A Concept of Sustainability of Negative Net International Investment Position and Its Application to the Case of the Czech Republic in 1999-2011

The paper deals with a theoretical and empirical analysis of determinants of both net international investment position/GDP ratio and net costs of negative investment position using the case of the Czech Republic in 1999-2011. It defines country's short-run and long-run sustainability conditions that are based on dynamics of both sources created by an economy through net export surplus and negative net yields paid from international investment position. The paper points out important differences between large advanced and small transitive economies in case of costs of net investment position. The factors like country's position of FDI lender/debtor, world investment/ invoicing currency, exogeneity of foreign asset's and liability's interest yields, role of FX reserves accumulation by country's central bank and position of foreign currency denominated loans on foreign liabilities are discussed. Empirical analysis confi rms the Czech economy is not able to satisfy long run sustainability condition due to high net costs of negative investments position. Estimation of parameters in econometric model shows that worsening net investment position to GDP is a result of high dividend and interest yields paid from foreign liabilities that is still above positive balance of net export.

Keywords: current account, sustainability, net investment position