Research Discussion Papers, Bank of Finland
No 18/1999:
Changes in Finland's International Investment Position, 1985-1998. A Brief Statistical Analysis
Jorma Hilpinen ()
and Heikki Hella ()
Abstract: This paper attempts to describe and compare developments
in the components of Finland’s net international investment position
(NIIP). The data consist of sectoral flows and valuation items over the
period 1985 – 1998, which is, for analytical purposes, broken down into two
subperiods: before and after the Finnish markka was floated. The study
focuses on the main sectors, ie banks, corporations and the central
government. Valuation items (changes in exchange rates and equity prices)
are also important in the decomposition of the NIIP, particularly as
regards recent history of equity prices. The mean and variability of each
item is estimated, and for some items also bivariate robust variance tests
are carried out.
The major feature in Finland’s balance of payments has
been nonresidents’ increased interest in Finnish equities as an object of
investment. This phenomenon, along with the boom in share prices, has in
recent years raised the equity holdings of foreigners to the rank of most
significant item in Finland’s international investment position. Another
important feature in the BOP is the rapid growth of the central
government’s foreign debt due to the deep recession of 1991 - 1994. In
respect to Finland, it is important to note the different stories told by
developments in NIIP vs net external debt components: NIIP figures indicate
that ownership of corporations based in Finland has indeed become global
and that the value of shares has been increasing, whereas net external debt
figures indicate that the economy has succeeded in restoring external
indebtedness to pre-recession levels.
The results also confirm that the
Finnish banks still contribute prominently to variations in Finnish BOP
flows. As regards the late 1980s and early 1990s, this can be inferred from
the highly bank-oriented structure of Finnish financial markets, but the
same holds true during the 1990s as well in the period of recovery from
economic crisis.
Keywords: balance of payments; international investment position; net external debt; (follow links to similar papers)
24 pages, December 1, 1999
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