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Net Foreign Asset (Com)position: Does Financial Development Matter?

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  • Robert Vermeulen
  • Jakob de Haan

Abstract

We investigate the relationship between a country's domestic financial development and the (composition of its) net foreign asset position using a pooled mean group estimator and data for 51 countries during the period 1970-2007. The results show that financial development reduces a country's long-run net foreign asset position. In addition, financial development leads to higher net equity and lower net debt positions. These findings confirm the theoretical predictions of Mendoza et al. (2009). The results are robust to using different indicators of financial development and inclusion of the level of development of a country in the cointegrating relationship.

Suggested Citation

  • Robert Vermeulen & Jakob de Haan, 2012. "Net Foreign Asset (Com)position: Does Financial Development Matter?," DNB Working Papers 340, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:340
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    Cited by:

    1. Mika Nieminen, 2017. "Patterns of international capital flows and their implications for developing countries," WIDER Working Paper Series 171, World Institute for Development Economic Research (UNU-WIDER).
    2. Joyce, Joseph, 2016. "Partners, Not Debtors: The External Liabilities of Emerging Market Economies," MPRA Paper 73880, University Library of Munich, Germany.
    3. Allegret, Jean-Pierre & Couharde, Cécile & Coulibaly, Dramane & Mignon, Valérie, 2014. "Current accounts and oil price fluctuations in oil-exporting countries: The role of financial development," Journal of International Money and Finance, Elsevier, vol. 47(C), pages 185-201.
    4. Al-Abri, Almukhtar & Baghestani, Hamid, 2015. "Foreign investment and real exchange rate volatility in emerging Asian countries," Journal of Asian Economics, Elsevier, vol. 37(C), pages 34-47.
    5. Joseph Daniels & Patrick O’Brien & Marc Ruhr, 2015. "Bilateral tax treaties and US foreign direct investment financing modes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(6), pages 999-1027, December.
    6. Joyce, Joseph, 2015. "External Balance Sheets as Countercyclical Crisis Buffers," MPRA Paper 66039, University Library of Munich, Germany.

    More about this item

    Keywords

    net foreign assets; financial development; financial integration; pooled mean group estimator;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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