International Investment Position Research Articles

Measuring external macroeconomic imbalances and competitiveness in the Republic of Moldova

In the context of frequent crises and multiple vulnerabilities faced by the Republic of Moldova, increasing competitiveness of the national economy has become an imperative for strengthening the resilience to external shocks. As a result, it is necessary to adopt a set of indicators that would allow a proper analysis of economic trends, ensure early warning of crises, and serve as signals for activating protection mechanisms in case of external shocks. In line with this concept, the author aimed to analyze international experience in this field and to extrapolate external practices to the national context. Thus, the author analyzed the set of indicators used in the European Union to identify and monitor external macroeconomic imbalances and competitiveness, and, subsequently, calculated the same variables based on data for the Republic of Moldova. The results of this exercise indicate the existence of a number of acute macroeconomic imbalances in the Republic of Moldova, which are of a chronic nature, such as: negative current account, net international investment position, accelerated growth of unit labor costs, and rapid appreciation of the Real Effective Exchange Rate. This situation, in turn, contributes to the widening of Moldova`s specific competitiveness deficit.

ANALYZING THE EFFICIENCY OF DIGITALIZATION IN SMALL AND MEDIUM-SIZED ENTERPRISES ACROSS EU COUNTRIES USING DEA MODELS

The process of digitizing businesses involves ongoing investments and additional costs, leading to the inevitable inquiry into the economic impact of digital transformation. Specifically, it's important to evaluate how this process contributes to the economic growth of nations. The article introduces a method for creating a ranking of European countries according to the economic benefits derived from digitalizing businesses of different scales. To achieve this, DEA models were developed to measure the effectiveness of digital adoption by small and medium-sized enterprises and larger corporations. For input variables, we selected metrics that reflect the extent of business digitalization, specifically, the proportion of SMEs (small and medium-sized enterprises) with a high digital intensity index (DII), the percentage of SMEs utilizing cloud technologies, and the contribution of SME turnover to the overall e-commerce turnover. The output variables chosen were metrics indicative of a country's economic health: GDP per capita, the ratio of exports to GDP, and the international investment position. The evidence demonstrates that due to significant differences in size, economic advancement, and digitalization levels among EU countries, the VRS model more adeptly accommodates these disparities. This approach permits the evaluation of each country's performance based on its unique situation and potential for development, without consideration of its economic magnitude. In 2022, Denmark, the Netherlands, Sweden, Finland, Malta, and Belgium emerged as the frontrunners in digital intensity among SMEs, with nearly 40% of businesses exhibiting a high degree of digital engagement. Among these leaders, only Malta and the Netherlands achieved the highest efficiency in leveraging digitalization for economic growth, as determined by the VRS model that considers variable returns to scale. It was shown, that the economic effect of digital transformation on large enterprises in EU countries is more substantial than on small and medium-sized enterprises.

La Balanza de Pagos y la Posición de Inversión Internacional de España en 2023

Rationale The balance of payments and international investment position provide insight into Spain’s economic relations with the rest of the world, which have important implications for the domestic economy. Analysis of these statistics takes on added significance against a backdrop of global uncertainty. Takeaways •In 2023 the Spanish economy’s net lending as a percentage of GDP reached its highest level since 1995, driven by the improvement in the trade balance and positive developments in services, with record high credits in both travel services and other services. •The negative net international investment position declined further in 2023 to stand at 52.8% of GDP (its lowest level in 19 years), as a result of GDP growth and the positive balance of financial transactions with the rest of the world. •Spain’s outward and inward foreign direct investment positions increased in 2023 due to the positive amount of financial transactions, although these were down slightly on the previous year, and the likewise positive amount of revaluations.

Financial priorities and the growth border of the Russian economy

Subject. The article investigates the role of foreign exchange reserves in the development of the Russian economy, the securities market development, and the banking system stability. Objectives. The aim is to review the monetary policy options under international sanctions strengthening. Methods. I apply methods of statistical, neural network, and cluster analysis. Results. The study established that it is impossible to reduce currency risks by issuing shares listed in the domestic market in foreign currency. The preferred directions of Russia's monetary policy are as follows: strengthening the country's international investment position, increasing the volume of the Federal bond market, and increasing the issue of shares listed in the domestic market in rubles. Conclusions. The growth boundary of the Russian economy is determined by such parameters as the amount of funds in escrow accounts of individuals, the size of insurance and pension reserves.

