I replied because I saw your quote contained a possible inaccuracy. When I investigated that specific part, I found contradicting proof of a causal relationship between French Civil Law tradition and corruption. Which is what your quote was implying. I didn't attempt to verify anything else, but I'm highly skeptical.
Either that, or I read wrong and what is being implied with:
> Countries with a French Civil Law tradition, poor protection of shareholder and creditor rights, poor contract enforcement, high levels of corruption, poor accounting standards, restrictive banking regulations, and high inflation tend to have underdeveloped financial systems.
(Emphasis mine.)
is that these are all requirements due to and.
Which further is suggested by the quote hereunder that countries with high income such as France, Germany, and Benelux (all of which are original members of the EEC/EC) are not meant to be included in the list you mentioned.
> In higher income countries, stock markets become more active and efficient relative to banks. There is some tendency for national financial systems to become more market oriented, as they become richer.
But hey, if you want to prove your point feel free to prove -with sources- France, Germany, and Benelux each have:
* Poor protection of shareholder and creditor rights
* Poor contract enforcement
* Poor accounting standards
* Restrictive banking regulations
* High inflation
The paper divides economies into three buckets: market-based, bank-based and underdeveloped. It does this by looking at economic factors. It then looks at what other factors, Y, are similar between countries in each bucket. This doesn't work going backwards.
By analogy, suppose I have circles, squares and triangles in blue, green and orange. It is meaningful to group by shape. It may also be meaningful to observe that 90% of the triangles are blue. It does not follow that a random blue shape is a triangle.
I know it doesn't because the paper is linking certain properties it observes without proving the causation, and then tries mention them as if they're relevant while in reality there's no relevance shown.
(For example, an alternative plausible explanation could be a relation between corruption and wealth.)
> By analogy, suppose I have circles, squares and triangles in blue, green and orange. It is meaningful to group by shape. It may also be meaningful to observe that 90% of the triangles are blue. It does not follow that a random blue shape is a triangle.
Imagine shapes and colours can change, and there's no proof the change is related to the shapes or colours. Imagine the conclusion for the 'blue' is 'beautiful'. Does it then matter to mention that the blue ones happen to be 'beautiful' and 'mostly triangles'? Is it a relevant conclusion that the 'non-beautiful' are 'mostly not triangles' or 'that they are not beautiful because they're mostly not triangles'? The latter is what your quote implied, and its merely suggestive. You have no proof.
Because correlation is not causation. So why does the paper mention it? If you're not willing to prove the missing point, why do you quote it?
I'm not saying Paris isn't a financial centre. It's just in a different league compared to London, NYC, Singapore, Hong Kong or Tokyo.
> The physical location of the trading desks relative to the markets matters little
Making markets requires plugging into financial and political power structures. Due to home-country effects, buyers and sellers of a security tend to congregate around the issuer.
A Singapore desk will hand off to New York to execute an order by a Singaporean buyer and American seller. Note: we're not talking about hedge funds. We're talking about investment bankers, sales-traders and market makers--relationship-driven businesses.
That's true. But the point here is that a lot of London's banking depends on unfettered access to the EU markets, and so the question is not "which city", but "which city in the EU" will take over once the UK exits the EU.
> Making markets requires plugging into financial and political power structures. Due to home-country effects, buyers and sellers of a security tend to congregate around the issuer.
That matters for some roles, but certainly not all. But this same arguments also is part of the exact reason why the UK faces an onslaught post-Brexit.
London bankers' skills are unlikely to efficiently translate to Paris. Moreover, Paris can support less financial activity for having a bank-based economy--banks can't process at the throughputs markets can.
> I fail to see your pattern
The paper considers more than ten European countries. I included the postscript because I found it interesting, not because it's particularly germane to the article topic.