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foreign asset position but do not wish to estimate independent parameters for our twelve age cohorts.
We therefore follow Higgins (1998) by restricting the coefficients on the population share variables to
lie along a cubic polynomial, so that only three composite demographic variables need actually be
entered into the regression specification (see the Appendix for details).
Tables 2 and 3 reports the results of the panel estimation (with fixed country and time effects)
for the industrial and developing country samples respectively. For the industrial country sample, we
use both our measure of net foreign asset positions (CUMCA) and, for robustness, a measure that
replaces CUMCA by official international investment position data where it is available for most of
the sample period (CUMCA+IIP). For developing countries, we employ the two alternative measures
of the net foreign asset position (CUMCA and CUMFL) described in Section 2. We also report results
when Singapore is excluded from the sample, since it is an extreme observation with respect to its net
foreign asset position, and its role as banking center complicates considerably the construction of
accurate net foreign asset measures (indeed, CUMFL is not available). Finally, in each case, we also
report results for balanced samples.
For the industrial country sample, Table 2 shows a consistently strong positive influence of
output per capita on the net foreign asset position. The stable point coefficient of about 0.9 means that
a 10 percent improvement in a country’s relative output per capita is associated with a 9 percentage
point improvement in its ratio of net foreign assets to GDP. This result provides supporting evidence
those theories outlined in section 3a that predict a positive comovement between output per capita and
net foreign assets.
If we consider the 1970-98 interval, the results for public debt and demographic structure are
also quite strong. In line with our theoretical prior, net foreign assets are negatively related to the size
of the government debt. The statistically significant -0.125 point estimate implies that the net foreign
asset to GDP ratio falls by 6 percentage points in a country that experiences a 40 percentage point
increase in its public debt to GDP ratio (relative to the world average), indicating that government
debt is largely domestically absorbed.