Debt-based economy of modern Russia

Subject. The article considers the debt economy of modern Russia. Objectives. The purpose is to describe Russia’s debt-laden economy. Methods. The study rests on systems approach, using the method of statistical analysis. Results. The study identified necessary links in the Russian economy, i.e. international investment position, balance of payments, external debt, debt of the non-financial sector and households on bank loans and issued debt securities, contracts for the purchase of dollars and yuan with tomorrow next settlements in rubles, volume of government bonds of the Russian Federation. The paper establishes active growth of the international investment position of the Russian Federation, with increasing frequency of its negative growth rates, in the context of a decrease in the growth rate of the balance of payments in the dynamics of the activation of compensatory mechanisms aimed at combating its reduction. The paper also reveals an increase in the dynamics of the debt of the non-financial sector and households on bank loans and issued debt securities at average values of their growth rates. The main methods of securitization of Russian assets are the weakening of ruble exchange rate and support for State corporations. Conclusions. The debt-based economy of modern Russia specifies opportunities for monetary authorities to replace foreign debt obligations and ensure the growth of the international investment position in a situation of declining balance of payments.

The Link between Economic Growth and Ecological Footprint: What Future Prospects for the G7 Countries: PMG-ARDL

Given the need to achieve economic development while preserving environmental quality, our main objective in this article is to study the impact of economic growth on the ecological footprint in the G7 countries (Italy, France, Canada, the United States, United Kingdom, Japan, Germany) over the period 1961-2018. By studying the environmental Kuznets curve (EKC) using the dynamic ARDL panel, we found that the relationship between EFP (ecological footprint) and GDP is N-shaped. In the renewable Kuznets curve (RKC), we found a U-shaped relationship. The international investment position and debt then contribute to pollution, and the consumption of renewable energy reduces CO2 emissions. However, additional efforts are needed to promote renewable energy in the countries analyzed.

External wealth of nations and systemic risk

External imbalances played a pivotal role leading to the global financial crisis and were an important cause of turmoil. While current account (flow) imbalances narrowed in the aftermath of the crisis, the net international investment position (NIIP) (stock) imbalances persisted. This study explores the implications of countries’ net foreign positions on systemic risk. Using a sample of 470 banks located in 49 advanced economies, emerging countries, and developing economies over 2000–2020, we find robust empirical evidence that banks can reduce their systemic risk exposure when the countries in which they are incorporated improve their NIIPs and maintain creditor status vis-à-vis the rest of the world. However, only the equity component of the NIIP is responsible for this outcome, whereas debt flows are not significant. Similarly, we find that the mitigating effect of an external balance sheet on systemic risk is derived from valuation gains rather than from the incremental net acquisition of assets or liabilities represented by the current account. Our findings are particularly relevant for policymakers seeking to improve banks’ resilience to adverse shocks and maintain financial stability.

The Shock Absorbing Role of Cross-border Investments: Net Positions Versus Currency Composition

We present a comprehensive analysis of the shock absorption role of external positions using the currency exposures dataset by Bénétrix et al. (2020). While the literature has frequently studied how the net international investment position and its currency composition determine the direction and scale of valuation effects, we focus on their amplitude. This is of central importance for global financial stability given the large and increasing scale of external balance sheets. To that end, we propose an indicator showing the extent to which external positions absorb or amplify exchange rate shocks. Analysing a set of 50 countries over the period 1990-2017, we find the external shock absorption role to be present for advanced economies, while this was initially not the case for emerging markets economies (EMEs). In recent years, however, EMEs’ external positions increasingly showed a shock absorption capacity. Our regression-based analysis reveals that the level of economic and financial development is associated with a greater capacity to absorb exchange rate shocks.

