Bank and **OECD** for most developing countries starting in **1970,** which report debt at face value (after adjusting for debt forgiveness and reduction as well as changes in exchange rates). In addition, we have also the international investment positions (IPs) of the IMF's Balance of Payments, which cover the majority of industrial countries over a varying number of years since the 1980s as well as a handful of developing economies. The valuation methods underlying the BoP's IIPs vary across countries, as well as over time for a given country?

In view of these facts, we take as primary data sources the IMFs **IFS** and BoP and the World Bank's Global Development Finance, complemented in a few cases **by** country-specific documents, typically from the respective central banks, plus the data on international investment positions constructed **by** Rider (1994) primarily for industrial countries.

From these sources, we construct our foreign asset and liability stocks as follows (see Kraay _et. al._ **1999** for more details). For reserves of all countries, as well as developing-country debt liabilities, we simply take the values reported **by** the IMF and the World Bank, respectively. For all other assets and liabilities, we construct stock series from the flows reported **by** theBoP, using the earliest available stock (if one exists) to tie down the level of the series.o From these initial values, stock series are obtained using the recursive formula:

# _S(t)_ **_=_** _S(t_ **_Q-_ 1Xl-** **_b)+_** _F(t)_ **_-_** _Q(t_ **1)**

where **S** denotes the dollar value of the stock at the end of the period,F is the net flow during the period, **_Q_** is the market price of the asset in current **US** dollars, and 5is a rate of physical depreciation. The key issue concerns the measurement of **_Q._** In the case of FDI, we take **_Q_** to follow the replacement value of physical capital. For inward FDI, this is captured **by** the investment deflator of the host country. For outward FDI, a detailed breakdown of flows **by** destination is not available, and hence we use a weighted average of investment deflators, with

> In a large number of cases, the asset figures reported **by** this source just reflect accumulated dollar flows at historical exchange rates, while in others some adjustments are introduced for exchange rate changes. In a few rare cases, the asset figures are expressed at market value.

> **1o** For most countries, initial FDI stocks are obtained from **OECD (1967),** which reports direct investment assets of each industrial country disaggregated **by** country of destination; this provides also the basic source of initial values for developing-country inward FDI. For portfolio equity assets and liabilities, stock information is generally not

> available, although this is not too serious a problem given that portfolio flows are a relatively recent phenomenon, absent an initial stock, we set the starting value at zero. For industrial country loan assets and liabilities, as wil as for developing country loan assets, we take as initial stocks those reported **by** the BoP, Rider's (1994) data, or national sources whenever available.

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