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Long-Run Determinants of the Net International Investment Position

Author

Listed:
  • Kamila Kuziemska-Pawlak

    (Narodowy Bank Polski
    University of Lodz)

  • Hiroyuki Ito

    (Portland State University)

Abstract

In a financially integrated world, some countries become international net creditors while others become international net debtors. This paper examines the long-run determinants of the net international investment position (NIIP). Using a cross-sectionally augmented error correction model estimated with the dynamic common correlated effects estimator on data for 38 countries from 1990 to 2023, we test several theoretical hypotheses – including the stages of development hypothesis, the life-cycle hypothesis, and Ricardian equivalence. The results show that an increase in relative GDP per capita and relative central government (CG) debt/GDP reduces the NIIP/GDP in the long run, while a rise in relative old-age dependency increases it. For selected countries, we decompose changes in the long-run NIIP/GDP since 1990. In the United States, a decline in the long-run NIIP/GDP reflects rising relative GDP per capita, falling relative old-age dependency, and, from 2018, growing CG debt/GDP. In Japan, relative population aging and a decline in relative GDP per capita support an increase in the long-run NIIP/GDP, while the expansion of relative CG debt/GDP weighs it down.

Suggested Citation

  • Kamila Kuziemska-Pawlak & Hiroyuki Ito, 2026. "Long-Run Determinants of the Net International Investment Position," NBP Working Papers 380, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:380
    Note: We are grateful to Jan Ditzen for advice on panel time series models. We also appreciate the insightful discussions with Jakub Mućk, Jan Baran, Jan Bruha, Marcin Bielecki, Eric Clover, Philipp Harms, Michał Markun, and Jamel Saadaoui and an anomous referee. We gratefully acknowledge comments and suggestions from participants at the EcoMod2025 International Conference on Economic Modeling and Data Science, seminars organized by Narodowy Bank Polski and the University of Lodz, and a workshop organized by European Central Bank (IRC Expert Network on Financial Flows, Research Cluster). All remaining errors are our own. The views expressed herein are those of the authors and do not necessarily refl ect those of Narodowy Bank Polski.
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    References listed on IDEAS

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    1. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2001. "The external wealth of nations: measures of foreign assets and liabilities for industrial and developing countries," Journal of International Economics, Elsevier, vol. 55(2), pages 263-294, December.
    2. Vermeulen, Robert & de Haan, Jakob, 2014. "Net foreign asset (com)position: Does financial development matter?," Journal of International Money and Finance, Elsevier, vol. 43(C), pages 88-106.
    3. Turrini, Alessandro & Zeugner, Stefan, 2019. "Benchmarks for net international investment positions," Journal of International Money and Finance, Elsevier, vol. 95(C), pages 149-164.
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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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