Аналіз стану організації довгострокових портфельних іноземних інвестицій у Республіці Польща: уроки для України

The article describes the process of creation of the European international capital market, new financial instruments and formation of an investment portfolio from them in order to achieve the main goal of the investor – diversification, caused by investor’s desire not to participate in the operational management of the enterprise, however reducing the risk and maximizing the return on investment of his capital. The article then reviews the recent CEE Capital Markets conference, which was held in Poland, and concludes that by many criteria the Polish capital market is the largest in the region. In addition, the article emphasizes that foreign investment inflows to Poland reached a record level in 2021-2022. Therefore, based on all this data, the article analyses in detail the attraction of foreign investment into the economy of the Republic of Poland, taking into account three main prerequisites, namely: the establishment of uniform and unchanging rules of the game by creating an institutional framework for investment and ensuring the development of capital market infrastructure; ensuring the management of the Polish capital market with the help of two main players (the Central Securities Depository of Poland and Polish Financial Supervision Authority), shaping the professional activities of market participants and providing the supervision. The subsequent analysis of the state of Poland investment activity, presented in the National Banks Report “Poland International Investment Position for 2021”, showed that all this has played a significant role in attracting long-term portfolio investments, the biggest share of which is treasury debt, to the neighbouring countrys economy in recent years. Drawing a parallel with the current situation on the Ukrainian securities market, the article goes on to note that its regulatory framework generally meets the contemporary requirements. The other two prerequisites for creating acceptable conditions for a foreign portfolio investor are only under establishment. Right now, there is an urgent need to start building the infrastructure of Ukrainian securities market with the help of a neighbouring country.

METHODICAL TOOLKIT FOR DIAGNOSTIC RESOURCE PROVISION OF ECONOMIC SELF-SUFFICIENCE OF THE REGION

Topicality. Today, one of the most important unresolved issues of the post-war recovery of Ukraine's economy is the strategic management of the economic development of socio-ecological-economic systems based on the effective use of resources to ensure their economic self-sufficiency, as well as the issue of realizing the potential of the entrepreneurial sector in a spatial and sectoral dimension, in the context of the fulfillment by entrepreneurs of their institutional roles – drivers of economic growth, use and reproduction of capital in social production, improvement of welfare and employment of the population.Aim and tasks. The purpose of this scientific article is to develop a methodological toolkit for diagnosing the resource provision of economic self-sufficiency of the region as a dominant factor in the post-war recovery and modernization of entrepreneurship in Ukraine and to assess the effectiveness of its application.This goal made it possible to form the following tasks: to provide a categorical apparatus on which the toolkit for resource provision of the region's economic self-sufficiency is based; determine the principles that must be followed when forming a database for calculating integral indicators of resource provision; develop an algorithm for calculating the above-mentioned index; to reveal the economic burden of group and generalizing integral indices according to the proposed method; carry out a diagnosis of the resource provision of economic self-sufficiency of the regions of Ukraine and provide an illustrative example of the use of the obtained results for making management decisions on the example of the Odesa region.Materials and Methods. This study was carried out because of the use of methods of logical, monographic and content analysis, analysis of hierarchies, standardization (norming), integral and rating evaluation. The source of information is the data of such statistical collections of Ukraine as: "Regions of Ukraine", "Environment of Ukraine", "Statistical Yearbook of Ukraine", "Labor of Ukraine", "Activity of Entrepreneurs", Statistics of the external sector of Ukraine according to the methodology of the 6th publication of the "Management on the Balance of Payments and International Investment Position"; Public report of the Head of the State Forest Resources Agency of Ukraine for 2020.Research results. The article contains a methodical toolkit for diagnosing the resource provision of the region's economic self-sufficiency based on the application of integral indices, which are formed according to the principle of compliance with the structural factors of the regional economic system using a systemic and praxeological approach. This made it possible to build a database for determining the indicators of the level of resource provision of the economic self-sufficiency of the region, to develop a method of integral assessment of this level, the use of which makes it possible to determine the potential and real opportunities of the region in the context of resource provision of its economic self-sufficiency as dominant factors of the post-war revival and modernization of entrepreneurship, and to carry out a diagnosis of the resource ensuring economic self-sufficiency in the regions of Ukraine.Conclusion. The results of the diagnosis of the resource provision of economic self-sufficiency of the regions of Ukraine, obtained on the basis of the application of the methodological tools proposed in the article, can be used for practical use by local self-government bodies, subjects of the formation of territorial communities, bodies of the State Statistics Service of Ukraine, State regional administrations, the Ministry of Development of Communities and Territories of Ukraine, the Ukrainian Union of Industrialists and Entrepreneurs in the process of assessing the resource provision of economic self-sufficiency of the territories with the aim of further developing measures to substantiate the development of entrepreneurship as an institutional driver of the country's post-war recovery.This scientific article was prepared within the framework of the National Development Program 3.1.8.82/B "Institutional modernization of the business sector in the context of local self-government reform" (№ 0122U002365).

