International financial integration is often measured through national totals. Yet these totals can conceal very different experiences across firms. Using comprehensive French microdata, this column shows that most financially internationalised firms raise foreign equity without investing abroad, while a small group of large firms dominates cross-border positions. Foreign funding is associated with greater equity financing, lower bank debt, and higher investment. This heterogeneity also means that aggregate estimates understate the importance of country factors for the cross-border allocations of the typical firm.
Recent decades have seen substantial international financial integration. France is no exception: its gross international investment position rose from around 300% of GDP in 2000 to 600% in 2023. Yet these figures tell us little about the firms behind them. This is an important gap, as a large literature in macroeconomics and international economics has shown that firm heterogeneity is important for understanding international trade integration (Melitz 2003), aggregate fluctuations (Gabaix 2011), and the international transmission of shocks (Levchenko et al. 2020).
Are firms investing abroad, obtaining foreign financing, or both? Do smaller participants share the same geography of financial integration as the largest firms? These distinctions are important both for understanding the nature and consequences of global financial integration and for policymakers assessing exposure to international shocks.
Answering these questions has been difficult because, unlike international trade data, information on cross-border financial positions spans financial and non-financial agents and many asset types and is collected in a decentralised manner rather than consolidated in a single database.
In new research (Carluccio and Varela 2026), we address these questions by merging 12 administrative datasets used to compile France’s international investment position. The data cover 2014–2018 and identify cross-border investment and funding by agent, instrument, country, and currency. They encompass direct, portfolio, and other investment, together representing 86% of France’s cross-border financial positions.
First, cross-border financial positions are exceptionally concentrated, substantially more than international trade or value added. Less than 1% of firms in France reported such positions in 2014, yet financially internationalised firms accounted for almost 70% of domestic assets. Among these firms, the top 1% of groups held 90% of gross cross-border financial positions (top panel of Figure 1). Concentration is especially pronounced in the upper tail: the Pareto exponent for the top 1% is 0.81 for cross-border financial positions, compared with 1.11 for trade and 1.18 for value added (middle panel of Figure 1).
Figure 1 Concentration in France’s financial Internationalisation
Second, firms differ sharply in how they internationalise (bottom panel of Figure 1). Those in the bottom 90% of cross-border positions predominantly raise foreign funding without investing abroad, mainly through non-listed equity from a single country. The largest groups both raise funds and invest internationally using multiple instruments and countries. Figure 2 illustrates the geography of gross cross-border financial allocations for the top 1% and the median firm.
Figure 2 The geography of France’s cross-border financial allocations
Third, entry into international finance occurs primarily through foreign equity funding. Newly internationalised firms are typically non-listed service corporations that do not engage in international trade or invest abroad. Financial internationalisation thus extends beyond the familiar image of exporters and multinationals expanding overseas.
These patterns identify two margins: a funding margin, through which most firms internationalize to obtain foreign finance; and an investment margin, reached only by the largest firms, through which they acquire foreign assets.
Why would firms in a capital-abundant economy seek foreign funds? In a Modigliani–Miller benchmark, foreign financing would not affect a firm’s financing mix or investment. With local financial imperfections, however, foreign financing becomes valuable. In our model, domestic equity is limited and bank borrowing becomes increasingly costly. As productivity rises, firms have greater investment opportunities and financing needs, eventually making it worthwhile to access foreign equity. At higher levels of productivity still, firms also find it worthwhile to incur the costs of investing across borders.
The model generates a sequence consistent with the data (shown in Figure 3): less productive firms remain domestic, intermediate-productivity firms raise foreign funding, and the most productive firms both raise funds and invest abroad. Foreign investment is therefore a later stage of financial internationalisation, rather than a necessary feature of entry.
Figure 3 The two margins of cross-border financial allocation
We examine firms’ outcomes around their first entry into international finance. Controlling for initial characteristics and detailed sector differences, entry is associated with a 9% increase in total equity, a 6% decline in bank debt, and a 7% decline in interest expenses. Investment rises by 14%, alongside increases in assets, employment, and sales.
These findings are consistent with foreign equity expanding financing capacity and rebalancing firms’ capital structures away from costly domestic debt, thereby supporting higher investment. They persist when foreign acquisitions are excluded and arise with both financial and non-financial foreign investors. We find no corresponding increase in international trade.
Entry is a firm choice rather than a randomly assigned event. These estimates should therefore be interpreted as evidence consistent with the funding mechanism, not as definitive causal effects of foreign equity access.
Firm heterogeneity also changes how we interpret the geography of international finance. Country size, distance, EU membership, currency denomination, and institutional quality can shape cross-border allocations. Our firm-level estimates show that sensitivity to country characteristics declines sharply with productivity. The typical firm is substantially affected by distance, GDP, and euro factors, while large firms appear largely unaffected.
Because the largest firms dominate financial positions, aggregate relationships disproportionately reflect their allocations. For example, the association between euro denomination and allocation shares is 2.2 percentage points at the aggregate level, compared with 19.9 percentage points for the average firm. National totals therefore understate the importance of currency for most participants.
Broad geographic allocations among a few large agents can coexist with narrow funding relationships for most firms, so aggregate positions may overlook important differences in financing channels and country exposure. These findings are particularly relevant to the renewed debate over Europe’s Savings and Investments Union and the financing constraints faced by innovative firms at the scale-up stage (Angeloni and Cavallini 2026, Bénassy-Quéré et al. 2026). They suggest that understanding which firms access international finance, how they do so, and how this varies across firms is important when considering the role of financial integration in this debate.
Source : VOXeu
The 20th century shift from sterling to the dollar is often cited as evidence that…
The US trade deficit in goods unexpectedly widened in September as imports increased, suggesting that…
The countries of Europe and Central Asia (ECA) cannot afford to miss the opportunity that…
Counting the number of people living in extreme poverty — on less than $3 a…
Recent disruptions to global oil markets, from Russia’s invasion of Ukraine to the war in…
The importance of private equity for euro area firms is increasing, with annual growth rates…