Fernando Brona
Fernando Broner
Adjunct Professor at the Barcelona School of Economics and Senior Research Fellow at the Centre for International Economic Studies
Emerging market and developing economies (the "South") have become important players in the global economy. As of 2018, the countries of the South accounted for about 45% of the world's GDP. At the same time, intra-South relations have become more important in international trade and global migration.
The countries of the South have also begun to play an important role in international financial investment, and not just holders of deposits and reserves in the banks of the North. For example, China has become an important lender in Africa, Asia and Latin America, and the use of the renminbi is becoming more widespread. Russia has deepened its economic ties with China. Gulf countries have recovered some of the petrodollars through investments in other emerging market and developing economies.
Despite the growing attention to the role of the South in global finance, there is little systematic evidence of its importance in international investment. Is financial integration in the South merely a reflection of economic activity, or does its finance outweigh economic growth? The lack of evidence is partly due to the lack of comparable bilateral data needed to map inter-country relations.
Probably the most widely used dataset is the International Investment Positions (IIPs) dataset compiled by Lane and Milesi-Ferretti, which compares each country's external assets and liabilities relative to the rest of the world. Our dataset can be seen as a bilateral version of them, covering four main investment types (functional categories in international investment positions). Most research on bilateral international investment focuses on a single type of investment.
In our latest study, we analyze the rise of the South in global finance in the context of bilateral international investment in bank loans and deposits, portfolio investment in debt and equity, foreign direct investment (FDI), and international reserves. Bank loans and deposits data from the Bank for International Settlements (BIS), portfolio investment data from the International Monetary Fund (IMF), foreign direct investment data from the United Nations and the IMF, and international reserves data from the IMF cover the annual positions of most countries and jurisdictions in the world from 2001 to 2018. By aggregating bilateral data, we can capture the bulk of the total international investment positions at the country level and the dynamics of those positions compared to using the aggregated data that we already have. The code that processes the data and most of the data is available here.
The rise of the South in global financing
Our main findings document the rise of the South in global finance since 2001. First, the South's share of global investment and its share of world GDP has increased. Across the sample, Southbound investment grew the fastest, followed by Northbound South and Southbound North, outpacing Northbound investment. In the aftermath of the global financial crisis, investment in the South grew particularly rapidly. In 2018, Southbound and North-South investment accounted for 8% and 26% of global investment, respectively. The linkages established in these countries since 2001 have seen broad marginal growth, accounting for a significant share of Southbound investment in 2018. The return from country to country confirms that these trends are prevalent in many countries of the South.
The size of the international investment position by category
Second, portfolio investment and international reserves involving the South grew faster than FDI, which in turn grew faster than bank loans and deposits. Despite this growth, the South's share of portfolio investment is still smaller than that of other investments. By comparison, the South's reserves for the North accounted for 73% of the global total in 2018. In 2001, the South was primarily a destination for FDI from the North and a source of loans, deposits and international reserves from the North. By 2018, the South had seen significant growth as a source of FDI for both the North and the South, as well as as a destination for loans and deposits in both the North and the South.
In fact, Africa is the region with the fastest growth in portfolio investment and foreign direct investment, while Eastern Europe and Central Asia are the regions with the fastest growth in loans and deposits. Overall, investment in the South grew faster than in the North. Investment growth tends to be faster between southern regions than within the same southern region. While offshore financial centres (OFCs) have been in the spotlight in recent discussions as a conduit for international investment, treating them as a separate group or as part of the North and South does not change our overall conclusions, but rather reinforces the trends we capture.
Growth in the international investment position by the South
The bilateral data we collected for this paper reflect the international investment position between countries, across four broad types. As such, the data may be valuable for other studies, for example on the exposure and spread of shocks between countries, or the role of financial centres in inter-country investment intermediation. The data can also be used to explore whether different types of international investment and trade in goods and services are complementary or substitutable at the bilateral level. The data could be supplemented in a number of ways, in particular by including information on the nationality of the lender or borrower of the end-of-course. The data could also be enriched to include bilateral information on underrepresented investment types (official loans and trade credits) and off-balance sheet positions (derivatives, credit lines and guarantees). The bilateral nature of the data allows researchers to generate new insights into the process of international financial integration.
Original link:
https://cepr.org/voxeu/columns/growth-south-global-finance-new-bilateral-data-and-stylised-facts
(Chang Changsheng/excerpt)
The above views and remarks do not represent the position of this platform.
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