External balance sheets: methodology

The source

The External Wealth of Nations database (Lane and Milesi-Ferretti): 212 economies, 1970 to 2024, holding each country's foreign assets and liabilities broken down by instrument. 195 of those economies have at least 15 years with a net position and a complete instrument split, and those are the ones with a page.

Equity-like and debt-like

External liabilities are split into two economically different kinds. Equity-like liabilities are inward direct investment and portfolio equity: the foreign investor owns a claim whose value falls when the country does badly, so losses are shared. Debt-like liabilities are portfolio debt and other investment (mostly cross-border bank lending): fixed claims that do not fall when the country does badly, and that get larger in local-currency terms when the currency drops, which is exactly when they are hardest to service.

equity share = (FDI + portfolio equity) / total external liabilities

A country is only given a composition share in a year where all four instruments are reported. A share computed with a missing leg is not a share.

Crisis episodes are deduplicated, and that matters

The FinObservatory crisis atlas holds one row per source, across five chronologies. A raw row count therefore inflates a country's crisis history by up to five times: 6,518 rows in the atlas are 4,798 actual episodes. Every crisis figure on these pages counts DISTINCT (country, year, type). Getting this wrong would not have changed the shape of the composition table, but it would have made every rate printed in it a fiction.

The result we did not want

The argument that motivates this module predicts that debt-financed countries are more crisis-prone than equity-financed ones. Sorting countries into terciles by their average equity share and counting distinct episodes per 100 country-years, that ordering does not appear:

Group	Countries	Country-years	Crises per 100 country-years
Most debt-financed	71	2,181	34.62
Middle	70	2,237	42.87
Most equity-financed	70	2,157	32.31

The middle group has the most crises. The page reports that rather than quoting the two end groups, which do line up with the story, and calling it a finding. The index page asserts this non-monotonicity in code: if a future data vintage ever makes the relationship monotonic, the build fails rather than shipping a page whose prose contradicts its own table.

What is not here

The currency of the liabilities. Whether a country owes the world in a currency it can print is arguably the single most important fact about its external position. All 25 EWN variables were checked: there is no currency breakdown. The original-sin story cannot be told from this file, so it is not told here.
A reported-versus-estimated flag. EWN is a reconstruction. Where a country never reported a position, the authors estimate it, and the released file carries no flag distinguishing the two. These pages therefore cannot mark estimated cells, and do not pretend to.
Causation. Countries that finance themselves with equity are overwhelmingly richer, with deeper markets and more credible central banks. Any of that could produce the gap between the outer groups with external composition doing no work at all.

The other net-position series on this site