the external wealth of nations mark ii revised and extended estimates of foreign assets and...
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The External Wealth of Nations Mark IIThe External Wealth of Nations Mark II
Revised and Extended Estimates of Foreign Assets and Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004Liabilities, 1970-2004
Philip R. LanePhilip R. LaneIIIS, Trinity College Dublin and CEPRIIIS, Trinity College Dublin and CEPR
Gian Maria Milesi-FerrettiGian Maria Milesi-FerrettiIMF, Research Department and CEPRIMF, Research Department and CEPR
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Dataset on 145 countries’ external Dataset on 145 countries’ external position (assets and liabilities)position (assets and liabilities)
Extends and improves the dataset in Lane and Extends and improves the dataset in Lane and Milesi-Ferretti (JIE 2001)Milesi-Ferretti (JIE 2001)
From 67 countries to 145 countries (nearly From 67 countries to 145 countries (nearly universal coverage)universal coverage)
Coverage extended to 1970-2004Coverage extended to 1970-2004 Much larger availability of stock estimates from Much larger availability of stock estimates from
national authoritiesnational authorities
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Dataset “outputs”Dataset “outputs”
External assetsExternal assets Portfolio equityPortfolio equity Foreign direct investmentForeign direct investment Debt assetsDebt assets
• Portfolio debt (for some countries/periods)Portfolio debt (for some countries/periods)• Other investment assets (for some countries/periods)Other investment assets (for some countries/periods)
Reserve assets (net of gold)Reserve assets (net of gold) Financial derivatives Financial derivatives (limited coverage)(limited coverage)
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Dataset “outputs” (II)Dataset “outputs” (II)
External liabilitiesExternal liabilities Portfolio equityPortfolio equity Foreign direct investmentForeign direct investment Debt liabilitiesDebt liabilities
• Portfolio debt (for some countries/periods)Portfolio debt (for some countries/periods)• Other investment liabilities (for some countries/periods)Other investment liabilities (for some countries/periods)
Financial derivatives (Financial derivatives ( limited coverage)limited coverage)
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Data inputsData inputs International Investment Positions (when reported)International Investment Positions (when reported) Balance of payments flowsBalance of payments flows World Bank’s Global Development Finance (external debt)World Bank’s Global Development Finance (external debt) FDI stocks and flows from UNCTADFDI stocks and flows from UNCTAD Stock of portfolio equity holdings in the US and by US residents Stock of portfolio equity holdings in the US and by US residents
(Warnock)(Warnock) CPIS Portfolio SurveyCPIS Portfolio Survey BIS locational banking statisticsBIS locational banking statistics National sourcesNational sources Historical data from Sinn (1990)Historical data from Sinn (1990) IMF desksIMF desks etc....etc....
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Estimation methodsEstimation methods
Eclectic...Eclectic... Stock data, complemented by cumulative Stock data, complemented by cumulative
capital flows with valuation adjustmentscapital flows with valuation adjustments For portfolio equity, valuation reflects stock For portfolio equity, valuation reflects stock
market pricesmarket prices For debt, its currency compositionFor debt, its currency composition For FDI, international relative pricesFor FDI, international relative prices
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CaveatsCaveats
Substantial degree of uncertainty for estimatesSubstantial degree of uncertainty for estimates Some offshore centers missingSome offshore centers missing Large world NFA discrepancyLarge world NFA discrepancy
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A sampling of resultsA sampling of results
The world NFA discrepancyThe world NFA discrepancy Trends in international financial integrationTrends in international financial integration Trends in net external positionsTrends in net external positions
Much more in the paper (and the data) onMuch more in the paper (and the data) on Gross positions (international financial integration)Gross positions (international financial integration) Portfolio composition (equity, FDI, debt)Portfolio composition (equity, FDI, debt) Longer-term trendsLonger-term trends
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The problem of underreportingThe problem of underreporting
The world runs a current account deficit....The world runs a current account deficit.... ...and has been doing so for a while........and has been doing so for a while..... ...and has hence accumulated net external ...and has hence accumulated net external
liabilitiesliabilities
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World liabilities (share of world GDP)World liabilities (share of world GDP)
NFA discrepancy
Cumulative current account discrepancy
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
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What do we know about the missing What do we know about the missing money?money?
