Search

The financial sector has emerged as the main economic engine over the past two decades. The comparative advantages of placing financial activities in Luxembourg have mostly been in terms of an adaptive legislative and regulatory framework and low taxation. As a result, Luxembourg is today one of the main international centres for investment funds. Besides the sector’s direct and indirect employment effects, the most important effect is the large tax revenue generating capacity of the sector, accounting directly for over 20% of aggregate tax revenues. On the other hand, these tax revenues are volatile as the sector is highly sensitive to developments in international financial markets. Indeed, past downturns in international financial markets have tended to lead to a sharp slowdown of growth in the economy as well as in revenues, pointing to potential large risks associated with the current turmoil in international financial markets. Besides these short-term considerations, a lower trend growth rate of the sector is likely over the medium term. The main activities of the sector are in middle and back offices dealing with financial administration which, with new IT technologies, will tend to be increasingly outsourced. At the same time, the sector is having problems in attracting highly specialised talent to enter higher value front office activities. Over the longer term, international competition will continue to exert pressures that may eventually erode Luxembourg’s position. The extent of the decline in the sector’s trend growth depends on the ability to maintain and expand the attractiveness of investing and working in Luxembourg. Achieving this will depend on being able to adjust tax, infrastructure, and housing policies to attract foreign talent while updating and increasing the transparency of financial sector regulation.

Cet ouvrage développe trois thèmes : 1) identification des spécialisations et avantages potentiels de la Place luxembourgeoise. Ce 1er chapitre présente selon trois approches (investisseurs individuels, clientèle "firme" et institutions financières) les grands avantages à la source des spécialisations de la Place financière luxembourgeoise; 2) attractivité des places bancaires et financières : les enjeux du cadre institutionnel et juridique. Ce 2e chapitre est consacré à une analyse théorique de la concurrence entre les places bancaires et financières pour l'attrait des capitaux; 3) La dynamique d'agglomération du pôle financier luxembourgeois. Ce 3e chapitre traite des forces centripètes et des forces centrifuges qui s'exercent au sein d'une place financière.

This article intends to evaluate and to precise the transmission channels from financial development to non financial activities in the Luxembourg economy. Especially, we isolate the role played by the external effects of the financial sector on the productiviy of the other sectors. Based on the modified Feder’s production functions (1983), we propose a measure of technological spill-overs generated by the proximity of the banking sector. The analysis of spatial externalities allows a better understanding of these effects on the internal growth process.

This article seeks to measure knowledge spillovers between nearby industries. This represents one of types of externality identified in the studies of industry location. A spillover indicator is suggested which can explain increasing returns at the aggregate level. It is shown that this indicator is positively related to industry diversity. As applied to data from Luxembourg’s manufacturing industry, this indicator suggests that labor productivity is increasing in industry diversity.

A weakly diversified macro-economic structure is characterised by an excessive concentration of production in certain dominant branches. It is hard to evaluate the impact of policies aimed at this problem, because an increase in diversification can be more apparent than real. Business cycle effects can temporarily diminish the part held by dominant branches, giving the impression of structural change. In this article, growth by branch is separated into trend and cycle components using an “error-components” approach. On the one hand, the trend growth components can reveal changes in the macro-economic structure: a true increase in diversification requires lower trend growth rates in the dominant branches. On the other hand, cyclical growth components help to assess the nature of diversification itself: if cyclical shocks are strongly correlated across sectors, diversification will bring few advantages. An application to value added growth in Luxembourg’s industrial branches shows how increasing diversification decreased volatility of the sector as a whole.