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


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.

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Fig. 1

Source: authors’ calculations based on revised and extended EWN database

Fig. 2

Source: authors’ calculations based on World Economic Outlook database

Fig. 3

Source: authors’ calculations based on revised and extended EWN database

Fig. 4

Source: authors’ calculations based on revised and extended EWN database

Fig. 5

Source: authors’ calculations based on revised and extended EWN database

Fig. 6

Source: authors’ calculations based on revised and extended EWN database

Fig. 7

Source: Bank for International Settlements, Locational Banking Statistics

Fig. 8

Source: Bank for International Settlements, Locational Banking Statistics

Fig. 9
Fig. 10
Fig. 11

Source: authors’ calculations based on revised and extended EWN database


  1. 1.

    On the evolution of net external positions see, among others, Lane and Milesi-Ferretti (2012, 2015).

  2. 2.

    The macro financial implications of high levels of financial globalization in relation to crisis dynamics are also studied in Obstfeld (2012a, b, 2013). Shin has provided an array of papers on the role of cross-border banking in international capital flows, with his recent work also highlighting the role of bonds in the “second wave” of global liquidity (Shin 2013). The analysis in this paper is framed by the research agenda studying the implications of the size and composition of international balance sheets for macroeconomic outcomes and macroeconomic policy (see, among others, Gourinchas and Rey 2014; Obstfeld 2015).

  3. 3.

    Among CPIS reporters that do not provide comprehensive IIP statistics, those with the highest estimated stocks of debt assets are Bermuda, Guernsey, and Jersey (Bermuda reports IIP statistics, but they exclude the offshore sector). For the Cayman Islands, which has by far the largest estimated stock of debt assets among countries not reporting IIP statistics, reporting of securities holdings by the very large investment fund industry is only available for 2015.

  4. 4.

    We use the IMF’s classification of advanced economies. See “Appendix 1” for a complete list of countries.

  5. 5.

    Using a sample of countries for which data are available continuously since 1995, excluding holdings of financial derivatives, which have typically been reported only during the past decade, and excluding the coverage of special financial institutions in the Netherlands (which started in 2003), yields a somewhat smaller expansion in the sum of cross-border assets and liabilities since 2002 (133 vs 175 percentage points of global GDP), but an unchanged modest decline since the global financial crisis.

  6. 6.

    While valuation changes play an important role in explaining year-to-year fluctuations in external positions, especially when equity prices and exchange rates move substantially, cumulative financial flows generally match the changes in positions reported in Fig. 3.

  7. 7.

    For a few small offshore centers, such as the British Virgin Islands and the Cayman Islands we use estimates of their gross external assets and liabilities in calculating total claims and liabilities of financial centers, but we don’t use their difference to calculate a net position. The reason is the sizable measurement error in assets and liabilities, together with their large size. In practice, the net external position of these centers is close to zero, given that they are virtually pure intermediaries and that the absolute size of their economies is minimal.

  8. 8.

    In relation to the size of financial centers, these claims and liabilities are each three times GDP. Blanchard and Acalin (2016) document a very strong correlation between FDI inflows and FDI outflows across a range of emerging economies, which they interpret as suggesting that an important proportion of measured FDI inflows are “pass-through” flows going in and out of the country on their way to their final destination, with the stop due in part to favorable corporate tax conditions.

  9. 9.

    Other countries reporting sizable FDI claims and liabilities by SPEs include Austria, Belgium, Hungary, and Ireland. SPEs likely play an important role in FDI claims and liabilities of Bermuda, the British Virgin Islands, and the Cayman Islands (which together account for over 5 percent of global FDI claims in our estimates).

  10. 10.

    We are abstracting here from changes in the mix of financing which weaken the link between the value of production facilities and FDI. See Jayaswal and others (2006) for an example related to FDI in Denmark.

  11. 11.

    In the working paper version of this article, we also report regressions for the change in the change in the foreign share between 2007 and 2015 and panel regressions for the period 2006–2015. Furthermore, results for foreign holdings of total debt securities are analogous and are available upon request.

  12. 12.

    See Appendix 1 for variable definitions and sources.

  13. 13.

    The dataset goes only until 2013, so for the year 2015 we use that observation.

  14. 14.

    As noted in the Netherlands’ IIP statistics, “Special Financial Institutions (SFIs) are resident Dutch enterprises or institutions, fully owned by foreign direct investors, that act as financial intermediary between other parts of the group to which they belong. The financial assets and liabilities of these institutions usually are related to direct investment via the Netherlands in third countries or are connected to the channeling of funds collected in the direction of the foreign investor.”


