The growing current account surpluses in East Asia: the effect of dark matter assets

In a series of papers we have developed the notion that net foreign assets could be better approximated by capitalizing the net investment income line of the balance of payments statistics. Hidden assets or changes in financial costs may change the net return of net foreign assets even when the valuation of assets remains unchanged. By capitalizing the net investment income a more realistic picture emerges on the true burden or return of net foreign assets. This paper estimates external positions for East Asian economies using this methodology and compares the results with that of official accounts. We find that, until the late 1990s, net investment income increased relatively little, signaling that net foreign assets had not grown as suggested by the large current account surpluses of these countries. This is consistent with the fact that the region had attracted large amounts of foreign direct investment, for which the transfer of technology and knowledge are not accurately captured by the valuation of the foreign asset position. Since 2002, however, the trend has reversed, indicating much larger surpluses than officially registered. We discuss individual country cases.