Primarily in the categoriesPrimarily in the categories Debt instrumentsDebt instruments Portfolio equityPortfolio equity
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What do we know about the missing money?What do we know about the missing money?
Portfolio equity
FDI
Debt
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
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Can we say something about the equity and Can we say something about the equity and debt discrepancies?debt discrepancies?
For portfolio equity, yes.For portfolio equity, yes. Use data from Use data from
CPIS CPIS Liability surveysLiability surveys
• United StatesUnited States• IrelandIreland
Reported aggregate portfolio equity liabilitiesReported aggregate portfolio equity liabilities
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Evidence on the portfolio equity discrepancyEvidence on the portfolio equity discrepancy
At end-2003, At end-2003, Total assets=US$7.2 trillionTotal assets=US$7.2 trillion Total liabilities=US$8.3 trillionTotal liabilities=US$8.3 trillion
Compare reported equity liabilities with those Compare reported equity liabilities with those derived from other countries’ reported derived from other countries’ reported holdings in the countryholdings in the country
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ResultsResults
Portfolio equity liabilities reported by destination and investor countries, 2003
(aggregate data, billions US$)
Reported by host
Reported by investor co.
Ireland 479 151
Luxembourg 1,143 623
United States 1,827 1,274
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Can we learn something more from the Can we learn something more from the US and Irish surveys?US and Irish surveys?
Reported by destination co.
Reported by investor co.
Holdings in the U.S.
Canada 203 152 Caribbean financial centers 227 24
Singapore 73 7 Switzerland 119 52 United Kingdom 229 174
Holdings in Ireland
Japan 15 3 United Kingdom 139 25 United States 95 22
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Bottom lineBottom line
““Missing money” likely held in financial Missing money” likely held in financial centers....centers....
...but of course difficult to impute ultimate ...but of course difficult to impute ultimate ownership...ownership...
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Evidence on international financial integrationEvidence on international financial integration
Rapid growth in external assets and liabilitiesRapid growth in external assets and liabilities Particularly strong since the mid-1990sParticularly strong since the mid-1990s Particularly strong for advanced economiesParticularly strong for advanced economies
Increased importance of FDI and portfolio Increased importance of FDI and portfolio equity. For emerging markets, alsoequity. For emerging markets, also Big reduction in debt to export ratioBig reduction in debt to export ratio Large increase in reservesLarge increase in reserves
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Stylized factsStylized factsII. . International financial integration (assets+liabilities/GDP)International financial integration (assets+liabilities/GDP)
0
50
100
150
200
250
300
350
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Emerging and developing economies
Industrial countries
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Stylized facts (II)Stylized facts (II)IIII. . International financial and trade integration International financial and trade integration
(assets+liabilities/exports+imports)(assets+liabilities/exports+imports)
0
100
200
300
400
500
600
700
800
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Industrial countries
Developing countries and emerging markets
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IInternational equity integration (FDI+portfolio equity) nternational equity integration (FDI+portfolio equity) Assets+liabilities/GDPAssets+liabilities/GDP
0
20
40
60
80
100
120
140
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Industrial countries
Developing countries and emerging markets
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External capital structureExternal capital structureEmerging and developing countriesEmerging and developing countries
Gross external debt (pct of exports )
Official reserves (pct of exports)
20
50
80
110
140
170
200
230
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
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A perspective on net external positionsA perspective on net external positions
Where did we stand at end-2004?Where did we stand at end-2004? Industrial countriesIndustrial countries Developing countries and emerging marketsDeveloping countries and emerging markets
What are the “global” trends along the time What are the “global” trends along the time series dimension? series dimension?
