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Cities in Global Financial Networks: Financial and Business Services and Development in the 21st Century

Periodic Reporting for period 2 - CityNet (Cities in Global Financial Networks: Financial and Business Services and Developmentin the 21st Century)

Reporting period: 2018-02-01 to 2019-07-31

Financial and business services (FABS), including law, accounting, and business consulting, have been one of the most dynamic sectors of the world economy, with a fivefold rise in real value added since 1980. Although FABS are central to the processes of globalisation, financialisation, urbanisation and development, our understanding of the sector in the context of tumultuous changes of the early 21st century is partial. How have the FABS firms and centres been affected by the global financial crisis and the Eurozone crisis? How are they changing in response to new financial regulation, the expected shift of economic activity to the Asia-Pacific region, and the digital revolution? What are the impacts of FABS on urban, regional, and global development? We urgently need groundbreaking frontier research to better understand the nature and dynamics of FABS, and their implications.
This project is designed to address this challenge by focusing on three objectives: mapping the FABS sector and its transactional networks worldwide; analysing strategies of FABS firms, as well as policies towards FABS and their institutional environments in cities; explaining the impacts of FABS, their strategies, and place-specific factors on growth, stability, and inequality at urban, regional, national and global level. In doing so, we will develop a new theoretical framework, called the Global Financial Networks, which positions FABS and their networks in the broader economy. Using a mixed-methods approach, we will document the development of FABS and its consequences, cutting through the hype of financial centre indices, and through the fog of ideologically charged debates on the virtues and vices of the financial sector. One of the outcomes of the project will be the world’s first ever atlas of finance. The project will provide a robust evidence base crucial in shaping future rounds of investment by and in FABS, and policies towards FABS by governments and other organisations.
The first three years of the project have led to 23 publications, all presented at conferences and workshops, including an edited book, in addition to several more publications under review. Combining novel data on financial transactions from Dealogic and on cities from Oxford Economics with state-of-the-art econometrics, we published some of the most comprehensive analyses of factors that turn cities into international financial centres. Our findings emphasise the significance of institutions, labour markets, and economies of scale. In a series of articles we investigate what has happened in different groups of financial centres around the world since the global financial crisis. We document that investment banking centres have shrunk considerably, and both them and centres of offshore finance have shifted considerably to Asia. We also demonstrate the increasing significance of finance and financial centres for the political economy of Australia and China. We show that despite the contraction of investment banking and high finance in the United States of America, the level of remuneration remains out of touch with the real economy and gender inequality has not improved. We also took an opportunity to reflect on the possible impacts of Brexit on London as a global financial centre. In an article that explores the strategies of FABS companies, we analyse the location strategy of the 'world's local bank' HSBC, and how this strategy can be viewed from the complementary perspectives of economic geography and business studies. In a paper that has attracted considerable media and industry attention, we analyse how banks undermine sustainable development by helping to finance 'dirty' corporate investment. In another paper, we show how digitisation in asset management contributes to growing concentration of power in leading financial companies and centres rather than democratising finance. In key methodological contributions we propose a new typology of financial centres, and a new model for studying connections between cities, based on inter-organisational projects, such as underwriting syndicates of investment banks. With regard to the impacts of financial and business services on development, in a series of papers we document the negative consequences of excessive financial sector size on growth, stability as well as document some financial activities particularly harmful for environmental sustainability. In a book on international financial centres after the global financial crisis and Brexit, we gather eminent economic geographers and historians to reflect on the evolution of the leading financial centres, showing that surprisingly little has changed at the top of their hierarchy. In addition to publications, in this period we have undertaken fieldwork in Europe, the USA, Brazil and China to continue our investigation of FABS strategies and policies towards FABS around the world, and started working on producing the first ever Atlas of Finance.
Building on the articles already published, the project will move our knowledge on the nature, evolution and impacts of financial and business services on economy, society and environment beyond the state of the art at three levels: theoretical, methodological, and empirical. On the theoretical level, we will develop the novel concept of Global Financial Networks. In a nutshell, GFNs can thus be defined as networks of FABS and their activities linking financial centres, offshore jurisdictions, and acting as key intermediaries between transnational companies and territories. As such the concept contributes to the fields of geography, economics, political economy, political science, economic sociology, urban studies and other related areas. Methodologically we offer a uniquely rich and diverse set of quantitative and qualitative methods including network analysis, spatial econometrics, time-series analysis, comparative case studies based on interviews, document and discourse analysis. In a series of articles under review we are offering novel approaches for modelling and analysing urban networks based on transactional data, and suggest how to rectify some methodological problems affecting research on urban networks. Another methodological contribution concerns unique combinations of data never or hardly used before in academic research, including data on financial transactions and cities. Empirically, this is one of the largest projects ever to map finance and its transformations in response to economic (shift to Asia and the Global South), political (new regulation, Brexit), and technological (new financial technology) factors, which focuses on the drivers, mechanisms and impacts at multiple scales, from local, urban and regional, through national, to global. In addition to journal articles, edited volumes and books, and policy-oriented reports, the project will produce the first ever atlas of finance.
Structure of the project