Cross-Border Returns Differentials

Stephanie E. Curcuru, Tomas Dvorak, Francis E. Warnock

NBER Working Paper No. 13768
Issued in February 2008
NBER Program(s):International Finance and Macroeconomics, Asset Pricing

Were the U.S. to persistently earn substantially more on its foreign investments ("U.S. claims") than foreigners earn on their U.S. investments ("U.S. liabilities"), the likelihood that the current environment of sizeable global imbalances will evolve in a benign manner increases. However, using a monthly dataset on the foreign equity and bond portfolios of U.S. investors and the U.S. equity and bond portfolios of foreign investors, we find that the returns differential for portfolio securities is near zero, far smaller than previously reported. Examining all U.S. claims and liabilities (portfolio securities as well as direct investment and banking), we find that previous estimates of large differentials are biased upward. The bias owes to computing implied returns from an internally inconsistent dataset of revised data; original data produce a much smaller differential. We also attempt to reconcile our finding of a near zero returns differential with observed patterns of cumulated current account deficits, the net international investment position, and the net income balance. Overall, we find no evidence that the U.S. can count on earning substantially more on its claims than it pays on its liabilities.

download in pdf format
   (164 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13768

Published: Curcuru, S., T. Dvorak, and F. Warnock, 2008. "Cross-Border Returns Differentials." Quarterly Journal of Economics 123(4): 1495–1530 citation courtesy of

Users who downloaded this paper also downloaded* these:
Curcuru, Dvorak, and Warnock w15077 Decomposing the U.S. External Returns Differential
Forbes w13908 Why do Foreigners Invest in the United States?
Gourinchas and Rey w11155 International Financial Adjustment
Gourinchas and Rey w11563 From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege
Curcuru, Thomas, and Warnock w14295 Current Account Sustainability and Relative Reliability
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us