Characteristics of Special Purpose Entities in Measures of U.S. 

Direct Investment Abroad* 

 

 

 

 

 

 

 

 

 

 

Dylan G. Rassier 

U.S. Department of Commerce 

Bureau of Economic Analysis 

Washington, DC 

dylan.rassier@bea.gov 

Proceedings of the 2015 Federal Committee on Statistical Methodology Research Conference 

Abstract 

Under international guidelines, official statistics on international trade and investment include transactions within 

multinational enterprises (MNEs) and positions on foreign direct investment. A complicating factor in the 

interpretation and understanding of the official statistics is the role of transactions and positions for MNEs structured 

with one or more special purpose entities (SPEs). In contrast to operating entities (OEs), SPEs generally have few 

or no employees, little or no physical presence, and little or no production or economic activity. While recent 

research explores the effects of SPEs on some U.S. macroeconomic statistics, very little is known from a 

microeconomic perspective about the underlying characteristics of SPEs. This paper provides an empirical look at 

non-resident SPEs whose transactions are included in official statistics on U.S. direct investment abroad. In 

particular, the paper treats OE affiliates as a benchmark group in a univariate and a multivariate analysis of 

characteristics available in survey data. The results reveal a large number of non-resident SPEs sponsored by U.S. 

MNEs, which are not isolated to a few industries or a single global region. Significant differences exist between 

SPE affiliates and OE affiliates in their balance sheet components, income statement components, and measured 

production. Given the fact pattern demonstrated in the microdata, measured production attributed to SPE affiliates 

appears to be incongruent with reported economic activity. 

JEL Codes: D24, E01, F20, F23, F60 

Keywords: production, cost, national income and product accounts, foreign direct investment, multinational firms, 

globalization 

* The statistical analysis of firm-level data on U.S. multinational companies and companies engaged in international

transactions was conducted at the Bureau of Economic Analysis, U.S. Department of Commerce, under 

arrangements that maintain legal confidentiality requirements. The views expressed in this paper are solely those of 

the author and not necessarily those of the U.S. Department of Commerce or the Bureau of Economic Analysis. 
 

 

 

 

 

 

 

 

 

 

1. Introduction 

Under international guidelines, official statistics on international trade and investment include transactions within 

multinational enterprises (MNEs) and positions on foreign direct investment (FDI). A complicating factor in the 

interpretation and understanding of the official statistics is the role of transactions and positions for MNEs structured 

with one or more special purpose entities (SPEs). In contrast to operating entities (OEs), SPEs generally have few 

or no employees, little or no physical presence, and little or no production or economic activity. Examples of SPEs 

include finance and holding companies, royalty and licensing companies, leasing companies, and securitization 

vehicles. The international guidelines recommend that transactions with SPEs and positions in SPEs be included in 

official statistics, but the guidelines also recommend that supplemental information be provided to better understand 

the role of SPEs and the pass-through nature of the transactions in which they engage. 

The U.S. international accounts and national accounts do not distinguish statistics for foreign-sponsored SPEs 

hosted by the U.S. on inbound FDI (i.e., resident SPEs) or for U.S.-sponsored SPEs that are hosted by foreign 

countries on outbound FDI (i.e., non-resident SPEs). However, given the U.S. regulatory environment and other 

factors, the U.S. is not a likely location for pass-through activities associated with resident SPEs. Moreover, data on 

U.S. affiliates of foreign MNEs are generally collected on the basis of a full U.S. consolidation, which combines 

operating activities of U.S. affiliates with what are likely to be very few non-operating activities for U.S. affiliates. 

In contrast, data collected on foreign affiliates of U.S. MNEs suggest the presence of non-resident SPEs on 

outbound FDI appears to be relatively large. Thus, a distinction between SPEs and OEs on FDI in the U.S. (FDIUS) 

may not be particularly informative, but a distinction on U.S. direct investment abroad (USDIA) may be worthy of 

further consideration. 

While recent research explores the effects of non-resident SPEs on some U.S. macroeconomic statistics (Lipsey 

2010, Rassier 2015a) very little is known from a microeconomic perspective about the underlying characteristics of 

the non-resident SPEs. Thus, this paper provides an empirical look at non-resident SPEs whose transactions are 

included in official statistics on USDIA. In particular, the paper presents a statistical analysis of characteristics of 

non-resident SPEs using survey data collected by the U.S. Bureau of Economic Analysis (BEA) on U.S. parents and 

their foreign affiliates. The analysis includes a univariate approach that focuses on mean comparison tests of 

characteristics between SPE affiliates and their OE counterparts and includes a multivariate approach that focuses on 

comparing coefficient estimates from regressions of reported sales on measured value-added and its components 

over SPE affiliates and OE affiliates. 

The results reveal a large number of non-resident SPEs sponsored by U.S. MNEs, which are not isolated to a few 

industries or a single global region. In addition, significant differences exist between SPE affiliates and OE 

affiliates in their balance sheet components such as assets and equity and in their income statement components such 

as sales and net income. Significant differences also result for measured value-added. In particular, variation in 

measured value-added does not appear to generate adequate variation in consequent sales for SPE affiliates, which 

implies value-added is over-attributed to SPE affiliates. Moreover, the lack of variation is most evident in the 

profits component of value-added, which is consistent with Lipsey’s (2010) results using aggregate statistics on 

activities of MNEs. Given the fact pattern demonstrated in the microdata, measured production attributed to SPE 

affiliates appears to be incongruent with reported economic activity. 

The paper is organized in six sections that follow. The next section provides an overview of related literature 

including literature on the formation of MNEs as well as literature on measurement issues related to MNEs. The 

third section outlines a simple model of production attributable to foreign affiliates and an overview of BEA’s 

measurement framework for value-added attributable to foreign affiliates. The fourth section presents the empirical 

framework. The fifth section describes BEA’s survey data utilized in the analysis. The sixth section presents 

results. The last section concludes. 

2. Related Literature 

Two strands of literature provide context for this work. First, features are borrowed from trade literature on the 

formation of MNEs to outline a basic model of production attributable to foreign affiliates and to construct an 

empirical framework to estimate whether production measured for SPE affiliates is congruent with economic 

activity reported for the affiliates. Second, international guidelines on economic accounting are described for 

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organizing official statistics on FDI and trade. In particular, the description focuses on the definitions and concepts 

that underlie residence, which may result in production attributed to SPE affiliates. 

2.1. Trade Literature 

The economic literature on formation of MNEs focuses on adapting general equilibrium trade models to include 

endogenous MNEs.1

 Current theory explains the formation of MNEs based on the organization of production into 

one of two types: vertical integration and horizontal integration. Vertical integration results when firms divide the 

production process among affiliates in order to take advantage of lower relative factor prices (Helpman 1984, 

Brainard 1993). Horizontal integration results when firms replicate production at affiliates in order to serve local 

markets (Markusen 1984, Brainard 1997). In addition, an alternative knowledge-capital model mitigates some 

limitations that are introduced by underlying assumptions in vertical and horizontal models (Markusen 1997, Carr et 

al. 2001). Regardless of how production is organized, a useful feature of each of the models is the inclusion of a 

local input and a firm-specific input, which can be used simultaneously by multiple affiliates. In other words, the 

firm-specific input is a shared input. In Helpman (1984) and Markusen (1984), the shared input is immobile but can 

serve multiple affiliates remotely. In Markusen (1997), knowledge is a shared input that is geographically mobile. 

