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Eliminating the Pass-Through: Towards FDI Statistics that Better Capture the Financial and Economic Linkages between Countries

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  • Maria Borga
  • Cecilia Caliandro

Abstract

FDI plays a central role in managing global production networks, but FDI statistics also reflect other factors, including tax avoidance, that make it difficult to differentiate between FDI for “long-term” investments that serves as a source of growth and FDI that is purely financial and has little real economic impact as it merely passes through an economy. This latter FDI also obscures the ultimate sources and destinations of FDI. This paper addresses these challenges by developing a framework for consolidated FDI statistics based on the nationality of the MNE group that complements residency-based FDI statistics. While residency-based statistics are useful to identify where financial claims and liabilities are held, nationality-based statistics provide information on who makes the decisions, reaps the benefits, and bears the risk. Consolidated FDI statistics remove pass-through capital and are better for understanding ‘real’ financial integration between economies and for analysing the relationship between the financing of MNEs and their operations. While some countries produce separate FDI statistics for resident Special Purpose Entities (SPEs) to identify pass-through capital, we demonstrate that this only provides a partial view and that about one-quarter of the inward FDI positions in a selection of European countries reflects pass-through capital through non-SPEs.

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  • Maria Borga & Cecilia Caliandro, 2018. "Eliminating the Pass-Through: Towards FDI Statistics that Better Capture the Financial and Economic Linkages between Countries," NBER Working Papers 25029, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25029
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    Cited by:

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    2. Ergen, Timur & Kohl, Sebastian & Braun, Benjamin, 2021. "Firm foundations: The statistical footprint of multinational corporations as a problem for political economy," MPIfG Discussion Paper 21/5, Max Planck Institute for the Study of Societies.
    3. Bruno Casella, . "Looking through conduit FDI in search of ultimate investors – a probabilistic approach," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    4. Casella, Bruno, 2019. "Looking through conduit FDI in search of ultimate investors – a probabilistic approach," MPRA Paper 95188, University Library of Munich, Germany.
    5. Bohn, Timon & Brakman, Steven & Dietzenbacher, Erik, 2021. "From exports to value added to income: Accounting for bilateral income transfers," Journal of International Economics, Elsevier, vol. 131(C).
    6. Nadia Accoto & Giacomo Oddo, 2023. "Looking beyond the curtain: pass-through capital and round-tripping in Italy's foreign direct investment," Questioni di Economia e Finanza (Occasional Papers) 762, Bank of Italy, Economic Research and International Relations Area.
    7. Jean-François Hennart & Dylan Sutherland, 2022. "International business research: The real challenges are data and theory," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(9), pages 2068-2087, December.
    8. Kirsten Brew & Jessica Hanson & Ricardo Limés & Ryan Smith & Larkin Terrie, 2023. "Experimental Ultimate Host Economy Statistics for U.S. Direct Investment Abroad," BEA Papers 0120, Bureau of Economic Analysis.

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    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F6 - International Economics - - Economic Impacts of Globalization

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