A Compass for Understanding Global Financial Integration
Gian Maria Milesi-Ferretti
In today’s interconnected economy, it is vital to understand how capital flows across borders. The Brookings Institution recently published an article by Gian Maria Milesi-Ferretti regarding the External Wealth of Nations (EWN) database. This tool, developed with Philip Lane, tracks the financial assets and liabilities of over 200 countries since 1970.
The Role of the Net International Investment Position
The core of this database is the Net International Investment Position (NIIP). Specifically, this metric calculates the difference between what a country owns abroad and what it owes to foreign residents. Unlike domestic wealth reports, the EWN focuses strictly on external financial links.
Consequently, it helps experts determine if a nation acts as a net creditor or a net debtor. Furthermore, these figures are essential for assessing debt sustainability. They also help identify how vulnerable an economy might be to global financial shocks.
Regarding recent history, global financial integration slowed down after the 2008 crisis. This shift occurred because international banking flows decreased significantly. However, Foreign Direct Investment (FDI) has continued to grow.
This growth is partly due to multinational corporations expanding their reach. Additionally, many companies now use offshore financial vehicles for tax and regulatory reasons. As a result, the global financial landscape has become more complex and fragmented.
Global Imbalances and the Database’s Importance
The article also highlights a clear division in the global economy. On one hand, creditor regions include Northern Europe, advanced Asian economies, and China. On the other hand, the United States remains the world’s largest debtor. Canada offers a fascinating example of this dynamic. Although it was a historical debtor, it recently became a net creditor. This change happened because its foreign assets performed better than its domestic liabilities.
In conclusion, the EWN database fills critical statistical gaps. It provides data on tax havens and countries that do not report full information to official agencies. Therefore, it offers a long-term vision that is necessary for policymakers to understand the risks of modern financial globalization.
References
Milesi-Ferretti, G. M. (2026, February 6). The external wealth of nations database. Brookings Institution. https://www.brookings.edu/articles/the-external-wealth-of-nations-database/