In either case, shared inputs do not need to be physically present for production to take place, but shared inputs 

cannot generate output without the local input. From an economic accounting perspective, shared inputs may give 

rise to SPE affiliates if the latter condition is not satisfied. 

2.2. International Guidelines on Economic Accounting 

International guidelines on economic accounting are provided in the System of National Accounts (SNA) and in the 

Balance of Payments and International Investment Position Manual (BPM). The shared objective of the SNA and 

the BPM is to measure and attribute production to the economy in which production is actually taking place based 

on the residence of a productive entity. Thus, the residence concept corresponds to the economy in which an entity 

is engaged in a significant amount of production or economic activity. For an entity with few or no attributes of 

location and with little or no economic activity, residence in the SNA and in the BPM is determined by the entity’s 

country of legal incorporation or registration. 

The scope of the residence concept includes international transactions conducted within MNEs. Likewise, the scope 

of the residence concept includes international transactions with SPEs. The SNA and the BPM do not offer a 

universal definition of an SPE, but the guidelines generally agree that an SPE is characterized by the following 

features: 1) few or no employees, 2) little or no physical presence, 3) little or no production or economic activity, 

and 4) affiliation with at least one entity, which is often resident in a country other than the country in which the 

SPE is resident. 

Challenges encountered with SPEs under the residence concept are widely addressed in international discourse on 

economic measurement. A recent report by the European Central Bank et al. (2013) addresses practical 

considerations related to separate statistics on SPEs. The United Nations et al. (2011) also published a collection of 

papers with three papers dedicated to identifying and explaining challenges associated with allocating production of 

MNEs and SPEs to national economies under the residence concept. In addition, Lipsey (2010) argues that shared 

inputs such as intangibles and some services impose a challenge under the residence concept because returns to 

shared inputs may be attributed anywhere in the world and may result in transactions that lack economic substance

when an MNE is structured for purposes other than production. Lipsey’s (2010) argument is supported with an 

alternative formulary apportionment framework in Rassier and Koncz-Bruner (2015) and in Rassier (2015a). 

Earlier work suggests an alternative ownership-based framework for organizing direct investment and trade statistics 

(Baldwin and Kimura 1998, Kimura and Baldwin 1998), which is supported in recent work by Federico (2015) with 

an application of bilateral data on 44 countries. However, an ownership-based framework is not designed to identify 

1

 The models assume firms operate in imperfectly competitive markets. In earlier work, Caves (1971) argues that 

direct investment generally takes place in industries characterized by oligopolistic market structures rather than 

competitive market structures upon which trade theory is built. Likewise, Horst (1971) argues that the competitive 

market assumption required in a general equilibrium model does not accurately reflect the reality of profitmaximizing MNEs with market power. 

2 
 

 

 

 

 

 

 

the location of production within MNEs, which is the centerpiece for economic accounting purposes. Thus, Rassier 

(2015b) suggests a more fundamental alternative to the current SNA and BPM recommendations, which would limit 

the basis for recognizing transactions within MNEs to entities with economic residence in lieu of the current 

effective concept of legal residence. 

3. Production Attributable to Foreign Affiliates 

3.1. Production Model 

Assume a U.S. parent has already implemented decisions regarding foreign direct investment, the organization of 

production, and the location of investment. Assume also that an affiliate’s production and cost functions are 

separable from the rest of the firm. The affiliate chooses locally purchased inputs such as labor and property, plant, 

and equipment (PPE) and shared inputs such as intangible property (e.g., patents, trademarks, formulas, and 

processes) and headquarter services (e.g., accounting, finance, and marketing). Assume the affiliate purchases the 

shared input from the U.S. parent at a price determined by the parent, which reflects an arm’s length price that 

maximizes the multinational firm’s profits. In other words, the affiliate is a price taker in all inputs. Assume also 

that the affiliate takes output prices as given. 

Consider an MNE with one U.S. parent and one or more wholly owned foreign affiliates. Suppose an affiliate 

produces output, denoted Q, with locally purchased inputs, denoted L, and shared inputs, denoted H, according to a 

Cobb-Douglas technology:2 

Q(L, H ) @ L

d H10d

. (3.1) 

The empirical framework is based on the dual cost function (Diewert 1974, Shephard 1970), 

denoted C(wL , wH ,Q) , in which wL and wH are prices of local and shared inputs, respectively. The cost 

minimization problem is as follows: 

min w L L .wH H s.t. Q @ L

d H10d

. 

~L,H⦆

 (3.2) 

Using the Lagrange multiplier to form the unconstrained problem and solving for the related first-order conditions 

yields the affiliate’s cost function as follows: 

C(wL, wH ,Q) @ AwL 

d w1

H 

0d Q , (3.3) 

0d d 01 where A @d (1 0d) . Thus, the affiliate’s optimal cost structure is an increasing function of local and shared 

input prices and of output. 

Given duality, solving equation (3.3) for the associated technology yields the Cobb-Douglas function of equation 

(3.1). Substituting equation (3.1) for Q in equation (3.3) yields the following composite function: 

C(wL, wH ,Q(L, H )) @ A(wL L)

d

(wH H )

10d

. (3.4) 

In equation (3.4), factor prices and factor quantities are combined, which are merely the cost and profit components 

of measured value-added. 

2

 While the Cobb-Douglas is a restrictive functional form, the simplicity of the resulting cost function is preferable. 

In addition, no conclusions are drawn based on the elasticity of substitution between local inputs and shared inputs. 

3 
 

 

 

 

 

3.2. Measuring Production Attributable to Foreign Affiliates 

In economic accounting, production is a value-added measure. At the affiliate level, value-added can be estimated 

as the residual between gross output and intermediate inputs. Alternatively, value-added can be estimated as the 

sum of costs incurred, other than costs of intermediate inputs, and profits earned in production. BEA uses the latter 

approach to measure and attribute value-added to foreign affiliates of U.S. parents in supplemental statistics on 

activities of MNEs. Figure 1 summarizes the contribution of each of the components and subcomponents to valueadded. Costs incurred include four categories: compensation, capital consumption allowance (CCA), indirect 

business taxes (IBT), and net interest paid (IP). BEA measures compensation and CCA directly from affiliates’ 

income statements. Compensation includes payroll taxes. CCA is an accounting rather than an economic measure 

of depreciation.3

 IBT includes taxes related to business operations other than income taxes and payroll taxes.4 IBT 

is adjusted for government subsidies received and production royalty payments to foreign governments for natural 

resources. Net IP includes interest expensed or capitalized adjusted for interest income. Profits earned are referred 

to as profit-type return (PTR) in BEA’s multinational statistics and include net income adjusted for foreign income 

taxes paid, depletion, income from equity investments in foreign affiliates, and holding gains. 

