The database of the external wealth of nations
What does the Outer Wealth of Nations (EWN) measure?
The EWN provides estimates of the external financial assets and liabilities of each country. These data also provide estimates of each country’s net international investment position (NIIP), the difference between its total external financial assets and its total external liabilities.
What are external financial assets and liabilities?
External financial assets are the claims of national residents on non-residents, consisting of:
- foreign direct investment (control of the holdings of national companies in foreign subsidiaries);
- portfolio investments (holding by national residents of shares or bonds issued by non-resident entities);
- other investments (including loans or deposits with non-resident entities, trade credits, etc.);
- financial derivatives;
- foreign exchange reserves (holding of liquid assets in foreign currency by the national central bank).
Financial liabilities are defined in a similar fashion (with the exception of foreign exchange reserves — any liability of the central bank vis-à-vis non-residents is classified in the category of liability corresponding to the nature of this liability). For example, if an American company has a controlling interest in an Irish company domiciled in Ireland, this is an external asset of the United States and an external liability of Ireland. Likewise, if an Irishman owns shares in an American company, it is an external asset of Ireland and an external liability of the United States.
In accordance with balance of payments statistics conventions, external assets and liabilities are defined on the basis of residence, not Nationality. For example, a branch of a US bank in the UK is a UK resident, while a branch of a Canadian bank in the US is a US resident. Therefore, a deposit from a US resident in the former is an external asset (and therefore included in the EWN data), while a deposit in the latter is a domestic asset (and therefore not included).
What can the data tell us?
Data on the world economy as a whole provide a measure of trends in international financial integration and global external imbalances. Country by country, data
provide a measure of an economy’s financial links with the rest of the world. A country’s NIP tells us whether it is a creditor or debtor of the rest of the world, which may have implications for the sustainability of external debt.
Does the EWN database measure a country’s wealth?
No. The data only measure financial claims and liabilities to non-residents, and therefore only the net external component of a country’s wealth. In particular, the data does not include wealth held nationally by residents of a country.
In fact, a country’s PNI and its overall wealth can evolve in opposite directions. For example, an increase in the stock prices of a country will increase the value of national wealth, as domestic companies are worth more. At the same time, to the extent that some of a country’s stocks are held by non-residents, this will also increase a country’s financial liabilities to non-residents, and hence worsen the NIP.
What are the most prominent trends that the data show over the past decade?
Before the global financial crisis of 2007-2008, there had been a strong expansion of cross-border positions which faded after 2007 (see Lane and Milesi-Ferretti, 2018). This slowdown mainly reflects the weakness of capital flows to and from advanced economies, with reduced activity of the big banks and a return to fragmentation of euro area bond markets following the euro area crisis of 2010-11 . A composition effect was also at play: the share of global GDP represented by emerging and developing economies increased sharply. For these economies, external assets and liabilities represent a lower share of GDP compared to advanced economies, which lowers the aggregate.
As other forms of cross-border financing contracted after the global financial crisis, global FDI increased sharply as multinational companies expanded their network of affiliates abroad. This expansion partly reflected entirely new investments (i.e. new production facilities as opposed to the acquisition of existing facilities or the creation of purely financial entities), but a significant source of expansion was the proliferation of special purpose vehicles (intermediary financial entities with no significant economic footprint) domiciled in financial centers, designed for regulatory and tax minimization reasons. (For more details, see Lane and Milesi-Ferretti, 2018, “The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the Global Financial Crisis”, IMF Economic Review 66, 189-222).
The past decade has also seen a further expansion of the global positions of creditors and debtors, as described here. In other words, the group of creditor regions (some advanced European countries, advanced Asian economies, major oil exporters, as well as China) accumulated additional net foreign assets and the group of debtor regions (mainly the United States but also certain advanced European countries, emerging economies in Europe, Latin America and emerging Asia) additional net external liabilities.
Who are the biggest debtor and creditor countries in the world?
