Published on Let's Talk Development

Bilateral International Investments: The Rising South?

Un port d'exportation situé en Cambodge. Photo : Chhor Sokunthea/ World Bank Un port d'exportation situé en Cambodge. Photo : Chhor Sokunthea/ World Bank

Over the past decades, the economic weight  of countries in the South or Sur (countries outside the G7 and Western Europe) have risen sharply, compared with those in the North (Canada, Japan, the United States, and those in Western Europe). It is well known that the South accounts for a growing share of global economic activity and international trade, but the role of the South in global finance remains less explored.

To understand the role of the South in international investments, we assembled unique data that allow us to compare investments from and to the South with those from and to the North. We combine various types of investments, covering bank loans and deposits, portfolio investment, foreign direct investment, and international reserves. Most prior work looks at how countries invest in the rest of the world. Our bilateral data reveal the sources and destinations of international investment, shedding new light on how groups of countries integrate with one another. 

The results point to the rise of the South in global finance, documented in a new paper. We found that international investments between the North and South expanded faster than within the North. Financial integration within the South itself has grown even faster. By 2018, the South accounted for 24 to 40% of international loans and deposits, portfolio investment, and foreign direct investment. This is about 10 percentage points more than in 2001.

These trends not only appear in the value of investment, but also in the establishment of new links between countries (Map 1). That is, more countries in the South are connected with one another and with other countries in the North. Our findings hold across many country pairs. They are not due to only a few large countries in the South, such as China. They also continue to hold when we incorporate offshore financial centers into the analysis.

It is worth noting that the newly established links, though numerous, have played a limited role in the growth of the South so far, since they only account for a small share of the value of investments. However, if new links were to expand as much going forward as old links expanded over the past two decades, the South would continue to grow in importance and might eventually rival the North in global financial transactions. 

Map 1 South-South Links


Fernando Broner

CREI, Senior Researcher; Barcelona Graduate School of Economics, Research Professor, Universitat Pompeu Fabra

Sergio Schmukler

Research Manager, Development Research Group, World Bank

Goetz von Peter

Deputy Head of International Banking and Financial Statistics

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