Journal
QUARTERLY JOURNAL OF ECONOMICS
Volume 136, Issue 3, Pages 1499-1556Publisher
OXFORD UNIV PRESS INC
DOI: 10.1093/qje/qjab014
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Funding
- Becker-Friedman Institute
- Guggenheim Foundation
- NSF [1653917]
- Sloan Foundation
- Weatherhead Center
- William Ladany Faculty Research Fund
- Jerome A. Chazen Institute for Global Business
- Divn Of Social and Economic Sciences
- Direct For Social, Behav & Economic Scie [1653917] Funding Source: National Science Foundation
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Global firms finance themselves through foreign subsidiaries located in tax havens, which makes it difficult to accurately determine their true economic location in official statistics. Bilateral portfolio investment from developed countries to firms in large emerging markets is significantly underestimated, with the U.S. position in Chinese firms being understated by nearly $600 billion. Offshore issuance in tax havens also impacts our understanding of the currency composition of external portfolio liabilities and foreign direct investment.
Global firms finance themselves through foreign subsidiaries, often shell companies in tax havens, which obscures their true economic location in official statistics. We associate the universe of traded securities issued by firms in tax havens with their issuer's ultimate parent and restate bilateral investment positions to better reflect the financial linkages connecting countries around the world. Bilateral portfolio investment from developed countries to firms in large emerging markets is dramatically larger than previously thought. The national accounts of the United States, for example, understate the U.S. position in Chinese firms by nearly $600 billion. Further, we demonstrate how offshore issuance in tax havens affects our understanding of the currency composition of external portfolio liabilities and the nature of foreign direct investment. Finally, we provide additional restatements of bilateral investment positions, including one based on the geographic distribution of sales.
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