Financial remoteness and the net external position

This paper shows that financially remote countries exhibit more positive net external positions, hence hinting at external funding problems for more remote countries. This finding is found to be stronger for emerging and developing countries. However, 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. We also find evidence that remoteness affects primarily the gross liability side of the external balance sheet and has a stronger impact on the net equity position than on the net debt position. Consequently, the paper demonstrates the important role of geographic and bilateral factors for a country’s net external wealth. Copyright Kiel Institute 2014