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Retained Earnings and Foreign Portfolio Ownership: Implications for the Current Account Debate

Author

Listed:
  • Stefan Goldbach

    (Deutsche Bundesbank)

  • Philipp Harms

    (Johannes Gutenberg University Mainz)

  • Axel Joachem

    (Deutsche Bundesbank)

  • Volker Nitsch

    (TU Darmstadt)

  • Alfons J. Weichenrieder

    (TU Darmstadt)

Abstract

In some countries, a sizable fraction of savings is derived from corporate savings. Although larger, traded corporations are often co-owned by foreign portfolio investors, current international accounting standards allocate all corporate savings to the host country. This paper suggests a framework to correct for this misleading attribution and applies this concept to Germany. For the years 2012 to 2020, our corrections retrospectively reduce German savings and consequently the German current account surplus by, on average, €11.5bn annually. This amounts to approximately five percent of Germany's average official current account surplus (€226.6bn) across these years.

Suggested Citation

  • Stefan Goldbach & Philipp Harms & Axel Joachem & Volker Nitsch & Alfons J. Weichenrieder, 2023. "Retained Earnings and Foreign Portfolio Ownership: Implications for the Current Account Debate," Working Papers 2306, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    • Handle: RePEc:jgu:wpaper:2306
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    File URL: https://download.uni-mainz.de/RePEc/pdf/Discussion_Paper_2306.pdf
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    Keywords

    current account; balance of payments; corporate savings; retained earnings; foreign portfolio investment; Germany;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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