The U.S. International Investment Position

A country's international investment position is related to the capital account in its balance of payments. The capital account in a balance of payments statement shows the flow of capital to or from a country during the year. A country's international investment position reflects these capital flows and all previous capital flows. This allows one to compare the size of the country's foreign assets with the size of its foreign liabilities. If the assets exceed the liabilities, the country is a net creditor (positive balance). If the liabilities exceed the assets, the country is a net debtor (negative balance).

The U.S. net international investment position over the period 1976-2006. The dramatic decline in the U.S. position since 1980 reflects the U.S. current account deficits. Since the current account deficits reflect greater spending than U.S. income, another way to view the decline in the U.S. international investment position is that foreigners have been financing (loaning) the excess spending through a capital inflow into the U.S. This makes the U.S. the world's largest debtor nation.

1. Compare and contrast economic development strategies based on import substitutions versus export promotion.

2. Table provides U.S. International Transactions for 2006. The accounts are in balance in total even though there is a substantial deficit in the current account. What does a deficit in the current account represent? What accounts offset the deficit in the current account to bring the accounts into balance in total? What do these accounts represent? How does your explanation help?