Using the context of the production model, the components of value-added that reflect returns to local inputs and 

shared inputs can be identified. In particular, compensation and CCA are considered to only reflect returns to local 

inputs. Compensation and CCA are returns for services provided by labor and PPE, respectively, which need to be 

physically located at an affiliate in order to provide service. In contrast, IBT reflects payments to the host 

government for the privilege of existing in a location, such as fees for licenses and registration, in addition to 

payments for conducting operations in the location, such as sales taxes and property taxes. Licenses and registration 

do not require a physical location, but sales taxes and property taxes are considered to require a physical location. 

Likewise, net IP and PTR can reflect returns to local inputs, shared inputs, or both. However, absent any 

compensation and CCA, measured value-added that includes only net IP and PTR calls into question the production 

of actual output based on a presumed lack of local inputs that are required to produce actual output in the production 

model. 

4. Empirical Framework 

Based on the simple production model presented above, the empirical framework presented here seeks to determine 

the effect of measured production attributed to foreign affiliates on the economic activity reported for the affiliates. 

Treating OE affiliates as a benchmark group, a multivariate analysis is employed to determine whether the effect of 

measured production is different for OE affiliates and SPE affiliates. If a different effect exists, then production 

measured for SPE affiliates may be incongruent with the economic activity reported for the affiliates. 

Suppose an affiliate j belongs to parent h, operates in industry i, and is located in country k. Equations (3.3) and 

(3.4) can be log linearized and rewritten as the following estimating equations in which thed s and the e s are 

parameter estimates and h and p are stochastic error terms: 

lnCjhik @d0 .dL ln wLjhik .d H ln wH jhik .d Q lnQjhik .h jhik

lnCjhik @ e0 . e wL ln wLjhik . e L ln Ljhik . e wH ln wH jhik . e H ln H jhik .p jhik . 

If affiliate-level data are applied to equations (4.1) and (4.2), identification is based on variation across all affiliates 

in the sample. 

3

 In the U.S. national accounts, consumption of fixed capital is the measure of economic depreciation. Given that 

depreciation is a cost in affiliates’ accounting records, any difference between CCA and consumption of fixed 

capital is reflected in profits. Thus, measured value-added is unaffected (Mataloni and Goldberg 1994). 

4

 Indirect business taxes include sales tax, value-added tax, consumption tax, excise tax, taxes on property and other 

assets, duties, license fees, fines, penalties, and any other taxes that are not payroll taxes or income taxes. 

4 
 

 

 

 

 

 

 

 

 

While the available data include measured production, complete data on exogenous prices of inputs are not 

available. However, the data structure allows the inclusion of fixed effects to control for unobserved factor prices, 

which is consistent with previous work using the same data (Hanson et al. 2005). In particular, the data generally 

include multiple affiliates owned by the same U.S. parent and often classified in the same industry and located in the 

same country. As a result, the following specifications can be estimated in which t is a parent-industry-country 

fixed effect andx and k are stochastic error terms: 

Cjhik @d0 .d QQjhik .thik .x jhik (4.3) 

and 

Cjhik @ e0 . e L Ljhik . e H H jhik .t hik .k jhik . (4.4) 

In equations (4.3) and (4.4), identification is based on variation across affiliates owned by the same parent, classified 

in the same industry, and located in the same country. Thus, equations (4.3) and (4.4) control for factor prices by 

assuming affiliates owned by the same parent, classified in the same industry, and located in the same country face 

the same local factor prices and by assuming a parent charges the same transfer price to its affiliates classified in the 

same industry and located in the same country. The log notation is removed in equations (4.3) and (4.4) because in 

practice the firm-level measures can be positive, zero, or negative. However, since the analytic objective is to 

compare coefficient estimates across SPE affiliates and OE affiliates, the log transformation is not critical to the 

interpretation of the results. 

Equations (4.3) and (4.4) do not make a statistical distinction between SPE affiliates and OE affiliates. However, 

the equations can be altered to include an indicator variable, denoted D, which takes a value of one for SPE. SPE 

affiliates are identified as affiliates with no local inputs, and OE affiliates are identified as all other affiliates. Under 

the most restrictive criterion, affiliates with no local inputs include affiliates with no compensation. In addition, 

other regressors may be interacted with D in order to determine how reported economic activity varies with 

measured production and its components in the absence of local inputs. The specifications corresponding to 

equations (4.3) and (4.4), respectively, are as follows: 

Cjhik @d0 . Djhik .d QQjhik .d QD (Qjhik オ Djhik ).thik .x jhik (4.5) 

and 

Cjhik @ e0 . Djhik . e L Ljhik . e H H jhik . e HD (H jhik オ Djhik ) .thik .k jhik . (4.6) 

The indicator variables and the interactions in equations (4.5) and (4.6) indicate whether the coefficients estimated 

over OE affiliates are equal to the coefficients estimated over SPE affiliates.5 

5. Data 

The data include survey data collected by BEA on MNEs for 2009 based on financial statements compiled in 

accordance with U.S. generally accepted accounting principles. In particular, the data include those collected for 

U.S. parents and their majority-owned foreign affiliates on the 2009 Benchmark Survey of U.S. Direct Investment 

Abroad (form BE-10). A majority-owned foreign affiliate is an affiliate in which the combined direct and indirect 

ownership interest of the U.S. parent is more than 50 percent. A parent is defined as a person with an investment, 

either directly or indirectly, of 10 percent or more in a foreign business enterprise. Data on U.S. parents generally 

pertain to the fully consolidated U.S. business enterprise and none of the foreign affiliates. Data on a given foreign 

affiliate generally pertain only to the activities of the affiliate and not the U.S. parent or another affiliate. 

5

 Previous work estimates affiliate-level cost functions to answer a variety of inquiries, which under a familiar 

production model implies profit maximization at the affiliate level rather than the firm level. However, MNE 

parents may make decisions for affiliates to maximize profits at the firm level. Since the analysis in this paper 

focuses solely on a comparison of coefficient estimates on measured production between SPE affiliates and OE 

affiliates in order to draw inferences on measured production attributed to SPEs, the analysis does not yield any 

inferences regarding a firm-level cost function. 

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Data collected on the benchmark survey forms include income statement information and balance sheet information. 

Income statement information includes sales by type, location, and affiliation. Other types of income such as 

income from equity investments and holding gains are also collected. In addition, income statement information 

includes detailed expenses such as compensation, accounting depreciation, interest, and taxes. BEA uses 

information from the income statement to measure value-added for each affiliate. Balance sheet information 

includes details regarding assets, liabilities, and equity. 

