To evaluate the economic effects of international financial integration, its measurement is crucial. This paper introduces a new measure called private financial openness, which is the first to distinguish between private and public stocks of foreign capital. It focuses on private agents' willingness and ability to invest abroad and to incur foreign debt.

Our index builds on the measure proposed by Lane and Milesi-Ferretti (2003, 2007), who consider the sum of foreign assets and liabilities over GDP. We adjust this measure by excluding development aid received and central banks' international reserves because they do not reflect private investors' decisions. Statistically our measure differs significantly from the standard one in developing countries and in emerging markets, in the latter group especially since the 2000s. To highlight the importance of the new index, we estimate standard regressions of the relationship between financial openness and economic growth and show that measures may lead to opposing conclusions.