As international financial integration has progressed, the developed economies have tended to be net importers of capital. This phenomenon, which accelerated in the first half of the 2000s, may be partially explained by the relatively higher level of financial development in the advanced economies. Understood as the capacity of an institutional framework to reduce the informational frictions and transaction costs weighing on contract formation, financial development could also help to explain the composition of the external asset portfolios of different countries. However, the difficulty of measuring “financial development” makes these theoretical suppositions difficult to verify empirically. […]