Country portfolios

Aart Kraay (), Norman V. Loayza () and Luis Servén

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: How do countries hold their financial wealth? We construct a new database of countries’ claims on capital located at home and abroad, and international borrowing and lending, covering 68 countries from 1966 to 1997. We find that a small amount of capital flows from rich countries to poor countries. Countries’ foreign asset positions are remarkably persistent, and mostly take the form of foreign loans rather than foreign equity. To interpret these facts, we build a simple model of international capital flows that highlights the interplay between diminishing returns, production risk and sovereign risk. We show that in the presence of reasonable diminishing returns and production risk, the probability that international crises occur twice a century is enough to generate a set of country portfolios that are roughly consistent with the data.

New Economics Papers: this item is included in nep-ifn and nep-pke
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Related works:
Working Paper: Country portfolios (2000)
Working Paper: Country Portfolios (2004)
Working Paper: Country Portfolios (2000)
Working Paper: Country Portfolios (2001)
Journal Article: Country Portfolios (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:chb:bcchwp:91

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