T. (1966), "Financial development and economic growth in underdeveloped countries", Economic Development and Cultural Change, vol. 14, no. 2, pp. 174-89.

PHILLIPS, P.C.B and M. LORETAN (1991), "Estimating long-run economic equilibria", Review of Economic Studies, vol. 53, pp. 407-36.

POON, J.P.H. (2003), "Hierarchical tendencies of capital markets among international financial centers", Growth and Change, vol. 34, no. 2, pp. 135-36.

POON, J.P.H., B. ELDREDGE and D. YEUNG (2004), "Rank size distribution of international financial centers", International Regional Science Review, vol. 27, no. 4, pp. 411-30.

RAMSEY, J.B. (1969), "Tests for specification errors in classical linear least squares regression analysis", Journal of Royal Statistical Society, Series B, vol. 31, pp. 350-71.

REED, H. (1980), "The ascent of Tokyo as an international financial center", Journal of International Business Studies, vol. 11, no. 3, pp. 19-35.

REED, H. (1983), "Appraising corporate investment policy: a financial center theory of Foreign Direct Investment", in C.P. Kindleberger and D.B. Audretsch eds, The Multinational Corporations in the 1980s, MIT Press, Cambridge, Mass., pp. 219-44.

REED, H. (1989), "Financial center hegemony, interest rates, and the global political economy", in Y.S. Park and M. Essayyad eds, International Banking and Financial Centers, Kluwer, Boston, pp. 43-71.

RESERVE BANK OF AUSTRALIA (2002), Australia's Foreign Exchange Market Turnover, December.

RICHARDSON, J. (2002), Tax Measures to Promote Offshore Investment, Keeping Good Companies [Professional Updates: Taxation Law], Chartered Institute of Company Secretaries, Sydney.

SCHENK, C.R. (2002), "Banks and the emergence of Hong Kong as an international financial centre", Journal of International Financial Markets, Institutions and Money, vol. 12, no. 4-5, pp. 321-40.

SCHOLEY, D. (1987), "Essential features of international financial centers", in International Financial Centers: Structure, Achievements and Prospects, proceedings of the 40th International Banking Summer School, Swiss Bankers' Association, Interlaken/ Basle, pp. 11-24.

THE ECONOMIST INTELLIGENCE UNIT (2002), Country Profile: Australia, Hong Kong, Singapore, October.

THE ECONOMIST INTELLIGENCE UNIT (2002), Worldwide Business Costs Rankings, December.

TSCHOEGL, A.E. (2000), "International banking centers, geography, and foreign banks", Financial Markets, Institutions & Instruments, January, vol. 9, no. 1, pp. 1-32.

WALTER, I. (1998), "Globalisation of markets and financial-centre competition", New York University Solomon Centre Working Paper, no. S/98/31.

WHITE, H. (1980), "A heteroscedasticity-consistent covariance estimator and a direct test for heteroscedasticity", Econometrica, vol. 48, no. 4, pp. 817-38.

WINCKLER, G. (1991), "Vienna as an international financial centre", in A. Wala ed., Challenges for European Bank Managers in the 1990s, International Schriftenreihe der Oesterreichische National Bank, Vienna, vol. 3, pp. 165-78.

WORLD COMPETITIVENESS YEARBOOK (2003), Country Rankings, IMD (Switzerland), March;

ZELLNER, A. (1962), "An efficient method of estimating seemingly unrelated regression and tests for aggregation bias", Journal of the American Statistical Association, vol. 57, no. 298, pp. 348-68.




How to Cite

Sagaram, J., & Wickramanayake, J. (2012). Financial centers in the Asia-pacific region: an empirical study on australia, Hong Kong, Japan and Singapore. PSL Quarterly Review, 58(232).