In another question I asked someone pointed me to an answer where NIIP (Net International Investment Position) was mentioned as a measure of economical development, which I already heard about it and it makes sense since it takes into account not only the actives but the pasives of a country

But then you see this list, and you find out that first world countries like United States, Australia, Sweeden or Spain are in big red. What does this mean? Does it mean that NIIP is a poor index to measure economical development or wealth? Or does it mean those countries are in a serious bad situation which could lead them to be in a crisis in the future?


1 Answer 1


For common definitions of the word development the NIIP would be a very bad measure. The NIIP is a measure of net foreign debt. I don't see any clear first order link between foreign debt or assets and economic development.

A popular measure of development is the HDI, which is constructed from data on live expectancy, adult literacy rates and GDP.

  • $\begingroup$ But suppose you have a country with educated people, who has a good heath care system and live a lot of years, and with a good GDP, yet it owes the equivalent of 2 houses per inhabitant. isnt its economy doomed to collapse someday? can a situation like that be described as the country is developing economically? We have had periods here of 12 or so years with high GDP, low poverty, good education, good health care etc , yet the economy collapsed because it wasnt really working, either due to debts or other reasons like it was sustained by selling assets to keep a high level of life $\endgroup$
    – Pablo
    Commented Aug 3, 2017 at 14:52
  • $\begingroup$ Suppose you take a loan from a dude in Canada. Using this loan, you build a business that pays a regular income. You will have contributed to more external debt, but there is a corresponding useful domestic asset. In principle, there is no problem whatsoever with this situation. Whenever you want, you can sell your business and repay the loan. $\endgroup$
    – Tobias
    Commented Aug 3, 2017 at 15:01
  • $\begingroup$ It depends if you manage to turn those loans in something profitable or not, and the assets will devaluate with time. Several countries couldnt, they invested money in things that later they found they didnt return a regular income , and later they went into crisis . $\endgroup$
    – Pablo
    Commented Aug 4, 2017 at 14:04

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