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Summary
Focus
Over the past decades, the South ("Sur") has become ever more important compared with the North – countries including Canada, Japan, the United States and those in Western Europe. It is well known that the South accounts for a growing share of global economic activity and international trade. The role of the South in global finance, however, remains less explored.
Contribution
This paper studies international investments from and to the South, and compares them with those from and to the North. We combine various types of investments, covering bank loans and deposits, portfolio investment, foreign direct investment and international reserves. Most prior work looks at how countries invest in the rest of the world. We collected bilateral data, which reveal the sources and destinations of international investment. This sheds new light on how groups of countries integrate with one another.
Findings
The paper documents the rise of the South in global finance. International investments between the North and South expanded faster than within the North. Financial integration within the South has grown even faster. By 2018, the South accounted for 24 to 40% of international loans and deposits, portfolio investment and foreign direct investment. This is about 10 percentage points more than in 2001. These trends not only appear in the value of investment, but also in the spread of new links between countries. Our findings hold across many country pairs – ie they are not due to only a few large countries in the South. They also continue to hold when we incorporate offshore financial centers into the analysis.
Abstract
Using country-to-country data, this paper documents a set of novel stylized facts about the rise of the South in global finance. The paper assembles comprehensive bilateral data on cross-border bank loans and deposits, portfolio investment in debt and equity, foreign direct investment, and international reserves. The main finding is that global financial integration with and especially within the South (countries outside the G7 and Western Europe) has grown faster than within the North. By 2018, the South accounted for 24 to 40 percent of international loans and deposits, portfolio investment, and foreign direct investment, an increase of roughly 10 percentage points since 2001. The growing importance of the South is reflected in the intensive and extensive margins, with fast growth in the number of bilateral links. Although China weighs heavily in these trends, international investment in the rest of the South has increased to a similar extent.
JEL Codes: F21, F36, G15
Keywords: international capital flows; emerging economies; international financial integration; foreign direct investment; portfolio investment
