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A Financial Approach to the Balance of Payments


  • Peijie Wang

    () (University of Hull, IESEG School of Management)


A new approach to addressing balance of payments issues by analyzing the constituents of the financial account has been developed in this study and is referred to the financial approach accordingly. It pays attention to the different roles of foreign direct investment (FDI) and international portfolio investment (IPI), both of which have witnessed phenomenal increases in the last four decades. On the one hand, balance on the financial account exclusive of changes in official reserves is no longer negligible or inconsequential, and can no longer be neglected. On the other hand, FDI and IPI differ in countries’ international economic relations, with different effects of FDI and IPI on trade and trade balance in particular. Responding to a noticeably changed global economic environment, this new approach is effective in addressing balance of payments issues in a new era of globalization. The illuminating results lend support to the theoretical propositions, thereby opening up a new line of research for furthering theoretical and empirical inquiries.

Suggested Citation

  • Peijie Wang, 2009. "A Financial Approach to the Balance of Payments," Working Papers 2009-FIN-01, IESEG School of Management.
  • Handle: RePEc:ies:wpaper:f200901

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    References listed on IDEAS

    1. J. J. Polak & Victor Argy, 1971. "Credit Policy and the Balance of Payments (La politique du crédit et la balance des paiements) (La política crediticia y la balanza de pagos)," IMF Staff Papers, Palgrave Macmillan, vol. 18(1), pages 1-24, March.
    2. J. J. Polak, 2001. "The Two Monetary Approaches to the Balance of Payments; Keynesian and Johnsonian," IMF Working Papers 01/100, International Monetary Fund.
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    More about this item


    financial account; foreign direct investment; international portfolio investment; trade balance; current account;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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