Errors and omissions in the balance of payments, capital exports and the financial openness of Italy

Statistical measurement of Italy�s international investment position is subject to considerable uncertainty, owing essentially to the presence of errors and omissions in the balance of payments. The entries under this item became very substantial at the start of the 1990s, coinciding with the completion of foreign-exchange liberalization in Italy. This paper�s main thesis is that the discrepancies are largely due to non-reporting of receipts from exports paid into foreign accounts, the amounts of which are instead included in Italy�s foreign trade statistics. If this is true, it can be estimated that in the period 1990-97 the measurement system failed to capture net outflows of Italian capital equal on average to about 1 percentage point of GDP each year. These outflows are estimated to have generated an additional stock of external assets equal to 7.3 per cent of GDP at the end of 1997. Taking these adjustments into account, from 1995 onwards Italy had an �overall� net external creditor position, which at the end of 1997 was equal to 6.5 per cent of GDP. The estimate of the capital flows not captured by the official statistics does not substantially alter Italy�s degree of financial openness, considering the uncertainty as to their distribution between increases in external assets and decreases in external liabilities. If all the funds had been used to acquire �authentic� foreign assets, Italy�s degree of �outward� openness would obviously have been higher but still not as high as that of the main industrial countries. If a part of the funds had been used to acquire Italian securities, Italy�s �inward� openness would be lower, but still in line with the other countries. The analysis confirms the problems that financial globalization is raising for national balances of payment. In particular, globalization seems to have reduced the cost-effectiveness of the systems for gathering the data on the balance of payments and external financial position, weakening the coverage of national statistical systems and raising the costs of data-gathering. International cooperation for the exchange of data is therefore clearly important to recoup efficiency in data collection. Such exchanges could be between the statistical authorities of two countries or between a multiplicity of countries and a supranational organization charged with coordination. These remarks are especially applicable to the countries of the euro area, whose national balances of payments are irrelevant for analysis of the single currency�s external value but remain essential for the construction of the area�s balance of payments