The External Wealth of Nations Mark II
Revised and Extended Estimates of Foreign Assets and
Liabilities, 1970-2004
Philip R. Lane
IIIS, Trinity College Dublin and CEPR
Gian Maria Milesi-Ferretti
IMF, Research Department and CEPR
Dataset on 145 countries’ external
position (assets and liabilities)

Extends and improves the dataset in Lane and
Milesi-Ferretti (JIE 2001)
 From 67 countries to 145 countries (nearly
universal coverage)
 Coverage extended to 1970-2004
 Much larger availability of stock estimates from
national authorities
Dataset “outputs”
 External



assets
Portfolio equity
Foreign direct investment
Debt assets
• Portfolio debt (for some countries/periods)
• Other investment assets (for some countries/periods)


Reserve assets (net of gold)
Financial derivatives (limited coverage)
Dataset “outputs” (II)
 External



liabilities
Portfolio equity
Foreign direct investment
Debt liabilities
• Portfolio debt (for some countries/periods)
• Other investment liabilities (for some countries/periods)

Financial derivatives (limited coverage)
Data inputs











International Investment Positions (when reported)
Balance of payments flows
World Bank’s Global Development Finance (external debt)
FDI stocks and flows from UNCTAD
Stock of portfolio equity holdings in the US and by US residents
(Warnock)
CPIS Portfolio Survey
BIS locational banking statistics
National sources
Historical data from Sinn (1990)
IMF desks
etc....
Estimation methods
 Eclectic...
 Stock
data, complemented by cumulative
capital flows with valuation adjustments



For portfolio equity, valuation reflects stock
market prices
For debt, its currency composition
For FDI, international relative prices
Caveats

Substantial degree of uncertainty for estimates
 Some offshore centers missing
 Large world NFA discrepancy
A sampling of results
 The
world NFA discrepancy
 Trends in international financial integration
 Trends in net external positions
 Much



more in the paper (and the data) on
Gross positions (international financial integration)
Portfolio composition (equity, FDI, debt)
Longer-term trends
The problem of underreporting
 The
world runs a current account deficit....
 ...and has been doing so for a while.....
 ...and has hence accumulated net external
liabilities
World liabilities (share of world GDP)
0%
-1%
-2%
NFA discrepancy
-3%
-4%
Cumulative current
account discrepancy
-5%
-6%
-7%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
What do we know about the missing
money?
 Primarily


in the categories
Debt instruments
Portfolio equity
What do we know about the missing money?
2%
1%
FDI
0%
Portfolio equity
-1%
-2%
-3%
-4%
Debt
-5%
-6%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Can we say something about the equity and
debt discrepancies?
 For
portfolio equity, yes.
 Use data from


CPIS
Liability surveys
• United States
• Ireland

Reported aggregate portfolio equity liabilities
Evidence on the portfolio equity discrepancy

At end-2003,



Total assets=US$7.2 trillion
Total liabilities=US$8.3 trillion
Compare reported equity liabilities with those
derived from other countries’ reported
holdings in the country
Results
Portfolio equity liabilities reported by destination and investor
countries, 2003
(aggregate data, billions US$)
Reported
by host
479
Reported by
investor co.
151
Luxembourg
1,143
623
United States
1,827
1,274
Ireland
Can we learn something more from the
US and Irish surveys?
Reported by
Reported by
destination co. investor co.
Holdings in the U.S.
Canada
Caribbean financial centers
203
227
152
24
Singapore
Switzerland
United Kingdom
73
119
229
7
52
174
15
139
95
3
25
22
Holdings in Ireland
Japan
United Kingdom
United States
Bottom line
 “Missing
money” likely held in financial
centers....
 ...but of course difficult to impute ultimate
ownership...
Evidence on international financial integration

Rapid growth in external assets and liabilities
 Particularly strong since the mid-1990s
 Particularly strong for advanced economies