Some regional evidence on NFA during Some regional evidence on NFA during the past decadethe past decade
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Net foreign assets and GDP per capita, 2004Net foreign assets and GDP per capita, 2004
USA
UKAUT
BEL
DEN
FRAGER
ITA
LUX
NET
NOR
SWE
SWI
CAN
JPN
FIN
GRE
ICE
IRE
PRT
ESP
AUS
NZE
y = 124.7x - 1311.2
R2 = 0.47
-100
-50
0
50
100
150
9.6 9.8 10.0 10.2 10.4 10.6 10.8 11.0 11.2 11.4
Log GDP per capita
NF
A (
pct o
f G
DP
)
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Net foreign assets and GDP per capita, 2004Net foreign assets and GDP per capita, 2004(emerging and developing economies)(emerging and developing economies)
ROM
SERPOL
BHZ
MAC
SLO
CRO
LIT
HUN
LAT
EST
SLK CZEUZBUKR
TKMCHN
TAJ
RUS
MOLBUL
KYR
KAZGEO
ALBBEL
AZE
ARM
PNG
ZMB
BUR
UGA
TUN
TOG
TAN
SWA
SUD
NAM
SEN
RWA
NGA
MOZ
MOR
MWI
MAL
MDG
LIB
KEN
CIVGUIGHA
GBN
ETH
CHA
CMR
BOT
ANG
ALG
VTM
THA
SGP
PHL
PAKNEP
MYS
LAO
KOR
IDO
IND
HKG
TAI
SLKCAM
MYA
BGD
YEM
EGY
UAE
SYR
SAU
QTR
OMN
LBN
KWT
JOR ISR
IRNCYP
BAH
TTOJAM
VEN
URU
PER
PAR
PANNIC
MEXHND
GUA
SLV
ECU
DOMCRI
COL CHLBRA
BOL
ARG
SAF
TUR
MLT
y = 38.378x - 313.2
R2 = 0.2805
-150
-100
-50
0
50
100
150
200
250
300
4 5 6 7 8 9 10 11
log GDP per capita
NF
A (
pct o
f G
DP
)
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Net foreign assets, broad country groupsNet foreign assets, broad country groups(pct of GDP)(pct of GDP)
Other industrial countries
Emerging and developing countries
United States
-25
-20
-15
-10
-5
0
5
10
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
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NFA (pct of world GDP)NFA (pct of world GDP)
Japan
-8
-6
-4
-2
0
2
4
6
1996 1997 1998 1999 2000 2001 2002 2003 2004
United States
Emerging Asia
Oil exportersSwi + Nordics
euro area
Net foreign asset position (percent of world GDP)
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NFA/GDP: 1996 and 2004NFA/GDP: 1996 and 2004
China,P.R.: Mainland
Hong Kong S.A.R.
India
Indonesia
KoreaMalaysia
Pakistan
Philippines
Singapore
Sri Lanka
Taiwan P.o.C.
ThailandBangladesh
Cambodia
Lao People's Dem.Rep
Nepal
Vietnam
Papua New Guinea
-130
-100
-70
-40
-10
20
50
80
110
140
170
200
230
260
-130 -100 -70 -40 -10 20 50 80 110
NFA (pct of GDP), 1996
NF
A (
pct o
f G
DP
), 2
004
Asia
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NFA/GDP: 1996 and 2004NFA/GDP: 1996 and 2004
Middle East
Bahrain
Iran, Islamic Republic of
IsraelJordan
Kuwait
Lebanon
Oman
Saudi Arabia
Syrian Arab Republic
United Arab Emirates
Egypt
Yemen, Republic ofAlgeria
Libya
Morocco
Tunisia
-150
-100
-50
0
50
100
150
200
250
-150 -100 -50 0 50 100 150 200 250
NFA (pct of GDP), 1996
NF
A (
pct o
f G
DP
), 2
004
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NFA/GDP: 1996 and 2004NFA/GDP: 1996 and 2004
Croatia
Macedonia
Albania
Cyprus
Malta
Turkey
Slovenia
Slovak Republic
Romania
Poland
Lithuania
Latvia
HungaryEstonia
Czech Republic
Bulgaria
-120
-100
-80
-60
-40
-20
0
20
40
-120 -100 -80 -60 -40 -20 0 20 40
NFA (pct of GDP), 1997
NF
A (
pct o
f G
DP
), 2
004
Emerging Europe
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Concluding remarksConcluding remarks
Comprehensive and up-to-date datasetComprehensive and up-to-date dataset Key for research onKey for research on
International financial integrationInternational financial integration Risk sharingRisk sharing Dynamics of global imbalancesDynamics of global imbalances
New evidence on “NFA discrepancy”New evidence on “NFA discrepancy” New evidence on global trends in NFA New evidence on global trends in NFA
and financial integrationand financial integration