5.1. Data on Economic Activity 

The measure of economic activity includes sales reported for the affiliate. For affiliates operating in competitive 

markets, sales capture economic costs. From an economic accounting perspective, sales capture gross output. The 

sales data include sales of goods, sales of services, and investment income. Sales may include transactions with 

related parties as well as transactions with unrelated parties. Results reported for the analysis are based on total 

sales. 

5.2. Data on Measured Production 

Measured production includes value-added estimated for the affiliate. In addition to value-added, the data include 

each of the components of value-added: compensation, CCA, IBT, net IP, and PTR. Likewise, the data include 

each of the PTR subcomponents of value-added: net income, foreign income taxes paid, depletion, income from 

equity investments, and holding gains. Thus, in addition to determining the effect of measured value-added on 

economic activity in equations (4.3) and (4.5), the analysis is able to determine with equations (4.4) and (4.6) the 

components of value-added that drive the results in equations (4.3) and (4.5). 

5.3. Sample Selection and Summary Statistics 

Before restrictions, the sample included 55,236 observations of which 3,920 were U.S. parents and 51,316 were 

majority-owned foreign affiliates. The working sample excludes foreign affiliates whose U.S. parents are classified 

to the following industries: funds and trusts, holding companies, religious and civic organizations, and public 

administration. The working sample also excludes foreign affiliates whose U.S. parents appear to have no economic 

activity based on a lack of compensation. After restrictions, the sample includes 54,426 observations of which 3,690 

are U.S. parents and 50,736 are majority-owned foreign affiliates. 

Table 1 presents summary statistics for U.S. parents and all foreign affiliates in the sample. The average parent has 

sales of $2,474.9 million, and the average affiliate has sales of $93.4 million. In both cases, variation in sales is 

relatively high. For parents and affiliates, the largest component of value-added is compensation followed by PTR. 

Net income is the largest subcomponent of PTR but is offset in part by income from equity investments and holding 

gains. The component shares of value-added vary considerably across parents and affiliates. The percentage of 

parents classified to manufacturing, professional, and wholesale trade industries exceeds 10 percent. The percentage 

of affiliates that exceed the same threshold includes affiliates classified to finance, management of companies, 

manufacturing, and wholesale trade. Relatively low numbers of affiliates are located in Africa, Canada, and the 

Middle East. 

Tables 2 and 3 present for U.S. parents and foreign affiliates, respectively, correlation coefficients on reported sales 

and measured value-added and its components. Correlations are generally lower for foreign affiliates. In addition, 

correlations for parents are generally positive with the exception of net interest paid. Likewise, correlations for 

affiliates are generally positive with the exception of net interest paid, income on equity investments, and holding 

gains, which are all quite small. 

6. Results 

The goal is to provide an empirical look at non-resident SPEs whose transactions are included in official statistics on 

USDIA. This section presents results of both a univariate analysis and a multivariate analysis, which treat OE

affiliates as a benchmark group that is more likely than SPE affiliates to engage in real production. The univariate 

analysis focuses on mean comparison tests of characteristics between SPE affiliates and OE affiliates. The 

6 
 

 

 

 

 

 

 

 

 

 

 

 

multivariate analysis focuses on comparing coefficient estimates from regressions of reported sales on measured 

value-added and its components over SPE affiliates and OE affiliates. 

Prior to discussing results of the mean comparison tests and the regressions, table 4 presents sales weighted averages 

for financial statement components and measured value-added of U.S. parents, OE affiliates, and SPE affiliates. 

Each measure in table 4 is a ratio of a given component summed across all entities to sales summed across all 

entities. While sales weighted averages for OE affiliates are generally a bit lower than sales weighted averages for 

parents, the measures are comparable. However, sales weighted averages for SPE affiliates are much higher than 

parents and OE affiliates for total income, net income, assets, liabilities, equity, and the PTR component of valueadded. In addition, the sales weighted average of total value-added for SPE affiliates is much lower than parents and 

OE affiliates, which reflects the definition of SPE affiliates based on no compensation. 

6.1. Industry and Location Characteristics 

Table 5 reports mean comparison tests between OE affiliates and SPE affiliates for industrial classification and 

global regions. At a 5 percent level of significance, differences in the concentration of OE affiliates and SPE 

affiliates exist for all industries except accommodation, health care, and transportation. Based on a threshold of 10 

percent for the mean, OE affiliates are concentrated in manufacturing, professional, and wholesale trade industries, 

and SPE affiliates are concentrated in finance, management, and manufacturing industries. Differences in the 

concentration of OE affiliates and SPE affiliates also exist for all global regions except Europe. Lower 

concentrations of SPE affiliates are located in Asia, Canada, and Middle East. Higher concentrations of SPE 

affiliates are located in Africa and Latin America. Most SPE affiliates are located in Asia, Europe, and Latin 

America, which is consistent with OE affiliates. Overall, table 5 demonstrates that SPE affiliates are not simply 

isolated to a few industries or a single global region. 

6.2. Operating and Financial Characteristics 

Tables 6 and 7 present mean comparison tests between OE affiliates and SPE affiliates for income statement and 

balance sheet components. Total income and total expenses in table 6 are significantly higher for OE affiliates than 

for SPE affiliates. However, net income is significantly higher for SPE affiliates. No differences exist in interest 

receipts and payments. SPE affiliates have no material R&D expenditures, but they do receive more and pay less in 

royalties than their OE counterparts. Royalty receipts are not statistically higher, however. The balance sheet 

components in table 6 reveal SPE affiliates have significantly higher assets and equity than OE affiliates. There is 

no statistical difference in liabilities. The difference in assets between the two groups is explained in large part by 

equity investments in foreign affiliates with some additional differences explained by receivables due from U.S. 

parents. 

Sales in table 7 are parsed by destination, affiliation, and type of product. Sales of goods are relatively large for OE 

affiliates and SPE affiliates and all differences are significant. Sales of services are smaller than sales of goods, and 

there are no detectable differences between the two groups in sales of services to local affiliates and other foreign 

affiliates. Most sales of goods and services are made to non-affiliates in the local economy. Investment income is 

the smallest component of sales for both OE affiliates and SPE affiliates, and the difference in investment income 

from all sources is not statistically significant. Just over 70 percent of sales by OE affiliates are made to nonaffiliates, which implies the typical OE affiliate is established to serve unrelated parties. While just over 50 percent 

of sales by SPE affiliates are made to non-affiliates, the same implication does not necessarily apply because the 

amount of sales to non-affiliates by SPEs is less than 15 percent of the amount of sales to non-affiliates by OEs. 

The results in tables 6 and 7 reveal different operating and financial structures for OE affiliates and SPE affiliates. 

SPE affiliates report stronger operating results than OE affiliates, which is consistent with the sales weighted 

averages reported in table 4. In addition, SPE affiliates have stronger balance sheets than OE affiliates, but the 

results are not nearly as conclusive as the sales weighted averages reported in table 4. Thus, the averages in table 6 

may be diluted by the number of SPE affiliates with very low balance sheet components. 

