Measuring Multinational Production with Foreign Direct Investment Statistics: Recent Trends, Challenges, and Developments
MeasuringMultinationalProductionwithForeignDirectInvestmentStatistics: RecentTrends,Challenges,andDevelopmentsBrunoCasella,MariaBorga,andKonstantinM.WackerWP/23/113 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate. TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. 2023 JUN ©2023InternationalMonetaryFundWP/23/113 IMFWorkingPaper StatisticsDepartment MeasuringMultinationalProductionwithForeignDirectInvestmentStatistics:RecentTrends,Challenges,andDevelopments PreparedbyBrunoCasella,MariaBorga,andKonstantinM.Wacker AuthorizedfordistributionbyCarlosSánchez-Muñoz June2023 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. Abstract Inacomplexglobalproductionlandscape,thequestformeasuresofeconomicactivitybymultinationalenterprises(MNEs)hasbecomemorepressing.ForeignDirectInvestment(FDI)statistics,whichcapturefinancingaspectsofMNEs,haveoftenbeenusedasaproxyformultinationalproductiongiventheirwideavailabilityandcross-countrycomparability,butconcernsthatmultinationalproductionoccursindifferentcountriesthanwherefinancialpositionsarerecordedcallthispracticeintoquestion.ThispaperrevisitsthemainobjectionstotheuseofFDIasaproxyformultinationalproduction,explorescounterarguments,andprovidesguidanceontheuseofFDIstatisticstomeasuremultinationalproduction. JELClassificationNumbers:F20,F23,C82 Keywords:FDI;multinationalproduction;multinationalenterprises;foreignaffiliates Author’sE-MailAddress:bruno.casella@unctad.org;mborga@imf.org;k.m.wacker@rug.nl MariaBorgaisDeputyDivisionChiefintheBalanceofPaymentsDivision,IMF;BrunoCasellaisSeniorEconomistattheDivisionofInvestmentandEnterprise,UNCTAD;KonstantinM.WackerisanassistantprofessorattheUniversityofGroningen,Netherlands.TheauthorsaregratefultoRichardBolwijn(UNCTAD),CarlosSánchez-Muñoz(IMF),JannickDamgaard(IMF),andThomasElkjaer(IMF)forhelpfulcomments.SubstantialstatisticalandresearchinputswereprovidedbyGregoryAuclaire(UNCTAD). WORKINGPAPERS MeasuringMultinationalProductionwithForeignDirectInvestmentStatistics RecentTrends,Challenges,andDevelopments PreparedbyBrunoCasella,MariaBorga,andKonstantinM.Wacker1 1MariaBorgaisDeputyDivisionChiefintheBalanceofPaymentsDivision,IMF;BrunoCasellaisSeniorEconomistattheDivisionofInvestmentandEnterprise,UNCTAD;KonstantinM.WackerisanassistantprofessorattheUniversityofGroningen,Netherlands.ThecorrespondingauthorisKonstantinWacker:k.m.wacker@rug.nl.TheauthorsaregratefultoRichardBolwijn(UNCTAD),CarlosSanchezMunoz(IMF),JannickDamgaard(IMF),andThomasElkjaer(IMF)forhelpfulcomments.SubstantialstatisticalandresearchinputswereprovidedbyGregoryAuclaire(UNCTAD). Contents Glossary3 ExecutiveSummary4 Introduction5 I.HowtoUnmask“PhantomFDI”?8 Critique1:“PhantomFDI”throughoffshorefinancialcentersisdrivenbyfinancialandtaxmotives,weakeningtherelationshipbetweenFDIandmultinationalproduction.8 II.BilateralFDIStatistics:HowMuchofaPuzzle?15 Critique2:Offshorefinancialcentersactasmiddlemenbetweeninvestors’countryoforiginandfinaldestination,makingultimateinvestorcountriesinvisibleinbilateralFDIstatistics15 III.BeyondPhantomFDI:SourceofFundsvsUseofFunds21 Critique3:FDIisaspecificsourceoffundsanddoesnotcapturelocalandnon-affiliatedsourcesoffinancingofmultinationaloperations21 IV.ImprovingFDIData:RecentProgressandDevelopments24 V.ConclusionandGuidelinesforAppliedResearch25 References27 FIGURES 1.MainCritiquesoftheUseofFDIDatatoMeasureMultinationalProductionandRecentDevelopmentsandFindings8 2.AnIllustrativeSchemeofConduitFDI10 3.RelationshipBetweenFDIInwardStockandInwardSalesofForeignAffiliates,OECDCountries,2016, US$millions14 4.Germany’sInwardFDIStockandFATSTurnoverbyPartner(Investor)Country,ShareinTotal,TopTenLargestUltimateInvestorsinGermany,201616 5.ComparisonBetweenGermanyReportedPositionsbyUltimateInvestingEconomy(UIE),ReportedPositionsbyImmediateDirectInvestorandEstimatedPositionsbyUIE,ShareinTotal,TopTenLargestUIEsinGermany,201617 6.RelationshipBetweenImmediateandUltimateFDIStocksinBilateralData19 7.RelationshipBetweenFDIStockandOperationalData23 TABLES 1.TheSizeofSPEs:ComparisonBetweenEstimatedandReportedandBetweenUNCTADandDEJEstimates,201613 2.GravityEstimationforImmediateandUltimateFDIDeterminants20 Glossary BEPS BaseErosionandProfitShifting BoP BalanceofPayments CDIS CoordinatedDirectInvestmentSurvey FA ForeignAffiliate FATS ForeignAffiliateStatistics FDI ForeignDirectInvestment GDP GrossDomesticProduct IIP InternationalInvestmentPosition MNE MultinationalEnterprise OECD OrganizationforEconomicCooperationandDevelopment OFC OffshoreFinancialCenter SPE SpecialPurposeEntity UNCTAD UnitedNationsConferenceonTradeandDevelopment UIE UltimateInvestingEconomy USBEA UnitedStatesBureauofEconomicAnalysis ExecutiveSummary Giventheimport
