Working Paper: CEPR ID: DP3769
Authors: Philip R. Lane; Gian Maria Milesi-Ferretti
Abstract: In recent decades, foreign assets and liabilities in advanced countries have grown rapidly relative to GDP, with the increase in gross cross-holdings far exceeding the size of net positions. Moreover, the portfolio equity and FDI categories have grown in importance relative to international debt stocks. In this Paper, we describe the broad trends in international financial integration for a sample of industrial countries, and seek to explain the cross-country and time-series variation in the size of international balance sheets. We also examine the behaviour of the rates of return on foreign assets and liabilities, relating them to ?market? returns.
Keywords: capital flows; international financial integration; rates of return
JEL Codes: F21; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lifting of capital account restrictions (F32) | Increase in international asset crossholdings (F30) |
| Trade openness (F43) | Increase in ifigdp (F29) |
| GDP per capita (O49) | Increase in ifigdp (F29) |
| Domestic financial market development (O16) | Higher levels of financial integration (F30) |
| Cumulative privatization (L33) | Decrease in financial integration (F65) |
| Substantial portfolios in equity-type instruments (G23) | Higher returns on foreign assets and liabilities (G15) |