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6.3. Production and Trade Characteristics 

Tables 8 and 9 include mean comparison tests between OE affiliates and SPE affiliates for trade in goods and for 

measured value-added, respectively. The components of trade in goods include exports of goods to U.S. parents, 

other foreign affiliates, and non-affiliates and include imports of goods from U.S. parents, other foreign affiliates, 

and non-affiliates. For all components, trade in goods is significantly lower for SPE affiliates than for OE affiliates. 

Likewise, value-added and its components are significantly lower for SPE affiliates than for OE affiliates. However, 

the net income and equity income subcomponents of PTR are significantly higher for SPE affiliates, which is 

reflective of the pass-through nature of SPEs. 

While the univariate results presented so far provide a useful descriptive look at characteristics of SPE affiliates

relative to OE affiliates, a multivariate analysis provides a more robust look at production attributable to each group. 

For the typical affiliate in the sample, equations (4.3) and (4.5) yield the change in economic activity associated with 

a change in output, and equations (4.4) and (4.6) yield the change in economic activity associated with a change in 

each of the components of output. If measured production is congruent with reported economic activity, then the 

coefficient estimates should not be different between the two groups. In other words, reported economic activity for 

an affiliate should change by an equivalent amount for a given change in measured production regardless of whether 

the affiliate has local inputs. Alternatively, if measured production is incongruent with reported economic activity, 

then one of two outcomes is possible. First, if measured production is over-attributed to SPE affiliates, the 

coefficient estimates for OE affiliates should be higher than the coefficient estimates for SPE affiliates because 

lower coefficient estimates for SPE affiliates indicate relatively less change in economic activity induced by a given 

change in output. Second, if measured production is under-attributed, the coefficient estimates for OE affiliates 

should be lower than the coefficient estimates for SPE affiliates because higher coefficient estimates for SPE 

affiliates indicate relatively more change in economic activity induced by a given change in output. 

Total Value-Added 

Table 10 provides results from regressions of foreign affiliate total sales on total value-added. Results in column (1) 

of table 10 are based on equation (4.3), and results in column (2) are based on equation (4.5). Since SPE affiliates 

are identified based on the presence of local inputs (i.e., compensation), column (1) reports coefficients estimated 

over all foreign affiliates regardless of the presence of local inputs, and column (2) reports coefficients estimated 

over foreign affiliates conditioned on the absence of local inputs. Thus, the magnitude and significance of the SPE 

indicator and the interaction of value-added with the SPE indicator reveal any differences or similarities between 

SPE affiliates and OE affiliates in the effects of value-added on sales. 

In table 10, the constant term in column (1) indicates that fixed costs attributable to the typical foreign affiliate are 

$60,003, and the coefficient estimate on value-added indicates every dollar in value-added generates $1.78 in 

additional sales. From an economic accounting perspective, every dollar in value-added generates approximately 

$0.78 in intermediate consumption.6

 Column (2) of table 10 indicates that both the constant term and the coefficient 

estimate on value-added are significantly lower for SPE affiliates than for OE affiliates. In other words, SPE 

affiliates have a dampening effect on the relationship between value-added and sales. In general, variation in 

measured production does not appear to generate adequate variation in consequent reported economic activity for 

SPE affiliates, which implies value-added may be over-attributed to SPE affiliates. 

Value-Added Components and Subcomponents 

Tables 11 and 12 report results from regressions of foreign affiliate total sales on value-added components and 

subcomponents, respectively. Results in column (1) of tables 11 and 12 are based on equation (4.4), and results in 

column (2) are based on equation (4.6). Since value-added components and subcomponents are only a part of total 

6

 In the U.S. annual industry accounts, every dollar in value-added generates approximately $0.73 in intermediate 

consumption for all private industries. 

8 
 

 

 

 

 

 

 

 

value-added, the effect of any single component or subcomponent is not comparable to the effect of total valueadded on total sales.7 

The coefficient estimates on value-added components in column (1) of table 11 reflect the relative contribution of 

each component to total sales—compensation has the largest effect and returns to capital have the smallest effect— 

which is generally consistent with each component’s relative contribution to total value-added in table 9. Results for 

compensation, CCA, IBT, and net IP in column (1) of table 12 are comparable to results in table 11. In addition, the 

signs and magnitudes on the coefficient estimates for net income, equity income, holding gains, and foreign taxes 

paid in column (1) of table 12 generally reflect each subcomponent’s relative contribution to the PTR component of 

value-added in table 9. The negative sign on equity income demonstrates the offsetting effects between net income 

and equity income. 

The SPE indicator in column (2) of tables 11 and 12 indicates that fixed costs do not change in the absence of local 

inputs once value-added is broken down into its components and subcomponents. In addition, results for 

compensation, CCA, IBT, and net IP are comparable in column (2) of tables 11 and 12. In both tables, the 

coefficient estimate on IBT is much larger in the absence of local inputs since a large proportion of costs attributed 

to SPEs are probably generated by registration and other legal requirements. In table 11, the PTR component of 

value-added is the only component of value-added that is significantly lower for SPE affiliates than for OE affiliates. 

Likewise, in table 12, the net income subcomponent of PTR is the only subcomponent of PTR that is significantly 

lower for SPE affiliates. Moreover, the offsetting effects between net income and equity income are also reflected 

in the absence of local inputs. Thus, in addition to the dampening effect on the relationship between total valueadded and total sales demonstrated in table 10, SPE affiliates have a dampening effect on the relationship between 

PTR and total sales and on the relationship between net income and total sales. These results are consistent with 

Lipsey’s (2010) results obtained using aggregate statistics on activities of MNEs. 

Robustness 

The multivariate analysis includes four robustness checks. First, SPE affiliates are identified in the reported results

based on affiliates with no compensation. Under a less restrictive criterion, SPE affiliates are identified based on 

affiliates with no compensation, no PPE, and no inventories. The less restrictive criterion yields a robust set of 

results. Second, total sales used in the reported results include sales to related parties as well as unrelated parties. 

Since sales to related parties may include noise related to intrafirm financing arrangements and intrafirm 

transactions in goods and services, the analysis also uses unaffiliated sales as a measure of economic activity, which 

does not change conclusions. Third, the sample includes 3,242 records created by BEA because of non-response or 

inconsistent responses. Reported results are robust to the exclusion of these records. Finally, since 2009 was 

affected by a global recession, the analysis was replicated with data collected on U.S. parents and their majorityowned foreign affiliates on the 2004 Benchmark Survey of U.S. Direct Investment Abroad (form BE-10). The 

additional analysis does not change conclusions. 

