Long-Run Determinants of the Net International Investment Position

Kamila Kuziemska-Pawlak and Hiro Ito

No 380, NBP Working Papers from Narodowy Bank Polski

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.

Keywords: Net international investment position; capital flows; Ricardian equivalence; stages of development hypothesis; life-cycle hypothesis; cross-section dependence; dynamic common correlated effects estimator (search for similar items in EconPapers)
JEL-codes: C23 F21 F30 F41 (search for similar items in EconPapers)
Pages: 32
Date: 2026
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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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:380

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