Long-Term Capital Movements



1997 is depicted in Figure I.4 In industrial countries as a whole the dispersion of net external
positions has increased during the past 25 years, with an increase in the number of relatively large
debtors, especially between 1975 and 1986, and in the number of creditors with assets above 10
percent of GDP. For developing countries, there is a large increase in the number of countries with
“large” external liabilities (over 40 percent of GDP) between the 1970s and the 1980s, in the
aftermath of the debt crisis. More generally, a pattern of increased dispersion in net external positions
is also visible, and is especially strong between the 1970s and the 1980s.

Figure 2 plots different net foreign asset measures as ratio of GDP for a selection of industrial
countries for the period 1970-1998. We graph both our estimate
CUMCA and the direct estimate of
net foreign assets (
IIP) when available.5 Only a few countries have remained creditors throughout the
past three decades (Germany, Japan, Netherlands and Switzerland); the rest of the group is almost
evenly split between persistent debtors and ‘switchers.’ Among the latter, the most well known case is
the United States.

Figure 3 plots net foreign asset measures for some of the developing nations in our sample,
highlighting a number of interesting facts. First, the dynamics of external positions in the countries
most affected by the debt crisis is similar, with a sharp worsening during the early 1980s and an
improvement later in the decade. Second, net external liabilities measured with
CUMFL are
significantly larger than
CUMCA in several countries (Argentina, Brazil, Mexico, and Indonesia),
reflecting unrecorded capital outflows. The third is the effect of the currency collapse due to the
Asian crisis on external liabilities in Indonesia and to a lesser degree in Thailand. Finally, the
improvement of Singapore’s net external position overtime is remarkable.6

3. The Determinants of Net Foreign Asset Positions

We propose a parsimonious reduced-form model of the net foreign asset position

4 We focus here just on the overall net foreign asset position. See Lane and Milesi-Ferretti (2000b) for a
discussion of the composition of the “external capital structure.”

5 In Lane and Milesi-Ferretti (1999) we explain the most relevant differences between these two measures.

6 Taiwan shows a similar, albeit less dramatic trend among the economies in our sample.



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