Dynamics of Net Foreign Asset Components in the EMU
Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 5
29 Pages Posted: 6 Oct 2017
Date Written: September 4, 2017
In the last two decades, foreign capital investments have followed different paths in EMU countries. Given their importance for growth and productivity, we analyse the factors underlying the dynamics of foreign direct investments, portfolio debt investments, and portfolio equity investments in EMU countries over the years 1996-2014. We assess how the heterogeneous behavior between core and peripheral countries can be related to macroeconomic factors (business cycle, trade, financial openness and spreads) and institutional quality. Our results show that financial integration as well as interest rates spread had an impact on the main components of foreign assets which was different between core and peripheral countries. In EMU countries as a whole we find a statistical significant relationship between institutional quality and foreign capital components, which is entirely driven by core countries.
Keywords: Net International Investment Positions, PEI, FDI and PDI, Institutional Quality, Euro Area
JEL Classification: F3, F4
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