1. The External Wealth of Nations Mark II Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004 Philip R. Lane IIIS, Trinity College Dublin and CEPR Gian Maria Milesi-Ferretti IMF, Research Department and CEPR

2. Dataset on 145 countries’ external position (assets and liabilities)  Extends and improves the dataset in Lane and Milesi-Ferretti (JIE 2001)  From 67 countries to 145 countries (nearly universal coverage)  Coverage extended to 1970-2004  Much larger availability of stock estimates from national authorities

3. Dataset “outputs”  External assets Portfolio equity Portfolio equity Foreign direct investment Foreign direct investment Debt assets Debt assets Portfolio debt (for some countries/periods)Portfolio debt (for some countries/periods) Other investment assets (for some countries/periods)Other investment assets (for some countries/periods) Reserve assets (net of gold) Reserve assets (net of gold) Financial derivatives (limited coverage) Financial derivatives (limited coverage)

4. Dataset “outputs” (II)  External liabilities Portfolio equity Portfolio equity Foreign direct investment Foreign direct investment Debt liabilities Debt liabilities Portfolio debt (for some countries/periods)Portfolio debt (for some countries/periods) Other investment liabilities (for some countries/periods)Other investment liabilities (for some countries/periods) Financial derivatives ( limited coverage) Financial derivatives ( limited coverage)

5. Data inputs  International Investment Positions (when reported)  Balance of payments flows  World Bank’s Global Development Finance (external debt)  FDI stocks and flows from UNCTAD  Stock of portfolio equity holdings in the US and by US residents (Warnock)  CPIS Portfolio Survey  BIS locational banking statistics  National sources  Historical data from Sinn (1990)  IMF desks  etc....

6. Estimation methods  Eclectic...  Stock data, complemented by cumulative capital flows with valuation adjustments For portfolio equity, valuation reflects stock market prices For portfolio equity, valuation reflects stock market prices For debt, its currency composition For debt, its currency composition For FDI, international relative prices For FDI, international relative prices

7. Caveats  Substantial degree of uncertainty for estimates  Some offshore centers missing  Large world NFA discrepancy

8. A sampling of results  The world NFA discrepancy  Trends in international financial integration  Trends in net external positions  Much more in the paper (and the data) on Gross positions (international financial integration) Gross positions (international financial integration) Portfolio composition (equity, FDI, debt) Portfolio composition (equity, FDI, debt) Longer-term trends Longer-term trends

9. The problem of underreporting  The world runs a current account deficit.... ...and has been doing so for a while..... ...and has hence accumulated net external liabilities

10. World liabilities (share of world GDP)

11. What do we know about the missing money?  Primarily in the categories Debt instruments Debt instruments Portfolio equity Portfolio equity

12. What do we know about the missing money?

13. Can we say something about the equity and debt discrepancies?  For portfolio equity, yes.  Use data from CPIS CPIS Liability surveys Liability surveys United StatesUnited States IrelandIreland Reported aggregate portfolio equity liabilities Reported aggregate portfolio equity liabilities

14. Evidence on the portfolio equity discrepancy  At end-2003, Total assets=US$7.2 trillion Total assets=US$7.2 trillion Total liabilities=US$8.3 trillion Total liabilities=US$8.3 trillion  Compare reported equity liabilities with those derived from other countries’ reported holdings in the country

15. Results

16. Can we learn something more from the US and Irish surveys?

17. Bottom line  “Missing money” likely held in financial centers.... ...but of course difficult to impute ultimate ownership...

18. Evidence on international financial integration  Rapid growth in external assets and liabilities Particularly strong since the mid-1990s Particularly strong since the mid-1990s Particularly strong for advanced economies Particularly strong for advanced economies  Increased importance of FDI and portfolio equity. For emerging markets, also Big reduction in debt to export ratio Big reduction in debt to export ratio Large increase in reserves Large increase in reserves

19. Stylized facts I. International financial integration (assets+liabilities/GDP)

20. Stylized facts (II) II. International financial and trade integration (assets+liabilities/exports+imports)

21. I nternational equity integration (FDI+portfolio equity) Assets+liabilities/GDP

22. External capital structure Emerging and developing countries

23. A perspective on net external positions  Where did we stand at end-2004? Industrial countries Industrial countries Developing countries and emerging markets Developing countries and emerging markets  What are the “global” trends along the time series dimension?  Some regional evidence on NFA during the past decade

24. Net foreign assets and GDP per capita, 2004

25. Net foreign assets and GDP per capita, 2004 (emerging and developing economies)

26. Net foreign assets, broad country groups (pct of GDP)

27. NFA (pct of world GDP)

28. NFA/GDP: 1996 and 2004

31. Concluding remarks  Comprehensive and up-to-date dataset  Key for research on International financial integration International financial integration Risk sharing Risk sharing Dynamics of global imbalances Dynamics of global imbalances  New evidence on “NFA discrepancy”  New evidence on global trends in NFA and financial integration