Measuring Innovation in 

Multinational Enterprises

Allison Derrick

October 25, 2023

The views expressed in this presentation are those of the presenter and do not necessarily represent the U.S. Bureau 

of Economic Analysis or the U.S. Department of Commerce. The U.S. Bureau of Economic Analysis (BEA) has reviewed 

this data product for unauthorized disclosure of confidential information and has approved the disclosure avoidance 

practices applied to this release.
Role of innovation in MNEs

Successful multinational enterprises (MNEs) innovate [E.g., Corrado et al. 2017] 

• Develop new goods and services

• Improve production processes

• Tailor products for local markets

MNEs balance competing considerations in managing their intellectual property (IP) 

[E.g., Jenniges et al. 2018; Lerner 2009; Branstetter, Glennon, and Jensen 2019; Guvenen et al. 2022] 

• Tax liabilities

• Skilled labor requirements

• Intellectual property protection

Yet innovation is still difficult to observe and measure for statistical purposes [E.g., 

Rassier 2017; UNECE 2015]

2
Challenges of valuing innovation in MNEs

Each stage of innovation 

takes place in different 

locations by different units 

of the MNE

• Creation

• Ownership

• Use in production

Value of innovation is 

difficult to estimate

• Can be used by multiple 

units simultaneously

• Which unit owns the IP 

product is opaque

Not all R&D is successful

• A cost-based approach to 

measuring IP could overor understate its value

3

Main challenge: IP is intangible

o Quantifying and valuing it is more complicated than for physical assets like 

machinery or real estate
Assembling information on innovation

Potential 

sources

BEA surveys

Tax data

Patent data

This 

presentation

Summarizes the information 

in these data sources

Illustrates the in-progress 

resulting data set

Describes potential uses of 

combined data

Feedback

Suggestions about the 

approach?

Additional data sources?

4
BEA survey data and innovation (1)

1. BE-10 Benchmark Survey of U.S. Direct Investment Abroad (2019)

Innovation information collected from majority-owned foreign affiliates (MOFAs):

R&D expenditure

Performed...

On own account

For affiliated persons

For unaffiliated persons

Expenditure on R&D 

performed by others 

under contract

Also estimate of share 

performed by U.S. reporter

IP fee 

payments/receipts

To/from...

U.S. parent

Other foreign affiliates

Other U.S. persons

Other foreign persons

5
BEA survey data and innovation (2)

2. BE-125 Quarterly Survey of Transactions in Selected Services and Intellectual 

Property with Foreign Persons (2019)

Survey goes to any firm with international services transactions

6

Payments/receipts for IP services

• Includes license fees, royalties, and 

other fees received or paid for the 

right to certain IP products

• Breakdown by type of IP (e.g., patents, 

trademarks, books, franchises)

Payments/receipts of R&D services

• Provision of customized and non-customized R&D 

services

o Work to discover new knowledge or develop new or 

significantly improved goods and services

o Includes basic and applied scientific research

• Other R&D services

o Testing or product/process development activities that will 

likely result in patents
Fictional data example

7

Outward Direct Investment Survey Trade in Services Survey

IP fee IP fee payments

BE-10 Affiliate receipts from BE-120 to foreign

ID ID Year U.S. Parent Affiliate Country U.S. Parent ID Year Quarter U.S. Parent Country affiliates

1 1 2019 Seed Corp, LLC T&C R&D holding ltd Ireland 50 5 2019 Q3 Seed Corporation Ireland 50

1 2 2019 Seed Corp, LLC Wales Biocorp CCC United Kingdom 75 5 2019 Q1 Seed Corporation United Kingdom 100

1 3 2019 Seed Corp, LLC Foodcolour Lab ltd. United Kingdom 100 5 2019 Q2 Seed Corporation United Kingdom 75

1 4 2019 Seed Corp, LLC London Hedge ltd. United Kingdom 125 5 2019 Q3 Seed Corporation United Kingdom 25

5 2019 Q4 Seed Corporation United Kingdom 100

1 5 2019 Seed Corp, LLC Köln GmbH Germany 150 5 2019 Q1 Seed Corporation Germany 50

1 6 2019 Seed Corp, LLC EU Bioholdings GmbH Germany 175 5 2019 Q2 Seed Corporation Germany 100

5 2019 Q3 Seed Corporation Germany 50

5 2019 Q4 Seed Corporation Germany 125

3 1 2019 DE 1st State, Inc. New South Wales, Inc. Australia 200 7 2019 Q2 Delaware, Inc. Australia 200

3 2 2019 DE 1st State, Inc. Wales CCC United Kingdom 225 7 2019 Q3 Delaware, Inc. United Kingdom 125

7 2019 Q4 Delaware, Inc. United Kingdom 100

3 3 2019 DE 1st State, Inc. New Brunswick Corp. Canada 250 7 2019 Q1 Delaware, Inc. Canada 250

