Is a new world financial order emerging from the economic crisis? Will Asia's rising financial centers displace the long-held dominance of New York and London?
The newly released edition of the Global Financial Centres Index (GFCI), an annual competitiveness ranking of the world's leading financial centers, provides useful data with which to assess the evolving landscape of global finance.
The map above, prepared by Zara Matheson of the Martin Prosperity Institute (MPI), shows the world's leading financial centers based on the GFCI ranking.
London and New York remain the world's leading financial centers. But, Hong Kong and Singapore, which hold the third and fourth spots, are gaining ground, according to the report. Tokyo takes the fifth place and Shanghai has surged to sixth, giving Asia four of the top six spots overall. Chicago, Zurich, Geneva, and Sydney round out the top 10. Toronto, with its strong stable banks, ranks 12th overall but makes the list of the world's eight leading "broad and deep" financial centers.
It's true that big international economic crises -- like the financial panic and Long Depression of the 1870s and the Great Depression of the 1930s -- have a way of upending the geopolitical order and hastening the fall of old powers and the rise of new ones, and we may be in the early throes of such a shift now. But what factors can help us better understand the shifting landscape of global finance today?
In his magisterial book, Capitals of Capital, the economic historian Youssef Cassis writes that financial capitals, once established, "have incredible staying power." The rise of major financial centers correlates with the rise of the nation's economic power, but with a considerable time lag. The United Kingdom lost its position to the United States as the world's largest economy in 1872 and the largest exporter in 1915. By the middle of the 20th century, America's economic output was twice that of all of Europe combined. But it was only after the war that New York unseated London as the world's financial center.
To get at this, my colleague Charlotta Mellander and I looked at the economic might of financial centers themselves and of the nations in which they are located. We ran a basic correlation analysis and generated a series of scattergraphs. The data cover 52 global financial centers. We stress that that these are preliminary, exploratory analyses that simply point to associations between variables. We don't make any claims here about the direction of causality, and we acknowledge that intervening variables may come into play.
There is a clear connection between economic heft and global financial centers. This holds both for the financial center itself and the nation in which it is located. Our measure of metropolitan economic output comes from our research that uses satellite images of the world at night to derive a systematic measure of economic output based on light or energy emissions which we dub as our "light-based regional product" (LRP). A city's global financial center score is reasonably associated with its LRP (.46) and slightly more so with its LRP per capita (.53). Both correlations are substantially higher than for a city's population (.35).