The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the Global Financial Crisis

34 Pages Posted: 24 Apr 2018

See all articles by Philip R. Lane

Philip R. Lane

Trinity College (Dublin) - Department of Economics; Centre for Economic Policy Research (CEPR); Central Bank of Ireland

Gian Maria Milesi-Ferretti

International Monetary Fund (IMF); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: February 2018

Abstract

This paper documents the evolution of international financial integration since the global financial crisis using an updated dataset on external assets and liabilities, covering 212 economies for the period 1970–2015. It finds that the growth in cross-border positions in relation to world GDP has come to a halt. This reflects much weaker capital flows to and from advanced economies, with diminished cross-border banking activity, and an increase in the weight of emerging economies in global GDP, as these economies have lower external assets and liabilities than advanced economies. Cross-border FDI positions have continued to expand, unlike positions in portfolio instruments and other investment. This expansion reflects primarily positions vis-à-vis financial centers, suggesting that the complexity of the corporate structure of large multinational corporations is playing an important role. The paper also explores the cross-country drivers of foreign ownership of domestic debt securities, highlighting in particular the role of the euro debt crisis in explaining its evolution.

Suggested Citation

Lane, Philip R. and Milesi-Ferretti, Gian Maria, The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the Global Financial Crisis (February 2018). IMF Economic Review, Vol. 66, Issue 1, 2018. Available at SSRN: https://ssrn.com/abstract=3162104 or http://dx.doi.org/10.1057/s41308-017-0048-y

Philip R. Lane (Contact Author)

Trinity College (Dublin) - Department of Economics ( email )

Trinity College
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Centre for Economic Policy Research (CEPR)

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Central Bank of Ireland ( email )

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Gian Maria Milesi-Ferretti

International Monetary Fund (IMF) ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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