7. Conclusions 

This paper provides an empirical look at non-resident SPEs whose transactions are included in official statistics on 

USDIA. In particular, the paper treats OE affiliates as a benchmark group in a univariate and a multivariate analysis

of characteristics available in survey data. The results reveal a large number of non-resident SPEs sponsored by 

U.S. MNEs, which are not isolated to a few industries or a single global region. In addition, significant differences 

exist between SPE affiliates and OE affiliates in their balance sheet components such as assets and equity and in 

their income statement components such as sales and net income. Significant differences also result for measured 

value-added. In particular, variation in measured value-added does not appear to generate adequate variation in 

consequent sales for SPE affiliates, which implies value-added is over-attributed to SPE affiliates. Moreover, the 

lack of variation is most evident in the profits component of value-added, which is consistent with Lipsey’s (2010) 

results using aggregate statistics on activities of MNEs. Given the fact pattern demonstrated in the microdata, 

measured production attributed to SPE affiliates appears to be incongruent with reported economic activity. 

7

 In addition to the results shown in tables 11 and 12, Wald tests are calculated on the joint significance of each 

component and subcomponent and on the equality of all components and subcomponents. In each case, the null 

hypothesis is rejected. 

9 
 

 

 

 

 

 

 

 

 

 

 

 

 

References 

Baldwin, Robert E. and Fukunari Kimura. 1998. “Measuring U.S. International Goods and Services Transactions” 

in Geography and Ownership Bases for Economic Accounting, Robert E. Baldwin, Robert E. Lipsey, and J. David 

Richards (eds.), Chicago, IL: The University of Chicago Press, pp. 9-48. 

Brainard, S. Lael. 1993. “An Empirical Assessment of the Factor Proportions Explanation of Multinational Sales.” 

NBER Working Paper No. 4583. 

Brainard, S. Lael. 1997. “An Empirical Assessment of the Proximity-Concentration Trade-Off between 

Multinational Sales and Trade.” The American Economic Review, 87(4), pp. 520-544. 

Carr, David L; James R. Markusen; and Keith E. Maskus. 2001. “Estimating the Knowledge-Capital Model of the 

Multinational Enterprise.” The American Economic Review, 91(3), pp. 693-708. 

Caves, Richard E. 1971. “International Corporations: The Industrial Economics of Foreign Investment.” 

Economica, 38(149), pp. 1-27. 

Diewert, W. Erwin. 1974. “Applications of Duality Theory” in Frontiers of Quantitative Economics, Vol. II, M. 

Intriligator and D. Kendrick (eds.), Amsterdam: North-Holland, pp. 106-171. 

European Central Bank, Eurostat, and Organisation for Economic Co-operation and Development. 2013. “Report 

by the Task Force on Head Offices, Holding Companies, and Special Purpose Entities.” Paper presented at the 8th 

Meeting of the Advisory Expert Group on National Accounts, Luxembourg. 

Federico, Stefano. 2015. “How does Multinational Production affect the Measurement of Competitiveness?” Paper 

presented at the March OECD Working Group on International Investment Statistics, Paris, France. 

Hanson, Gordon H., Raymond J. Mataloni, Jr., and Matthew J. Slaughter. 2005. “Vertical Production Networks in 

Multinational Firms.” The Review of Economics and Statistics, 87(4), pp. 664-678. 

Helpman, Elhanan. 1984. “A Simple Theory of International Trade with Multinational Corporations.” Journal of 

Political Economy, 92(3), pp. 451-471. 

Horst, Thomas. 1971. “The Theory of the Multinational Firm: Optimal Behavior under Different Tariff and Tax 

Rates.” The American Economic Review, 67(3), pp. 376-389. 

Kimura, Fukunari, and Robert E. Baldwin. 1998. “Application of a Nationality-Adjusted Net Sales and ValueAdded Framework: The Case of Japan” in Geography and Ownership Bases for Economic Accounting, Robert E. 

Baldwin, Robert E. Lipsey, and J. David Richards (eds.), Chicago, IL: The University of Chicago Press, pp. 49-82. 

Lipsey, Robert E. 2010. “Measuring the Location of Production in a World of Intangible Productive Assets, FDI, 

and Intrafirm Trade.” Review of Income and Wealth, 56(1), S99-S110. 

Markusen, James R. 1984. “Multinational, Multi-Plant Economies, and the Gains from Trade.” Journal of 

International Economics, 16(3-4), pp. 205-226. 

Markusen, James R. 1997. “Trade versus Investment Liberalization.” NBER Working Paper No. 6231. 

Mataloni, Raymond J. Jr. and Lee Goldberg. 1994. “Gross Product of U.S. Multinational Companies, 1977-91.” 

Survey of Current Business, 74(2), pp. 42-63. 

Rassier, Dylan G. 2015a. “Formulary Measures for the U.S. Current Account: Accounting for Transactions 

Attributable to Special Purpose Entities of Multinational Enterprises.” Journal of Economic and Social 

Measurement, 39(4), pp. 257-281. 

10 
 

 

 

 

 

Rassier, Dylan G. 2015b. “Improving the SNA Treatment of Transactions within Multinational Enterprises.” Paper 

presented at the IARIW-OECD on “W(h)ither the SNA?”, Paris, France. 

Rassier, Dylan G. and Jennifer Koncz-Bruner. 2015. “A Formulary Approach for Attributing Measured Production 

to Foreign Affiliates of U.S. Parents,” in Measuring Globalization: Better Trade Statistics for Better Policy, 

Susan N. Houseman and Michael Mandel (eds.), Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 

pp. 229-262. 

Shepard, R.W. 1970. Theory of Cost and Production Functions. Princeton, NJ: Princeton University Press. 

United Nations, Eurostat, and Organisation for Economic Co-operation and Development. 2011. The Impact of 

Globalization on National Accounts, Geneva, Switzerland: United Nations. 

11 
Figure 1: Measurement Framework for Value-Added Attributable to Foreign Affiliates 

 

Compensation 

Value-Added = 

+ 

CCA 

+ 

+ 

= Royalties Paid 

–

Taxes (except payroll and income) 

Costs Incurred = IBT 

Subsidies Received 

+ 

Interest Paid 

Net IP = –

Interest Received 

+ 

Profits Earned = 

+ 

= Depletion 

–

Net Income 

+ 

Foreign Income Taxes Paid 

PTR 

Income from Equity Investments 

–

Holding Gains 

12
Table 1 

Summary Statistics for U.S. Parents and Foreign Affiliates 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Parents Foreign Affiliates 

Mean Std. Dev. 

