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Theory predicts that a nation's stochastic intertemporal budget constraint is satisfied if net exports (NX) and net foreign assets (NFA) satisfy an error-correction specification with a residual integrated of any finite order. We test this hypothesis using data for 21 industrial and 29 emerging economies for the 1970-2004 period to search for existence of negative relationship between NX and NFA. The results show that, despite the large global imbalances of recent years, NX and NFA positions are consistent with external solvency. Pooled Mean Group error-correction estimation yields evidence of a statistically significant, negative response of the NX-GDP ratio to the NFA-GDP ratio that is largely homogeneous across countries.

Banks and Banking --- Exports and Imports --- Finance: General --- Bankruptcy --- Liquidation --- International Investment --- Long-term Capital Movements --- General Financial Markets: General (includes Measurement and Data) --- Interest Rates: Determination, Term Structure, and Effects --- Financial Markets and the Macroeconomy --- Finance --- International economics --- Solvency --- Foreign assets --- Emerging and frontier financial markets --- Real interest rates --- Financial sector development --- Debt --- Financial services industry --- Investments, Foreign --- Interest rates --- United States --- Finance, Public. --- Budget deficits. --- Capital movements. --- International trade.