External Debt and Liabilities: Evidence from a Cross Section of Countries

This paper tests a simple open economy growth model on a cross section of OECD countries. The predictions are that the savings rate and population growth rate significantly affect net foreign asset positions. We test these predictions and find support for this hypothesis. We also use this as a starting point to test for additional explanations for the variety of net foreign asset changes during the 1980s. We reject the hypotheses that low productivity or low export penetration, or tight monetary policy has any effect upon net asset accumulation across the OECD countries. These relate to policy debates within Australia. We find the evidence on the effect of fiscal policy on net asset positions is ambiguous, that rates of immigration have no effect on net asset positions, and that tax and inflation distortions are significant in explaining net foreign asset or liability positions.