Long-Term Capital Movements



reflect changes in the cross-country prices of capital goods. A comparison with existing data on
stocks of external assets and liabilities provides a satisfactory robustness check on our methodology.

For developing countries, we also construct a second measure, CUMFL, that is obtained as
the sum of stocks of the various external assets and liabilities, calculated as adjusted cumulative
capital flows or, as is the case for external debt and foreign exchange reserves, as direct stock
measures. As is explained in detail in Lane and Milesi-Ferretti (1999), our
CUMCA measure
implicitly considers estimates of cumulative unrecorded capital flows as assets held by the country
residents abroad. Instead,
CUMFL includes unrecorded capital outflows only to the degree that they
are reflected in net errors and omissions, and hence a lower fraction of unrecorded external capital
holdings than
CUMCA.3 We use these measures to supplement the existing IIP data.

Before turning to the presentation of the data, it is important to point out that the
measurement of international current and capital transactions faces severe problems, in particular
under-recording of exports∕capital outflows, reflected in the existence of a measured “world current
account deficit” (over US$70 billion in 1998). These problems are unavoidably reflected in our data,
which makes use of official sources; even though we try to account to the extent possible for
unrecorded capital outflows, external assets are as a whole underreported.

2.2 NET FOREIGN ASSETS: BROAD TRENDS

The distribution of countries between large and small creditors and debtors in 1975, 1986 and

3 For developing countries, the CUMCA measure determines the stock of debt assets residually, after
subtracting from the estimated net external position the net FDI and equity positions and the difference between
reserves and external debt. To understand the difference with CUMFL, consider, for example, the case of a
country with a trade deficit entirely financed by a flow of new debt liaiblities (and errors and omissions equal to
zero). Assume, as has often been the case in developing countries during periods of capital flight, that the
change in the stock of external debt (measured by World Bank data) exceeds the recorded debt inflow in the
balance of payments. Cumulating the current account (as in CUMCA) implies that the change in the net external
position is equal to the recorded flow of new debt, and thus implicitly assumes that the difference between the
change in the stock of debt and the flow is offset by an accumulation of debt assets of the country abroad If
debt assets are instead estimated directly as cumulative flows (as is the case for CUMFL) the change in the net
external position corresponds to the increase in the stock of external debt.



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