International Financial Integration*

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Re-classification of external assets and liabilities items between different
categories. For example, in Swedish data for 1997 securities issued abroad by
residents—previously recorded as other investment liabilities—were re-classified
as portfolio debt liabilities.

Recording of interest receipts and payments in balance of payments accounts. For
example, several countries classify investment income data in only two categories,
FDI and “other,” where the second category also includes income on portfolio
assets. In addition, in a few countries interest receipts and payments appear to be
overestimated for some years. ²⁵

Valuation of FDI and portfolio equity holdings. Most countries record FDI stocks
at book value, but a few use market values. Using the former will imply in general
higher FDI yields (because the outstanding stock of assets is smaller) but lower
capital gains. The problem for the valuation of portfolio equity assets and liabilities
is less severe, because most countries record these stocks at market value (the
exception being Canada).

Breaks in the data series for the variables used in the calculations. These breaks
may relate to changes in the methodology of estimation (for example, from book to
market value).

²⁵ These problems, which seem to affect gross rather than net investment income flows,
may relate to the recording of receipts and payments associated with derivatives’
operations or with nonresident transactions. These entail higher recorded interest receipts
and payments, classified in either the portfolio or the ‘other investment’ categories.
Examples include the data for Denmark (1991-1997), France (1990-1993), and Japan
(1991-1995).

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