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Financial Remoteness and the Net External Position

Martin Schmitz
Department of Economics and IIIS, Trinity College Dublin

IIIS Discussion Paper No. 332


This paper shows that, controlling for standard determinants of net external positions, financially-remote countries exhibit more positive net external positions. This finding is found to be stronger for less advanced countries, hinting at external funding problems for more remote countries. Being located near financially very open countries, being in currency unions with creditor countries, or being highly integrated through financial and trade linkages with a 'core' country facilitates net external borrowing. Consequently, evidence is found for an important role of geographic and bilateral factors for a country's net external wealth.

Keywords: net foreign assets, cross-border investment, distance, proximity
JEL Classification: F21, F34, F41

Last updated 28 August 2014 by IIIS (Email).