The Price (and Costs) of Macroeconomic Stability in Peru: Some Lessons on the Implications of FDI‐driven Growth

ABSTRACTIn the period 2000–2019, Peru enjoyed sustained GDP growth and a long period of macroeconomic stability; as a result, poverty was reduced markedly in comparison to the 1980s and early 1990s, when the country faced severe recessions and hyperinflation. This positive economic performance coincided with the implementation of a mainstream macroeconomic framework which, alongside favourable external conditions, allowed for continuous external financing of current account deficits, mainly through foreign direct investment (FDI). Against the background of current debates regarding the resurgence of debt crises and the advocacy of FDI as a way to avoid such crises, this article uses balance of payments and international investment position statistics to assess whether Peru's acquired macroeconomic stability can be deemed sustainable. Drawing on the contributions of the Latin American structuralist school and more recent analyses that have raised concerns, the article shows that Peru's external position has taken on a Ponzi profile, casting doubt on the idea that FDI is a superior way of external financing compared to external debt. It concludes with a discussion of the social and environmental implications of Peru's widely praised macroeconomic framework, highlighting the limits that peripheral economies face when their growth relies excessively on external financing.

La Balanza de Pagos y la Posición de Inversión Internacional de España en 2022

Rationale The balance of payments and international investment position (IIP) are important because of the information they provide on economic relations with the rest of the world, which affect the national economy. Their analysis is of even greater interest in the light of recent events, such as the war in Ukraine and its impact on energy prices. Takeaways •In 2022 the Spanish economy’s net lending fell, owing largely to the deterioration in the energy trade balance. The services balance performed favourably, particularly in the case of travel services, which returned to pre-pandemic levels. •The negative net IIP continued to correct in 2022, standing at 60.5% of GDP, the lowest level in 18 years, thanks to GDP growth, the positive amount of financial transactions with the rest of the world and positive valuation effects. •Spain’s outward foreign direct investment and inward foreign investment in Spain recovered their pre-pandemic levels, with a notably strong performance by the non-financial corporations sector.

Presentation of Financial Assets in the Statistics of Foreign Economic Relations

The purpose of the study. To characterize the level and dynamics of the country’s economic development, its sovereignty and, accordingly, the adoption of effective management decisions, quantitative information is needed on economic assets, in particular financial ones, their presentation in national accounts, monetary statistics and indexes of the external sector.The aim of the paper is to systematize theoretical and practical developments on the definition and presentation of data on financial assets in modern statistics of Russia’s foreign economic relations, to identify areas for improving methods for assessing and analysis of financial assets, a system of indexes characterizing their presence, structure and dynamics.Materials and methods. In the paper, the authors considered the definitions, specifics, classifications and categories of financial assets and liabilities, applied structural and dynamic data analysis, as well as methods of theoretical research in the form of generalization, comparison and special analytical procedures based on official statistics from Rosstat, the Bank of Russia, the Ministry of Finance and international statistical organizations.Results. The paper identifies the main directions for the statisticalstudy of financial assets, based on current international standards, taking into account national practice. Topical issues of theory and practice of observations and presentation of data on financial assets in foreign economic statistics, application of definitions and classifications of international standards to Russian official statistical activities are considered. The features of the data presentation on financial assets in macrostatistics, in the system of indexes of statistics of foreign economic relations, are formulated. The authors conducted a study of the structure and dynamics of indexes of Russia’s foreign economic statistics that characterize the state and movement of financial assets and liabilities representing them.Conclusion. Statistical analysis of foreign economic transactions with financial assets allow us to identify not only the main trends in the development of these processes, but also makes it possible to analyze the relationship between the subsectors of the Financial corporations’ sector, between this sector and other sectors, as well as a comprehensive change in the volume and composition of stocks and flows of financial assets as a result of the exchange between residents and non-residents.The authors comprehensively reviewed the methodological framework for constructing the financial account of the Balance of payments, International investment position, including in the context of financial instruments. The Balance of payments and International investment position, through their system of statistical indexes, reflect international economic relations and represent an important tool for the study of financial assets. The groupings of items of the financial account of the Balance of payments are based not only on the categories of financial instruments, but also on the functional categories of investments and classifications of institutional sectors, which serve the purposes of a comprehensive reflection of financial assets in foreign economic relations. Thus, it is obvious that the main task of such a presentation is to reflect financial assets in terms of the type of instruments, as well as to analyze the role of a particular sector in the implementation of relevant transactions.In the International investment position, financial assets are also fully reflected in that part of them that is involved in economic transactions between residents and non-residents. Groups of financial assets and liabilities are given in a classification similar to that used in the Balance of payments: by functional purpose, by financial instruments, by institutional sectors, by maturity. Together with the financial account, account figures for other changes in financial assets and liabilities explain the total amount of changes: increases or decreases in the value of financial assets / liabilities, their occurrence or disposal, resulting from transactions, revaluation and other changes in volume.The issues of theory and practice of presenting indexes of financial assets in the considered sections of macrostatistics and their analysis are a relevant and promising direction for improving national statistical accounting, incl. due to the spread of remote work, the collection of information via the Internet, the emergence of a large number of new financial instruments and operations.The authors of the article have repeatedly referred to the problems of macroeconomic financial statistics in their studies, which gave them the opportunity to comprehensively consider the topical issues of representing financial assets in the statistics of foreign economic relations.

