Determinants Of International Investment Position

Gross and net international investment position, measuring country's relative position in international economic, significantly impact trade balance and exchange rate policy of a country, so deeper understanding of its composition is very important. In this paper, international investment positions for a selection of European transition countries have been analysed showing that foreign direct investments predominantly define countries' net position and international finance and that its key determinants are the level of development, domestic capital market and lift of restrictions on capital account. In other words, privatisation of former state-owned companies attracts foreign investors whose rising interest results in increase of countries' attractiveness in international markets.The structure of the paper is the following: the first part brings short introduction to concepts and linkages between balance of payments and international investment position which is followed by the description of national compilation practises for a selection of countries that have recently joined (EU: Czech Republic, Hungary, Poland, Slovak Republic and Slovenia) or are on the way to joining the European Union (nonEU: Bulgaria, Croatia, Romania). In the next section, estimation of quarterly data is followed by the exploration of determinants of the international financial integration, measured by the level and composition of external assets and liabilities. The text concludes with the section that offers concluding remarks and raises additional questions.