Increased importance of FDI and portfolio
equity. For emerging markets, also
 Big reduction in debt to export ratio
 Large increase in reserves
Stylized facts
.
I International financial integration (assets+liabilities/GDP)
350
300
Industrial
countries
250
200
150
100
Emerging and developing
economies
50
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Stylized facts (II)
.
II International financial and trade integration
(assets+liabilities/exports+imports)
800
700
600
500
400
Industrial countries
300
200
Developing countries and
emerging markets
100
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
International equity integration (FDI+portfolio equity)
Assets+liabilities/GDP
140
120
100
80
Industrial countries
60
40
20
Developing countries and
emerging markets
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
External capital structure
Emerging and developing countries
230
200
Gross external debt
(pct of exports )
170
140
110
80
50
Official reserves
(pct of exports)
20
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
A perspective on net external positions
 Where


did we stand at end-2004?
Industrial countries
Developing countries and emerging markets
 What
are the “global” trends along the time
series dimension?
 Some regional evidence on NFA during
the past decade
Net foreign assets and GDP per capita, 2004
150
SWI
LUX
100
NFA (pct of GDP)
NOR
50
y = 124.7x - 1311.2
R2 = 0.47
JPN
BEL
GER
FRA
0
CAN
ITA
NET
FIN UK SWE
AUT
USA
DEN
IRE
ESP
-50
AUS
PRT
GRE
ICE
NZE
-100
9.6
9.8
10.0
10.2
10.4
10.6
Log GDP per capita
10.8
11.0
11.2
11.4
Net foreign assets and GDP per capita, 2004
(emerging and developing economies)
300
HKG
KWT
UAE
250
LIB
QTR
200
SGP
NFA (pct of GDP)
150
TAI
y = 38.378x - 313.2
R2 = 0.2805
BAH
100
BOT
SAU
NAM
50
YEM
CHN
0
IRN
ALG
SWA
TKM
MLT
MWI
VEN
RUS
MYS
SAF
OMN
IND
BHZ
GUA
ALB
BUR
EGYUKR
BEL
URU
JOR
PAR
MOR
UZB
THAROM
BGD
KEN
MAC
COL
SEN
PAK
CHL
SLK CZE
CMR
MEX
CAM NGA
GBNLIT
ARM
CRI
TUR
ARG
BUL
TAJ
BRA
HND
IDO SYR
PER
POL
LAT
SLK
DOM
PHL
UGA
MOL
TAN MALVTM
KAZ
SER
SLV
ETH
CRO TTO
RWA MOZ
JAM
GEO
CIV
GUI
KYR
ECU
PNG
MDG
GHA SUD
PAN
TOG
BOL ANG
EST HUN
CHA
NIC AZE
LBN
TUN
ZMB
LAO
MYA
NEP
-50
-100
CYP
KOR
SLO
ISR
-150
4
5
6
7
8
log GDP per capita
9
10
11
Net foreign assets, broad country groups
(pct of GDP)
10
5
Other industrial
countries
0
United States
-5
-10
-15
Emerging and
developing countries
-20
-25
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
NFA (pct of world GDP)
6
4
Japan
Emerging Asia
2
Oil exporters
Swi + Nordics
0
euro area
-2
-4
-6
Net foreign asset position
(percent of world GDP)
United States
-8
1996
1997
1998
1999
2000
2001
2002
2003
2004
NFA/GDP: 1996 and 2004
260
Hong Kong S.A.R.
Asia
230
200
Singapore
NFA (pct of GDP), 2004
170
Taiwan P.o.C.
140
110
80
50
20
China,P.R.: Mainland
Malaysia
-10
Thailand
Cambodia
-40
Vietnam
-70
Nepal
India
Korea
Pakistan Bangladesh
Indonesia
Sri Lanka
Philippines
Papua New Guinea
-100
Lao People's Dem.Rep
-130
-130
-100
-70
-40
-10
20
NFA (pct of GDP), 1996
50
80
110
NFA/GDP: 1996 and 2004
250
Kuwait
Libya
Middle East
United Arab Emirates
200
NFA (pct of GDP), 2004
150
100
Bahrain
Saudi Arabia
50
Yemen, Republic of
Algeria
Oman
0
-50
-100
-150
-150
Iran, Islamic Republic of
Egypt
JordanMorocco
Israel
Syrian Arab Republic
Lebanon
Tunisia
-100
-50
0
50
100
NFA (pct of GDP), 1996
150
200
250
NFA/GDP: 1996 and 2004
40
Emerging Europe
Malta
20
Cyprus
NFA (pct of GDP), 2004
0
Albania
-20
Slovenia
Romania
Czech Republic
Slovak Republic
Lithuania
Macedonia
-40
Bulgaria
Turkey
Poland
-60
Latvia
Croatia
-80
Hungary
-100
-120
-120
-100
-80
-60
Estonia
-40
-20
NFA (pct of GDP), 1997
0
20
40
Concluding remarks
 Comprehensive
and up-to-date dataset
 Key for research on



International financial integration
Risk sharing
Dynamics of global imbalances
New evidence on “NFA discrepancy”
 New evidence on global trends in NFA
and financial integration
