Claessens, S., M. Dooley, and A. Warner, 1995, “Portfolio Capital Flows: Hot or Cold?” World Bank Economic Review, vol. 9, no. 1, pp. 153-74.
Froot, K. and J. Stein, 1991, “Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach,” Quarterly Journal of Economics, vol. 106, pp. 1191-217.
International Monetary Fund, 2000a, Balance of Payments Statistics Yearbook, “Country Tables,” (Washington: International Monetary Fund).
International Monetary Fund, 2000b, Survey of the Implementation of the Methodological Standards for Direct Investment, (Washington: International Monetary Fund).
Lane, P. and G. Milesi-Ferretti, 1999, “The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries,” IMF Working Paper 99/115 (Washington: International Monetary Fund).
Lipsey, R., 2001, “Foreign Direct Investors in Three Financial Crises,” NBER Working Paper No. 8084 (Cambridge, MA: National Bureau of Economic Research).
Organization for Economic Cooperation and Development, 1996, Benchmark Definition of Foreign Direct Investment, 3 rd edition (Paris: OECD).
Sarno, L. and M. Taylor, 1999, “Hot Money, Accounting Labels and the Permanence of Capital Flows to Developing Countries: An Empirical Investigation,” Journal of Development Economics, (Vol. 59) pp. 337-364.
I am indebted to Christian Mulder for many stimulating discussions that defined the outline of this project. Comments from Monty Graham, Hans-Peter Lankes, Rodolfo Luzio, Anne McGuirk, Marie Montanjees, Krishna Srinivasan, Jarek Wieczorek, Yongzheng Yang, Jeromin Zettelmeyer and from participants in a departmental seminar are gratefully acknowledged. Ray Mataloni assisted with BEA data, Nesse Erbil with other data work, and Mary Jo Marquez with editorial work. The usual disclaimer applies.
“Net income is calculated by deducting from gross income all costs incurred by the enterprise in connection with operations. Deductions include taxes owed by the enterprise and due for payments, other current transfers payments, and depreciation costs for fixed capital assets.” (IMF, 1996) See also the IMF and OECD publications on the relevant balance of payments categories: IMF (2000b) and OECD (1996).
The estimations assume that the entire capital stock is subject to depreciation and appreciation, which is questionable, given that the U.S. majority-owned affiliates have highly liquid balance sheets.
Eurostat is the only statistical agency that prepares data for a comparable range of countries, though for a much more limited number of data series. Data for the outward investment of U.K. companies yield profitability estimates that are comparable to those computed for U.S. companies. Based on investment stocks at historical costs (hence underestimating returns at book values), averages for the years 1995 to 98 were 11.9 percent for Mexico, 17.1 for Brazil, 13.9 for Malaysia and 20.4 for India.
Emerging markets are the countries listed in Table 2, excluding China, Costa Rica, and the Dominican Republic, for which time series covered only a part of the sample period. High- income countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, New Zealand, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
In addition, country risk may be assumed to raise the cost of capital for funds that are internal to the firm