More debt-like external liabilities do not line up with steadily more crises

The obvious story about external debt does not survive the data

Start with the argument that motivates this whole page. Liabilities that are equity-like (inward direct investment, portfolio equity) fall in value when the country does badly: the foreign investor takes the loss with you. Liabilities that are debt-like (portfolio debt, cross-border bank loans) do not. They are fixed claims, and a devaluation makes them larger in local terms at precisely the moment they are hardest to service. So a country financed by debt rather than equity ought to be more crisis-prone.

Sort countries into three groups by the average equity share of their external liabilities and count their crises. The ordering the story predicts does not appear. The middle group has the most crises, of every type, and quoting only the two end groups would be picking the evidence that agrees with us.

Source: External Wealth of Nations (Lane & Milesi-Ferretti), 1970-2024 | FinObservatory crisis atlas (GMD, JST, Laeven-Valencia, Reinhart-Rogoff, ESRB) Each group's distinct crisis episodes from 1970 onward, divided by its country-years with a complete instrument split, times 100. The episode count is not restricted to those years, so read the figures as a comparison across the three groups rather than as a hazard rate. Episodes are DEDUPLICATED across the five chronologies: the atlas holds one row per source, so a raw count would inflate every country's history by up to five times. Terciles are formed on each economy's average equity share of external liabilities over its own history, across the 211 economies with at least 15 years of a complete split; that is wider than the 195 economies with a page here, which also need a net position and GDP in those years. Methodology

And the gap between the outer groups proves nothing on its own. Nothing assigns an economy to a group at random, and the three groups differ in far more than the composition of their liabilities. This table is a description of the historical record. It is not a finding about cause, and it is not a way to rank a country's risk.

What this page cannot tell you

• Not the currency of the debt. The single most important fact about a country's external liabilities is often whether they are owed in a currency it can print. EWN carries no currency breakdown, so the original-sin story cannot be told from this data, and this page does not attempt it.
• Not causation. The composition table describes a historical record. Richer countries are both more equity-financed and better insulated for a dozen other reasons.
• Not all estimates are equal. EWN is a reconstruction: where a country never reported an international investment position, the authors estimate it, and the file carries no flag distinguishing a reported cell from an estimated one. Coverage is thinner the further back you go and the smaller the economy.

Methodology