Working Paper: NBER ID: w12996
Authors: Robert E. Lipsey
Abstract: The standard measures of flows and stocks of FDI view FDI as a financial flow and its accumulation as a stock, but most uses of FDI data require measures of employment, payrolls, capital inputs, and output from FDI. Judging by data for the United States, the flow and stock data provide rough approximations to country distributions of FDI sources and destinations, but are poor approximations to industry distributions of FDI and to changes over time in country and industry distributions. One important reason for the poor match between the two types of measures is that more and more of production is the output from intangible and financial assets, the location of which is determined by the firm itself, and not easily subject to outside verification. That development is combined with the increasing use of holding companies and chains of ownership to reduce tax burdens on the firms without necessarily altering the physical location of inputs or production. These developments have drawn the attention of tax authorities and led to some proposals that would reduce firms' ability to manipulate the location of assets and profits. However, these maneuvers also lead to ambiguities in the meaning of economic measures, such as the balance of payments and national product. The effects on economic measurements, which may influence many types of economic policy, have been submerged in the concern for tax revenues.
Keywords: Foreign Direct Investment; FDI Measurement; Intangible Assets; Economic Policy
JEL Codes: F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| traditional measures of FDI (F21) | actual production (E23) |
| traditional measures of FDI (F21) | employment (J68) |
| actual production (E23) | economic measurements (E01) |
| geographical distribution of employment (J60) | FDI stocks (F21) |
| changes in investment stocks (G11) | changes in employment distributions (J63) |
| manipulation of asset locations (G15) | relationship between FDI and real economic outputs (F23) |