Foreign Direct Investment (FDI), Trade, Corporate Governance, Economic Growth in Albania and Some OECD Countries

Foreign Direct Investment statistics are compiled in compliance with the international standards, IMF and Eurostat requirements for the compilation of the Balance of Payments and International Investment Position. Foreign Direct statistics specify direct investment abroad by resident investors and investments in the domestic economy by non-residents. The balance of payments statistics present transactions related to direct investment for a certain period of time. Meanwhile, the International Investment Position shows the direct investment situation at the end of a reference period. Theoretical studies strongly support the positive effects of Foreign Direct Investment (FDI) in the Gross Domestic Product (GDP) of the host country through technology transfer, human capital formation, etc. Trade and Foreign Direct Investment has been treated as crucial factors underlying the relative growth rates experienced by the Albanian Economy, especially during the late years, thus, boosting economic growth in the country and improving the degree of integration of Albanian economy into the World markets. The paper outlines policy implications with respect to promoting relevant institutional policies for the enhancement of trade and FDI activities, which potentially could enhance economic growth . Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community. Keywords: Albania, OECD countries, FDI, Trade, Growth, etc. DOI: 10.7176/RJFA/14-10-02 Publication date: May 31 st 2023

The Effectiveness of CAPM and Fama-French Three-Factor Models in Healthcare and Real Estate Industries

As the world’s largest economy and an important hub for cross-border capital flows, monetary policy adjustments in the U.S. will affect the cross-border capital flows and the structure of net international investment positions. From the 1990s to the present, the U.S. has experienced four rounds of interest rate hike cycles as domestic inflationary pressures fluctuate. In this paper, we analyze the changes of KML, SMB, HML and other factors of the stocks of leading companies in the medical and real estate industries based on regression analysis. Specifically, to investigate the applicability of the CAPM model and FF3 model in the medical and real estate industries in the context of the Fed's interest rate hikes, we construct regression models and fit the corresponding coefficients in the CAPM model and FF3 model, respectively. According to the analysis, the FF3 model has a better performance in most cases and can better explain the impact of the Fed's interest rate hike on the healthcare and real estate sectors compared to the CAPM model. On this basis, it can still be used as an effective tool for asset valuation and resource allocation after the Fed's interest rate hike. These results shed light on guiding further exploration on asset pricing.

