milesi ferretti presentation

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

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

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)

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)

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....

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

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

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

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

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

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

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

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

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

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

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

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...

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

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

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


Developing countries and emerging markets

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


Developing countries and emerging markets

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

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 What are the “global” trends along the time series dimension? time series dimension?

Some regional evidence on NFA during Some regional evidence on NFA during the past decadethe past decade

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

)

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

)

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

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)

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

NFA

(pc

t of

GD

P), 2

004

Asia


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


NF

A (

pct o

f G

DP

), 2

004


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

(pc

t of

GD

P), 2

004

Emerging Europe

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

milesi ferretti presentation

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