Applied Economics Lunch Seminar

Du 19/03/2024 de 12:30 à 13:30

Salle R2.21

NIEVAS Gastón (PSE)

Has the US exorbitant privilege become a rich world privilege? Rates of return and foreign assets from a global perspective, 1970-2022

How have rates of return on foreign assets and liabilities impacted different groups of countries across the recent financial globalization? We address this question by combining data from a wide variety of sources, encompassing the entire world (216 economies) for the period 1970-2022. We find that returns on foreign assets have decreased for everyone. On the contrary, returns on foreign liabilities have only decreased for the top 20% richest countries. This differential between returns on assets and returns on liabilities has extended the exorbitant privilege of the US to become a rich world privilege. The richest countries have become the bankers of the world, attracting excess savings by providing low-yield safe assets and investing these inflows in more profitable ventures. Such a privilege is translated in net income transfers from the poorest to the richest equivalent to 1% of the GDP of top 20% countries (and 2% of GDP for top 10% countries), alleviating the current account balance of the latter while deteriorating that of the bottom 80% by about 2-3% of their GDP. Moreover, rich countries also experience positive capital gains during the period, which further improves their international investment position (IIP) and presents evidence that their foreign investments are not as risky as previously thought to be. Thus, results are explained by richer countries, issuers of international reserve currencies, accessing cheaper financing, both for the public and private sector. Our study has implications for the international monetary and financial system and the unequal paths to development.