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We are very grateful to our discussants Linda Tesar, Anne-Laure Delatte, and Jana Riedel, and to Serkan Arslanalp, Thomas Elkjaer, Thornton Matheson, Victoria Perry, Neeltje Van Horen, two anonymous referees, participants to the IMF’s 2016 Annual Research Conference, the Jean Monnet Workshop on Financial Globalization and Its Spillovers, and seminars at the Bank of England, the Banque de France, the Bank of Italy, and France Strategie for useful comments. Menglu Cai provided excellent research assistance. The views expressed in this paper do not necessarily reflect those of the Central Bank of Ireland or the Eurosystem. Lane’s initial work on this project was supported by a grant from the Irish Research Council. The dataset used in this paper is available at the link

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Correspondence to Gian Maria Milesi-Ferretti.

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Appendix 1: Data and Country Classification

Classification of Economies

  1. 1.

    Financial centers: Bahrain, Belgium, Cyprus, Hong Kong S.A.R. of China, Ireland, Luxembourg, Macao S.A.R. of China, Malta, Netherlands, Singapore, Switzerland, UK, Andorra, Bahamas, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Curaçao, Gibraltar, Guernsey, Isle of Man, Jersey, Mauritius, Netherlands Antilles, Panama, San Marino, Turks and Caicos.

  2. 2.

    Other advanced economies: Australia, Austria, Canada, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Iceland, Israel, Italy, Japan, Korea, Latvia, Lithuania, New Zealand, Norway, Portugal, Slovak republic, Slovenia, Spain, Sweden, Taiwan province of China, USA.

Emerging and developing economies: Afghanistan, I.R. of; Albania; Algeria; Angola; Anguilla; Antigua and Barbuda; Argentina; Armenia; Aruba; Azerbaijan; Bangladesh; Belarus; Belize; Benin; Bhutan; Bolivia; Bosnia and Herzegovina; Botswana; Brazil; Brunei Darussalam; Bulgaria; Burkina Faso; Burundi; Cambodia; Cameroon; Cape Verde; Central African Rep.; Chad; Chile; China; Colombia; Comoros; Congo, Dem. Rep. of; Congo, Republic of; Costa Rica; Croatia; Côte d’Ivoire; Djibouti; Dominica; Dominican Republic; Ecuador; Egypt; El Salvador; Equatorial Guinea; Eritrea; Ethiopia; Fiji; French Polynesia; Gabon; Gambia; Georgia; Ghana; Grenada; Guatemala; Guinea; Guinea-Bissau; Guyana; Haiti; Honduras; Hungary; India; Indonesia; Iran, Islamic Republic of; Iraq; Jamaica; Jordan; Kazakhstan; Kenya; Kiribati; Kosovo; Kuwait; Kyrgyz Republic; Lao People’s Dem. Rep; Lebanon; Lesotho; Liberia; Libya; Lithuania; Macedonia; Madagascar; Malawi; Malaysia; Maldives; Mali; Marshall Islands; Mauritania; Mauritius; Mexico; Micronesia; Moldova; Mongolia; Montenegro; Montserrat; Morocco; Mozambique; Myanmar; Namibia; Nauru; Nepal; New Caledonia; Nicaragua; Niger; Nigeria; Oman; Pakistan; Palau; Panama; Papua New Guinea; Paraguay; Peru; Philippines; Poland; Qatar; Romania; Russia; Rwanda; Samoa; Saudi Arabia; Senegal; Serbia; Seychelles; Sierra Leone; Sint Maarten; Solomon Islands; Somalia; South Africa; South Sudan; Sri Lanka; St. Kitts and Nevis; St. Lucia; St. Vincent & Grenadines.; Suriname; Swaziland; Syrian Arab Republic; São Tomé & Príncipe; Tajikistan; Tanzania; Thailand; Timor-Leste; Togo; Tonga; Trinidad and Tobago; Tunisia; Turkey; Turkmenistan; Tuvalu; Uganda; Ukraine; United Arab Emirates; Uruguay; Uzbekistan; Vanuatu; Venezuela, Rep. Bol.; Vietnam; West Bank and Gaza; Yemen; Republic of; Zambia; Zimbabwe.

Variable Definitions (Regressions in Section V)

Market size log of government bond market capitalization measured in US dollars. Source: Bank for International Settlements, Debt Securities Statistics; Arslanalp and Tsuda (2014a, b); and national sources.

Level of development log GDP per capita in US dollars. Source: IMF, World Economic Outlook database.

Euro core dummy taking the value of 1 for Austria, Belgium, Finland, France, Germany, Luxembourg, and the Netherlands.

Euro crisis dummy taking the value of 1 for Greece, Ireland, Italy, Portugal, and Spain.

New euro members dummy taking the value of 1 for Cyprus, Estonia, Latvia, Lithuania, Malta, Slovak Republic, and Slovenia for all years they were part of the euro as well as for the year before joining.

Ratio of NFA to GDP net external position divided by domestic GDP. Source: Lane and Milesi-Ferretti, External Wealth of Nations database.

