Bilateral International Investments: the Big Sur?

Also published in the Journal of International Economics

BIS Working Papers  |  No 911  | 
17 December 2020



Over the past decades, the South ("Sur") has become ever more important compared with the North – countries including 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. The role of the South in global finance, however, remains less explored.


This paper studies international investments from and to the South, and compares them 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. We collected bilateral data, which reveal the sources and destinations of international investment. This sheds new light on how groups of countries integrate with one another.


The paper documents the rise of the South in global finance. International investments between the North and South expanded faster than within the North. Financial integration within the South 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 spread of new links between countries. Our findings hold across many country pairs – ie they are not due to only a few large countries in the South. They also continue to hold when we incorporate offshore financial centers into the analysis.


This paper presents novel stylized facts about the rise of the South in global finance using country-to-country data. To do so, the paper assembles comprehensive bilateral data on cross-border bank loans and deposits, portfolio investment, foreign direct investment, and international reserves from 2001 to 2018. The main findings are that investments involving the South, and especially within the South, have grown faster than those within the North. By 2018, South-to-South investments accounted for 8% of total international investments, while investments between the South and the North accounted for an additional 26%. The fastest growth occurred in portfolio investment and international reserves, whereas the slowest growth was in banking. These trends are not driven by China, any particular South region, or offshore financial centers. South-to-South investments grew the fastest even after controlling for regional GDP growth. The extensive margin played a significant role in the growth of investments within the South.

JEL Codes: F21, F36, G15

Keywords: international capital flows; emerging economies; international financial integration; foreign direct investment; portfolio investment