Chapter 17: Macroeconomics and Trade Finance
17.6 International Investment Position
All this background is necessary to describe a country’s international investment position (IIP), which measures the total value of foreign assets held by domestic residents minus the total value of domestic assets held by foreigners. It roughly corresponds to the sum of a country’s trade deficits and surpluses over its entire history. Exporters and importers are always interested in knowing the IIP of their trading partners as it gives them some insights into the nation’s long-term policies and its impacts on their trade relations.
If the value of a country’s trade deficits over time exceeds the value of its trade surpluses, then its IIP will reflect a larger value of foreign ownership of domestic assets than domestic ownership of foreign assets and we would say the country is a net debtor. In contrast, if a country has greater trade surpluses than deficits over time, it will be a net creditor.
Let’s Explore: Canada’s International Investment Position
According to a report published by Bank of Canada in 2017, in recent decades, IIPs have grown faster than GDP in Canada and in other countries around the world (Bruneau, Leboeuf & Nolin, 2017). The relatively fast growth could be attributed to increased trade and financial liberalization as well the decreased cost of international investment. The growth in Canada’s IIP reflects the strength of the Canadian economic and financial systems which lead to an increase in financial flows by firms and households into and from Canada.
Learn more by reading Canada’s International Investment Position: Benefits and Potential Vulnerabilities.
References
Bruneau, G., Leboeuf, M. & Nolin, G. (2017). Canada’s international investment position: Benefits and potential vulnerabilities [PDF]. Financial System Review. Bank of Canada. https://www.bankofcanada.ca/wp-content/uploads/2017/06/fsr-june17-bruneau.pdf
the total value of foreign assets held by domestic residents minus the total value of domestic assets held by foreigners