The EU's Socio-economic Development Against the Backdrop of the War in Ukraine

Abstract The war in Ukraine affects the European Union (EU) member states asymmetrically. The purpose of the study is to determine changes in the development of the EU countries in three key directions: ‘economy and environment’, ‘business and trade’, and ‘people and work’; to identify clusters of countries with similar transformations; and to model the impact of the studied indicators on the level of public debt amid the war in Ukraine. The research methodology includes the definition of a complex indicator of changes in the socio-economic development of EU countries, correlation and cluster analysis, and modelling the influence of the studied factors/indicators on the level of public debt. Research of changes in the context of the proposed complex indicators and their components under conditions of war showed that the changes in the areas under review varied for EU countries. Against the backdrop of the war in Ukraine, 17 EU countries faced a slowdown in their socio-economic growth, among which Poland was the most severely affected. Modelling made it possible to determine that, amid the war, the most important factors for the EU public debt are inflation, labour market conditions, and the possibilities of the balance of payments and the international investment position incorporated into GDP. The conducted research proves that the war in Ukraine increases the scale and relevance of general challenges that cannot be addressed at the national level. Strengthening the European defence against external aggression is the entire task of the EU.

Порівняльний аналіз зовнішньоекономічних позицій Аргентини та Бразилії

The article examines the peculiarities of the transformation of the foreign economic positions of the countries of South America on the example of Argentina and Brazil. The analysis showed that during the entire considered period of 2016-2021, Argentina's net international investment position is positive, while Brazil's is negative. In order to investigate whether Brazil has a double deficit problem, a vector autoregression was constructed. The simulation results showed that the hypothesis of a relationship between the budget deficit and Brazil's current account from 1996 to 2021 is not confirmed. Therefore, there is no double deficit problem in Brazil, budget and current account deficits are not causes of each other's deficit.

FX swaps and forwards in global dollar debt: “Known knowns” and “known unknowns”

Several types of FX derivatives involve the exchange of principal, making them a form of collateralised loan. But unlike other forms of collateralised borrowing, the payment obligations associated with such derivatives are not reported on the balance sheet: they are in a very real sense “missing debt”. This introduces gaps in the compilation of countries’ and sectors’ foreign currency positions, in particular their short-term US dollar obligations and receipts. When economic shocks occur, policies designed to restore the flow of dollar liquidity outside the United States (eg central bank swap lines) are blind to the scale of dollar liquidity needs in particular locations. This paper presents evidence that the missing dollar debt of banks and non-banks outside the United States is large, roughly double the dollar debt recorded on their balance sheets. It then reviews how well benchmark statistical collections – BIS international banking statistics (IBS), BIS OTC Derivatives (OTCD) statistics, International Investment Position (IIP) statistics, and the Coordinated Portfolio Investment Survey (CPIS)) – capture foreign currency positions, both on- and off-balance sheet, and where modifications to these statistics could help to close data gaps.

Analysis of Economic Activity of Foreign Direct Investors in Latvia

The aim of this article is to investigate the activity of foreign direct investors in Latvia and find out the main source of financing for foreign investors - new investments or reinvested earnings. To achieve the set goal, the methodology of the Sixth Edition of the International Monetary Fund's Balance of Payments and International Investment Position Manual was used to define the types of foreign direct investment (FDI). This methodology was adapted to Latvian data. At the request of the author, Lursoft IT Ltd selected business data on all registered companies with foreign capital in Latvia since 2005 and aggregate data were used in the analysis. Foreign direct investment in Latvia flows mainly in the form of reinvested earnings, due to the profit earned from operating activities in Latvia. While new investments or greenfield investments in equity is lower compared to the amount of reinvested earnings.

Why does currency denomination in external liabilities of small island developing states matter? Evidence from Fiji

AbstractThe valuation effects on international investment position induced by the exchange rate volatility are not uniform or easily manageable in small and vulnerable economies when compared with larger developing or developed countries. To investigate the underlying dynamics, we developed a foreign currency exposure index over the period 2006–2019. The positive reading of the index suggests that though Fiji has a high net negative international investment position (90% of its GDP), it does not pose any serious risk. To ascertain determinants of Fijiʼs exposure index, we applied fully modified ordinary least square and autoregressive distributed lag bounds test. We have compared both estimates for consistency. Our findings suggest that the underlying determinants of Fijiʼs currency exposure are foreign debt, trade openness and exchange rate. This article bridges the gap in the literature on currency exposure risks in small island developing states and is the first study of its kind for the Pacific region.