2,474.9 9,955.5 

698.4 2,689.8 

427.3 1,479.3 

97.9 604.4 

49.6 431.4 

- 7.3 472.5 

130.9 914.7 

168.3 2,032.1 

82.0 725.4 

- 1.4 1,806.9 

36.7 351.4 

0.000 0.000

0.008 0.088

0.020 0.138

0.009 0.094

0.004 0.061

0.044 0.206

0.004 0.064

0.098 0.298

0.024 0.152

0.001 0.033 

0.453 0.498 

0.018 0.134

0.015 0.121

0.118 0.322 

0.022 0.147

0.024 0.154

0.025 0.155

0.008 0.088 

0.106 0.307

Observations 3,690 50,736 

Sales (millions USD) 

Value-added (millions USD) 

Compensation

Capital consumption allowance 

Indirect business taxes 

Net interest paid 

Profit-type return 

Net income 

Equity income 

Holding gains 

Foreign taxes paid 

SPE indicator 

Industry Indicators 

Accommodation and food 

Administration 

Construction 

Farming, fishing, forestry 

Finance 

Health care 

Information 

Insurance 

Management of companies 

Manufacturing 

Mining 

Miscellaneous services 

Professional, scientific, technical 

Real estate 

Retail trade 

Transportation and warehousing 

Utilities 

Wholesale trade 

Global Region Indicators 

Africa 

Asia 

Canada 

Europe 

Latin America 

Middle East 

Mean 

93.4 

22.3 

9.4 

2.3 

3.6 

- 0.9 

7.8 

15.3 

10.4 

- 0.6 

2.1 

 0.369

 0.009

 0.024

 0.006

 0.002

 0.100

 0.002

 0.069

 0.022

0.106 

0.316 

 0.035

 0.010

0.091 

 0.029

 0.017

 0.023

0.005 

 0.134

 0.029

 0.249

 0.062

 0.477

 0.167

 0.017

Std. Dev. 

617.5 

175.4 

53.8 

23.0 

89.1 

35.8 

103.2 

209.9 

185.5 

63.2 

38.0 

 0.483 

 0.093 

 0.152 

 0.074 

 0.047 

 0.300 

 0.049 

 0.254 

 0.147 

0.308 

0.465 

 0.184 

 0.097 

0.287 

 0.167 

 0.130 

 0.150 

0.072 

 0.341 

 0.168 

 0.432 

 0.242 

 0.499 

 0.373 

 0.128 

13 
Table 2 

Correlation Coefficients for U.S. Parents 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) 

(1) Sales 1.00 

(2) Value-added 0.81 1.00 

(3) Compensation 0.80 0.88 1.00 

(4) Capital consumption allowance 0.52 0.69 0.49 1.00 

(5) Indirect business taxes 0.70 0.59 0.46 0.32 1.00 

(6) Net interest paid - 0.11 0.08 - 0.17 0.04 0.07 1.00 

(7) Profit-type return 0.46 0.75 0.51 0.41 0.28 - 0.05 1.00 

(8) Net income 0.39 0.39 0.34 0.23 0.20 - 0.05 0.37 1.00 

(9) Equity income 0.50 0.33 0.38 0.25 0.42 - 0.10 0.04 0.33 1.00 

(10) Holding gains 0.09 0.05 0.05 0.01 - 0.00 0.01 0.04 0.88 0.00 1.00 

(11) Foreign taxes paid 0.39 0.56 0.40 0.25 0.31 0.02 0.70 0.30 0.21 0.07 1.00 

Observations 3,690 

Table 3 

Correlation Coefficients for Foreign Affiliates 

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) 

(1) Sales 1.00 

(2) Value-added 0.63 1.00 

(3) Compensation 0.53 0.52 1.00 

(4) Capital consumption allowance 0.38 0.53 0.30 1.00 

(5) Indirect business taxes 0.41 0.66 0.16 0.16 1.00 

(6) Net interest paid - 0.07 0.10 0.01 0.06 0.02 1.00 

(7) Profit-type return 0.38 0.71 0.16 0.37 0.13 - 0.20 1.00 

(8) Net income 0.14 0.23 0.05 0.09 0.03 - 0.14 0.37 1.00 

(9) Equity income 0.00 - 0.01 - 0.00 - 0.00 0.01 - 0.02 - 0.01 0.87 1.00 

(10) Holding gains - 0.03 - 0.09 0.01 - 0.04 - 0.05 - 0.05 - 0.08 0.23 - 0.01 1.00 

(11) Foreign taxes paid 0.20 0.44 0.13 0.40 0.13 0.07 0.46 0.10 0.02 0.16 1.00 

Observations 50,736 

14 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 4 

Sales Weighted Averages for Financial Statement Components and Measured Value-Added of U.S. Parents and 

Foreign Affiliates 

U.S. Parents OE Affiliates SPE Affiliates 

Income Statement 

Total income 1.045 1.038 1.996

Total expenses 0.977 0.963 1.047

Net income 0.068 0.075 0.949

Interest receipts 0.064 0.033 0.168

Interest payments 0.043 0.022 0.123

R&D expenditures 0.023 0.009 0.000

Balance Sheet 

Assets 2.998 2.373 17.626

Liabilities 2.289 1.662 8.028

Equity 0.709 0.710 9.599

Value-Added 

Value-added 0.282 0.253 0.115

Compensation 0.173 0.112 0.000

Capital consumption allowance 0.040 0.025 0.029 

Indirect business taxes 0.020 0.042 0.012

Net interest paid - 0.003 - 0.005 - 0.047 

Profit-type return 0.053 0.079 0.121

Observations 3,690 32,010 18,726

15
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 5 

Mean Comparison Tests for Industries and Global Regions of Foreign Affiliates 

OE Affiliates SPE Affiliates P-Value 

H0: μOE – μSPE = 0 

Mean Std. Dev. Mean Std. Dev. HA: μOE – μSPE ≠ 0 

Industry Indicators 

Accommodation and food 0.008 0.092 0.009 0.096 0.336 

Administration 0.026 0.159 0.020 0.139 0.000 

Construction 0.005 0.071 0.006 0.080 0.039 

Farming, fishing, forestry 0.003 0.053 0.001 0.034 0.000 

Finance 0.055 0.228 0.176 0.381 0.000 

Health care 0.002 0.047 0.003 0.052 0.280 

Information 0.083 0.275 0.047 0.211 0.000 

Insurance 0.020 0.141 0.025 0.156 0.000 

Management of companies 0.010 0.100 0.271 0.444 0.000 

Manufacturing 0.409 0.492 0.157 0.364 0.000 

Mining 0.022 0.146 0.057 0.232 0.000 

Miscellaneous services 0.012 0.111 0.005 0.067 0.000 

Professional, scientific, technical 0.109 0.311 0.061 0.238 0.000 

Real estate 0.012 0.109 0.057 0.233 0.000 

Retail trade 0.023 0.151 0.007 0.082 0.000 

Transportation and warehousing 0.023 0.150 0.023 0.149 0.890 

Utilities 0.005 0.068 0.006 0.079 0.015 

Wholesale trade 0.173 0.378 0.069 0.253 0.000 

Global Region Indicators 

Africa 0.024 0.152 0.038 0.192 0.000 

Asia 0.278 0.448 0.198 0.399 0.000 

Canada 0.071 0.257 0.047 0.212 0.000 

Europe 0.475 0.499 0.479 0.500 0.489 

Latin America 0.134 0.340 0.223 0.417 0.000 

Middle East 0.018 0.133 0.014 0.119 0.002 

Observations 32,010 18,726

16
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 6 

Mean Comparison Tests for Financial Statement Components of Foreign Affiliates 

(millions USD) 

