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

  • Robert Vermeulen
  • Jakob de Haan

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.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 340.

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Date of creation: Mar 2012
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Handle: RePEc:dnb:dnbwpp:340
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Web page: http://www.dnb.nl/en/

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