Bond restrictions index of restrictions on foreign purchases of debt securities issued by the country. To measure the intensity of restrictions, we use the average level of the variable for the preceding 3 years. Since the dataset goes only until 2013, we use data for that year for the 2014 and 2015 observations. Source: Fernandez and others (2015).

Overall restrictions index of restrictions on foreign purchases of domestic assets. To measure the intensity of restrictions ,we use the average level of the variable for the preceding 3 years. Since the dataset goes only until 2013, we use data for that year for the 2014 and 2015 observations. Source: Fernandez, and others (2015).

Central bank share Central bank holdings of domestic government debt securities as a share of total government debt securities outstanding. Sources: Arslanalp and Tsuda (2014a, b), International Financial Statistics, and national sources.

Regression Sample (Section V)

Advanced economies: Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong S.A.R., Ireland, Israel, Italy, Japan, Korea, Latvia, Netherlands, New Zealand, Norway, Portugal, Slovenia, Spain, Sweden, Switzerland, UK, USA.

Emerging economies: Argentina, Bangladesh, Brazil, Bulgaria, Chile, China, Colombia, Costa Rica, Dominican Republic, Egypt, El Salvador, Georgia, Guatemala, Hungary, India, Indonesia, Malaysia, Mexico, Nigeria, Pakistan, Paraguay, Peru, Philippines, Poland, Romania, Russia, South Africa, Thailand, Turkey, Ukraine, Uruguay.

Appendix 2: FDI in Financial Centers: the Cases of Ireland and the Netherlands

In “Appendix 2”, we briefly discuss the expansion in FDI claims and liabilities in Ireland and the Netherlands—two countries which contribute to an important extent to the aggregate trend for these balance sheet items in financial centers.


For decades, Ireland has been well known as an export platform location for multinational firms. In 2000, the net FDI position in Ireland amounted to minus 98 percent of GDP, primarily in the form of net equity liabilities. While the underlying role of multinational firms in the Irish export sector has continued to expand in recent years, Fig. 12 shows that the net FDI position has been transformed, with net FDI equity assets turning positive from 2012 onwards and the net FDI debt position in positive territory between 2003 and 2014. A further shift took place in 2015, with a discrete jump in net FDI debt liabilities associated with the financial restructuring of some global firms. Behind these net figures, the scale of gross FDI positions has expanded: FDI assets increased from 28 percent of GDP in 2000 to 319 percent of GDP in 2015, while FDI liabilities shifted from 126 percent of GDP in 2000 to 311 percent of GDP in 2015.

Fig. 12

FDI Positions in Ireland

A substantial proportion of the increase in gross positions reflects stock-flow adjustments due to internal balance sheet reclassifications inside global firms and inversions. In relation to the former, the transfer of intangible capital assets (such as intellectual property) between affiliates of global firms is funded by parallel FDI recalculations; in relation to the latter, the inversion of a global firm into a domestically resident firm enlarges FDI assets with a matching increase in foreign portfolio equity liabilities (since the investors owning shares in the new entity are mainly nonresident). The rise in net FDI debt assets during 2003–2014 also reflects the strategies of various firms to retain accumulated funds in Ireland resident affiliates that are recycled through intra-firm loans to other units in the global firm or held in the form of bank deposits and marketable debt instruments.

The Netherlands

The Netherlands provides a useful decomposition of its International Investment Position which allows the separate identification of claims and liabilities associated with “special financial institutions” (SFIs).Footnote 14 In turn, the decomposition shows how the increase in external claims and liabilities reflects both “financial engineering” by multinational firms and genuine international financial integration in the form of rising portfolio diversification.

Figures 13 and 14 show the external position of Dutch Special Financial Institutions (SFIs), as well as the external position of the Netherlands excluding these institutions. Of note in Fig. 13 is the rapid run-up in the size of SFI claims and liabilities: As of end-2015, they were around $4 trillion dollars, with the lion’s share in FDI claims and liabilities. Figure 14 also shows an increase in Dutch liabilities and (especially) claims since the crisis, albeit to a smaller extent than for SFI balance sheets. The increase in claims reflects the rising net external position of the Netherlands, following several years of large current account surpluses, and the size of the external balance sheet also reflects the size of pension funds.

Fig. 13

Netherlands: external assets and liabilities, special financial institutions (ratio of GDP). Source: De Nederlansche Bank. Notes: Special Financial Institutions (SFIs) are resident Dutch enterprises or institutions, fully owned by foreign direct investors that act as financial intermediary between other parts of the group to which they belong

Fig. 14

Netherlands: external assets and liabilities, excluding special financial institutions (ratio of GDP) Source: De Nederlansche Bank. Note: Special Financial Institutions (SFIs) are resident Dutch enterprises or institutions, fully owned by foreign direct investors, that act as financial intermediary between other parts of the group to which they belong

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Lane, P.R., Milesi-Ferretti, G.M. The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the Global Financial Crisis. IMF Econ Rev 66, 189–222 (2018).

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JEL Classification

  • F31
  • F32