What can the external wealth of nations tell me about a particular country?
Take the example of Canada, a country that has been a net debtor for most of the past 50 years, recording virtually uninterrupted current account deficits between 1971 and 1998. After recording a series of current account surpluses starting in 1999, its position net external debtor had been reduced. at -9% of GDP by the end of 2008, with a modest credit position in FDI and portfolio equity instruments and a slightly more investor net liability position). Since 2009, Canada has again recorded current account deficits, with a cumulative value of US $ 567 billion (roughly 35% of 2020 GDP). Funding was primarily through net inflows of debt, with modest net outflows in portfolio equities and FDI.
Despite its initial debt position and this additional borrowing, statistics from the PEG show that Canada has become a large net creditor by 2020, with a net asset position exceeding 60% of GDP. How did it happen?
Canadian equity investors overseas fared very well: Global U.S. dollar stock prices rose 185% between 2008 and 2020, boosting the valuation of Canadian portfolio stocks and corporate assets. FDI abroad. But Canadian equity markets were much less dynamic, reflecting the less encouraging performance of energy and metals: prices rose 80% in US dollars. As a result, Canada’s net creditor position in FDI and equity instruments is now close to 120% of GDP (while at unchanged valuations of equities it would be around 23% of GDP). At the same time, the continued attractiveness of the Canadian bond market has attracted safe haven flows, and its net position in portfolio debt instruments is now around -50 percent of GDP.
Where can I find your most recent analysis of this data?
The September 2021 analysis is available here. See also our recent discussion on the US international investment position.
Where do the data for the Outer Wealth of Nations come from?
The main sources of data are the balance of payments (BOP) and international investment position (IEP) statistics of each country, released by the International Monetary Fund. The only conceptual difference is that our data excludes central bank holdings of gold from financial assets (since they do not constitute a claim on another country).
EWN data extends both time series and national coverage of IIP statistics to include virtually all economies in the world from 1970 onwards, using data and alternative methods to fill gaps in IIP data or when IIP estimates may be incomplete or imprecise. . Regarding time series coverage, IIP data for India starts in 1996, for Brazil in 2001 and for China in 2004. And for country coverage, the EWN database includes economies such as Kuwait, Qatar, United Arab Emirates and several Caribbean offshore centers (such as Bermuda, British Virgin Islands and Cayman Islands) that do not publish IIP statistics or publish an incomplete version (excluding of the main sovereign wealth fund for Kuwait and excluding most of the offshore sector for Bermuda and the Cayman Islands).
These extended statistics are based on a variety of data sources, including partner country bilateral data from the IMF’s Coordinated Direct Investment Survey and the IMF’s Coordinated Portfolio Investment Survey (for countries that do not publish estimates of their external assets and liabilities, or publish only an incomplete version); cumulative flows with value adjustments; World Bank and IMF statistics on external debt; UNCTAD statistics on foreign direct investment; and various national sources. Useful entries for historical data are also provided by a book by Stefan Sinn (“Net External Asset Positions of 145 Countries,” Kieler Studien no. 224, Institut für Weltwirtschaft an der Universität Kiel, Tübingen: JCB Mohr).
If I am using this dataset, how should I assign it?
Please cite this link, as well as Lane, Philip R. and Gian Maria Milesi-Ferretti, 2018, “The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the Global Financial Crisis”, IMF Economic Review 66, 189-222 .
 The cross-border activity of banks was mainly captured in the “other investment” category, which includes loans and deposits.
 Changes in exchange rates are also important. Canada’s liabilities are predominantly denominated in domestic currency, while a significant portion of its assets are denominated in foreign currency (mainly US dollars). Thus, a depreciation of the Canadian dollar against the US dollar tends to improve Canada’s international investment position by increasing the value in national currency of Canadian assets abroad. At the end of 2020, the Canadian dollar was 5% lower than at the end of 2008 against the US dollar.