International Financial Integration*

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V. Conclusions

Our goal in this paper has been to highlight some empirical features of the growth in
international cross-holdings of foreign assets and liabilities. In addition to describing the
broad trends, we have identified growth in goods trade and stock market capitalization as
two key co-variates of the growth in the scale of international balance sheets. Sorting out
the lines of causality among these variables provides challenges for both theoretical and
empirical researchers.

We have also analyzed the properties of the rates of return on foreign assets and liabilities.
The standard modeling assumption of a common ‘world interest rate’ on international
investments is not supported by the data, which show rates of return varying over time and
across asset classes. Better information on the composition of international portfolios
would allow a more detailed investigation of this topic but we believe that the
international investment position data provides a useful and fresh perspective on the
international diversification literature. The study of higher-frequency data on rates of
return would also be useful in modeling the international transmission of business cycle
shocks.

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