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Jannick Damgaard, Thomas Elkjaer, and Marco A Espinosa-Vega

(SPEs), or intangibles, e.g., intellectual property rights that are easily moved between economies in an increasingly digitalized global environment. This paper analyzes the three main ways that FDI measures are geographically decoupled and then estimates the first global FDI network to address them. First, there are bilateral asymmetries between FDI positions for most economy pairs in the published numbers: one economy’s outward FDI does not match the counterpart economy’s inward FDI from that economy. For instance, in the IMF’s Coordinated Direct Investment Survey

Jannick Damgaard and Thomas Elkjaer
This paper addresses three types of geographical decoupling in foreign direct investment (FDI), i.e., challenges when using traditional FDI data as a proxy for real economic integration between economies: (i) large bilateral asymmetries between inward and outward FDI, (ii) the role of special purpose entities (SPEs), and (iii) the effect of moving from immediate counterpart to ultimate investing economy (UIE). A unique global FDI network is estimated, where SPEs are removed and FDI positions are broken down by the UIE. Total inward FDI in the new network is reduced by one-third, and financial centers are less dominant.
Jannick Damgaard, Thomas Elkjaer, and Niels Johannesen
Macro statistics on foreign direct investment (FDI) are blurred by offshore centers with enormous inward and outward investment positions. This paper uses several new data sources, both macro and micro, to estimate the global FDI network while disentangling real investment and phantom investment and allocating real investment to ultimate investor economies. We find that phantom investment into corporate shells with no substance and no real links to the local economy may account for almost 40 percent of global FDI. Ignoring phantom investment and allocating real investment to ultimate investors increases the explanatory power of standard gravity variables by around 25 percent.
Jannick Damgaard, Thomas Elkjaer, Niels Johannesen, and Sánchez Muñoz

outsized role in the global FDI network: the Netherlands, Luxembourg, Hong Kong SAR, Switzerland, Singapore, Ireland, Bermuda, the British Virgin Islands and the Cayman Islands jointly host more than 40 percent of global FDI although their combined share of global GDP is only around 3 percent. Strikingly, these economies have tax systems that, in one way or another, are useful in the tax planning of multinational firms (e.g. Hines, 2010 ; Zucman, 2014 ). Tax planning is therefore a plausible explanation for the otherwise puzzling size of these FDI positions. Indeed

Jannick Damgaard and Thomas Elkjaer

Front Matter Page Statistics Department Contents Abstract I. Introduction II. Bilateral Asymmetries in Official FDI Data III. The Role of Special Purpose Entities IV. FDI by Ultimate Investing Economy V. Constructing New Global FDI Estimates VI. Global FDI Networks VII. Conclusion VIII. References Tables 1. List of Low-Tax Economies Figures 1. Asymmetries in FDI between Economy Pairs 2. Top 20 Inward FDI Economies 3. Inward FDI Positions by Immediate and Ultimate Investing Economy 4. Round-Tripping 5. SPE

Jannick Damgaard and Thomas Elkjaer

. Damgaard , Jannick and Thomas Elkjaer ( 2014 ), “ Foreign Direct Investment and the External Wealth of Nations: How Important Is Valuation? ” Review of Income and Wealth , v 60 ( 2 ), pp. 245 – 260 . 10.1111/roiw.12098 Dharmapala , Dhammika and James R. Hines Jr . ( 2006 ), “ Which Countries Become Tax Havens? ” NBER Working Paper Series, Working Paper 12802 . European Central Bank and Eurostat ( 2014 ), “ European Networking Exercises: The FDI Network,” note prepared for the Twenty-Seventh Meeting of the IMF Committee on Balance of Payments

Jannick Damgaard, Thomas Elkjaer, and Niels Johannesen

figures in tax havens. Prominent cases include Irish GDP growth of 26 percent in 2015, following some multinationals’ relocation of intellectual property rights to Ireland, and Luxembourg’s status as one of the world’s largest FDI hosts. To get better data on a globalized world, economic statistics also need to adapt. The new global FDI network is useful to identify which economies host phantom investments and their counterparts, and it gives a clearer understanding of globalization patterns. Such data offer greater insight to analysts and can guide policymakers in

Jannick Damgaard, Thomas Elkjaer, and Niels Johannesen

Front Matter Page Statistics Department Front Matter Page What Is Real and What Is Not in the Global FDI Network? * Jannick Damgaard (Danmarks Nationalbank) Thomas Elkjaer (International Monetary Fund) Niels Johannesen (University of Copenhagen and CEBI) December 2, 2019 Contents 1 Introduction 2 Estimating the global FDI network 2.1 Data sources 2.2 Total FDI by economy of immediate investor 2.3 Decomposition: Real vs Phantom investment 2.4 Real FDI by economy of ultimate investor 2.5 Summary statistics 3

Emma Angulo and Alicia Hierro

References Data on Special Purpose Entities: Compilation and Dissemination–Russian Experience ( IMF , BOPCOM 16/21 ) Developing CDIS Granular Data- Central Bank of the Russian Federation (BOPCOM 15/10.b) European Networking Exercises: The FDI Network: Report by ECB/Eurostat ( BOPCOM 14/20 ) IMF ( 2009 ), Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6) . IMF ( 2014 ), Balance of Payments and International Investment Position Compilation Guide, (BPM6CG) . IMF ( 2014