<- Bruner & 

Grimm 

(2019) ->

Link MNEs in direct investment and trade in services surveys using bridge 

developed by Bruner and Grimm (2019)
Outside data sources

IRS data  Match by EIN

• R&D cost sharing agreements: direct measure not available in BEA survey data

• Royalties and license fees

• Intangible assets

Patenting  Match by EIN, name, address

• Global patent offices

• Patents acquired through M&A

• Use location of inventors to determine where IP product was created

• Can also track the purchase and sale of patents through M&A and outright sales using third-party data source

8
Sketch of potential resulting data set

BEA’s trade in services 

survey

BEA’s outward direct 

investment survey IRS SOI Data Orbis IP database

MNE 

ID

Country R&D services 

payments

R&D services 

receipts

R&D performed 

by others

R&D performed 

for others

R&D cost sharing 

payments

R&D cost 

sharing receipts

Patent 

applications

Patent 

purchases

1 Germany

1 Ireland

1 Vietnam

2 Netherlands

2 China

2 South Korea

3 Mexico

3 Canada

.....

9 Note: More variables are available from each source. The variables listed are chosen to illustrate what the resulting data set 

would look like. The merged data would be confidential and only available to BEA employees and special sworn researchers.
Innovation locations

• The combined data can shed light on innovation in MNEs throughout the life cycle

• Countries and/or specific affiliates in the MNE could be identified as creators, owners, 

and/or users of innovation

10

Creation

• R&D performed

• Listed as inventor on 

patent

• R&D cost sharing 

agreements

Ownership

• R&D cost sharing 

agreements

• Listed as patent assignee

• Receipts of fees for the 

use of IP 

Use

• Payments of fees for the 

use of IP

• R&D intensity of 

affiliate’s industry
Implications of MNE innovation activities

11

Previous research 

has shown that U.S. 

MNEs shift valuable 

IP to tax-friendly 

locations abroad

R&D cost sharing 

agreements can be used 

to make these shifts

U.S. research 

suggests lowered 

measures of U.S. GDP 

and increased 

measures of GDP in 

host countries

E.g., Jenniges et al. 2019; 

Guvenen et al. 2022

Combined data could 

more accurately 

identify offshore 

profit shifting and 

offer more insights 

for economic 

accountants

Important implications 

for macroeconomic 

statistics
Innovation activity by location, 2014

12

• Previous research suggests that IP is created in 

non-tax havens, while owned by affiliates in tax 

havens [Derrick and Steiner, forthcoming]

• Values in table are percent of sum of variable for 

majority-owned affiliates in a sample R&D 

intensive MNEs

• R&D funded by affiliate but performed by others 

could indicate the presence of a cost-sharing 

agreement (but counterparty is unknown)

Variable Tax haven*

Non-tax 

haven*

Total sales 31.1 68.9

Total assets 50.4 49.6

Total liabilities 37.8 62.2

Total gross PPE 13.5 86.5

Employment 7.8 92.2

Value added 18.9 81.1

Total R&D Expenditure 21.2 78.8

R&D funded by affiliate 

but performed by 

others 79.9 20.1

Total royalties received 88.8 11.2

Total royalties paid 75.7 24.3

*Tax havens are defined in Gravelle, J. G. (2015). Tax havens: 

International tax avoidance and evasion. Congressional Research Service 

report R40623.
Next steps

Identify innovation creators, 

owners, and users in BEA MNEs

Explore the relationship between 

foreign affiliates’ innovation 

activities and affiliate performance

13
Feedback

Suggestions about the approach?

Matching techniques successfully used 

on these data sets?

Additional data sources?

14
References

Branstetter, L.G., B. Glennon, & J.B. Jensen. (2019). The IT revolution and the globalization of R&D. Innovation Policy and the 

Economy, 19, 1-37.

Bruner, J., & A. Grimm. (2019). A profile of U.S. exporters and importers of services. Survey of Current Business, 99(12).

Corrado, Carol, Javier Miranda, Jonathan Haskel, and Daniel Sichel. 2017. Measuring and Accounting for Innovation in the 21st 

Century. NBER Conference on Research in Income and Wealth.

Derrick, Allison and Christopher Steiner. “A snapshot of intellectual property networks within U.S. multinational enterprises.” 

Forthcoming.

Jenniges, D., R. Mataloni Jr., S. Stutzman, & Y. Xin. (2019). Strategic movement of intellectual property within U.S. multinational 

enterprises. The challenges of globalization in the measurement of national accounts. University of Chicago Press.

Rassier, Dylan G. 2017. Improving the SNA treatment of multinational enterprises. Review of Income and Wealth, 63.

Ramondo, Natalia, Veronica Rappoport, and Kim J. Ruhl. (2016). “Intrafirm Trade and Vertical Fragmentation in US 

Multinational Corporations.” Journal of International Economics, 98, 51–59.

United Nations Economic Commission for Europe. 2015. Guide to Measuring Global Production. New York and Geneva: United 

Nations, ECE/CES/38.

U.S. Bureau of Economic Analysis. “A Guide to BEA’s Direct Investment Surveys.” https://www.bea.gov/system/files/2018-04/a- guide-to-bea-direct-investment-surveys.pdf

U.S. Bureau of Economic Analysis. “A Guide to BEA’s Services Surveys.” https://www.bea.gov/system/files/2018- 08/surveysu.pdf