Is developing an international financial center (IFC) a sound strategy for emerging economies? This paper analyzes the potential benefits and costs for emerging economies considering investing in the development of an IFC. The author examines the perceived advantages of IFCs, such as high value-added, rapid development, and low fixed costs. Being an IFC entails significant costs, such as high fragility, economic spillovers, and the quick departure of human capital. This study evaluates these benefits and costs, outlines the characteristics of IFCs, traces their historical evolution, and documents recent shifts in the rankings of major IFCs. This paper concludes that emerging economies should not devote public resources to developing an IFC. With a focus on the costs and benefits of becoming an IFC, this research offers valuable perspectives for policymakers in emerging economies and offers helpful insignts for economic researchers in finance and investments.
This analysis, published in the Review of Pacific Basin Financial Markets and Policies, addresses the policy implications of financial market development, making it relevant for the journal’s readership. The research focuses on the economic and financial dynamics within the Pacific Basin region.