OE Affiliates SPE Affiliates P-Value 

H0: μOE – μSPE = 0 

Mean Std. Dev. Mean Std. Dev. HA: μOE – μSPE ≠ 0 

Income Statement 

Total income 137.8 753.0 51.6 444.3 0.000 

Sales 132.9 729.7 25.9 340.4 0.000 

Equity income 2.9 120.7 23.2 260.9 0.000 

Holding gains - 0.7 70.1 - 0.4 49.3 0.639 

U.S. parent share - 0.4 48.5 - 0.5 40.0 0.831 

Total expenses 127.9 708.7 27.1 338.3 0.000 

Net income 9.9 162.9 24.5 271.9 0.000 

U.S. parent share 3.9 79.9 8.5 187.7 0.000 

Interest receipts 4.4 73.2 4.4 53.6 0.919

Interest payments 3.0 48.7 3.2 36.2 0.628

R&D expenditures 1.2 17.2 0.0 0.0 0.000 

Own account 1.0 16.1 0.0 0.0 0.000 

Others 0.0 1.5 0.0 0.0 0.088

Royalty receipts 0.6 27.8 0.9 49.7 0.515

Royalty payments 1.7 53.3 0.3 17.1 0.001

Balance Sheet 

Assets 315.2 5,126.6 455.9 3,475.7 0.001 

Liabilities 220.8 4,844.7 207.7 2,900.1 0.735 

Equity 94.4 841.1 248.2 1,638.8 0.000

Observations 32,010 18,726

17
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 7 

Mean Comparison Tests for Sales of Foreign Affiliates 

(millions USD) 

OE Affiliates SPE Affiliates P-Value 

H0: μOE – μSPE = 0 

Mean Std. Dev. Mean Std. Dev. HA: μOE – μSPE ≠ 0 

Total Sales to: 

All sources 132.9 729.7 25.9 340.4 0.000 

U.S. parents 8.7 132.3 2.5 74.5 0.000 

Local affiliates 6.5 120.3 4.2 84.3 0.022 

Other foreign affiliates 21.0 265.7 5.7 134.6 0.000 

U.S. non-affiliates 2.5 48.3 0.7 22.8 0.000

Local non-affiliates 76.1 429.7 8.4 99.3 0.000 

Other foreign non-affiliates 18.1 238.6 4.3 149.7 0.000 

Sales of Services to: 

All sources 24.2 192.7 6.3 94.3 0.000 

U.S. parents 1.0 21.8 0.4 9.9 0.000 

Local affiliates 0.9 24.0 1.3 55.4 0.238

Other foreign affiliates 1.3 47.1 1.5 43.1 0.712 

U.S. non-affiliates 0.6 33.3 0.2 6.2 0.092 

Local non-affiliates 18.5 152.9 2.1 24.9 0.000 

Other foreign non-affiliates 1.9 45.2 0.8 38.6 0.007

Sales of Goods to: 

All sources 104.3 689.1 16.1 321.0 0.000 

U.S. parents 7.5 129.8 1.8 73.4 0.000 

Local affiliates 5.4 117.1 2.3 62.2 0.001 

Other foreign affiliates 19.5 260.7 3.7 126.7 0.000 

U.S. non-affiliates 1.8 34.2 0.3 14.7 0.000

Local non-affiliates 54.3 387.3 4.6 89.7 0.000 

Other foreign non-affiliates 15.9 230.8 3.3 143.4 0.000 

Investment Income from: 

All sources 4.3 73.7 3.5 45.2 0.151

U.S. parents 0.2 7.8 0.3 8.3 0.258

Local affiliates 0.2 8.0 0.6 10.4 0.000 

Other foreign affiliates 0.2 9.3 0.4 9.3 0.010 

U.S. non-affiliates 0.1 7.0 0.2 15.6 0.190 

Local non-affiliates 3.3 59.7 1.7 29.9 0.001

Other foreign non-affiliates 0.3 21.7 0.3 15.2 0.799

Observations 32,010 18,726

18
 

 

 

 

 

Table 8 

Mean Comparison Tests for Trade in Goods Components of Foreign Affiliates 

(millions USD) 

 

 

 

 

 

 

 

 

 

 

P-Value 

H0: μOE – μSPE = 0 

HA: μOE – μSPE ≠ 0 

Exports of Goods to: 

U.S. parents 0.000 

U.S. non-affiliates 0.000 

Imports of Goods from: 

U.S. parents 0.000 

U.S. non-affiliates 0.000 

OE Affiliates SPE Affiliates 

Mean Std. Dev. Mean Std. Dev. 

5.4 81.0 0.5 18.2 

1.1 24.0 0.0 2.9 

6.0 121.7 1.2 67.5 

1.2 19.6 0.2 11.7 

Observations 32,010 18,726 

Table 9 

Mean Comparison Tests for Measured Value-Added of Foreign Affiliates 

(millions USD) 

19 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

P-Value 

H0: μOE – μSPE = 0 

HA: μOE – μSPE ≠ 0 

0.000 

0.000 

0.000 

0.000 

0.106 

0.000 

0.000 

0.000 

0.639 

0.000 

OE Affiliates SPE Affiliates 

Mean Std. Dev. Mean Std. Dev. 

Value-added 33.6 207.3 3.0 96.8 

Compensation 14.9 67.1 0.0 0.0 

Capital consumption allowance 3.3 26.5 0.7 15.4 

Indirect business taxes 5.6 111.9 0.3 8.2 

Net interest paid - 0.7 32.4 - 1.2 41.1 

Profit-type return 10.5 110.7 3.1 88.7 

Net income 9.9 162.9 24.5 271.9 

Equity income 2.9 120.7 23.2 260.9 

Holding gains - 0.7 70.1 - 0.4 49.3 

Foreign taxes paid 2.6 40.9 1.3 32.5 

Observations 32,010 18,726 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 10 

Regression of Foreign Affiliate Total Sales on Total Value-Added 

(1) (2) 

Coefficient P-Value Coefficient P-Value 

Value-added 1.779 0.000 1.921 0.000 

Value-added × SPE indicator - 1.428 0.000 

Constant 60,003 0.000 95,255 0.000 

SPE indicator - 68,422 0.000 

F test for fixed effects 88.450 0.000 52.740 0.000 

Within R20.289 0.310 

Observations 21,931 21,931 

Groups 6,851 6,851 

Note: Estimation includes fixed effects for parent-industry-country groups, and p-values are based on standard errors 

clustered by parent-industry-country groups. The SPE indicator takes a value of 1 if a foreign affiliate has no local 

inputs (i.e., no compensation) and takes a value of 0 if a foreign affiliate has local inputs. 

Table 11 

Regression of Foreign Affiliate Total Sales on Value-Added Components 

(1) (2) 

Coefficient P-Value Coefficient P-Value 

Compensation 4.197 0.000 4.163 0.000 

Capital consumption allowance 3.316 0.007 3.108 0.012 

Indirect business taxes 1.907 0.000 1.873 0.000 

Indirect business taxes × SPE indicator 3.877 0.005 

Net interest paid - 0.596 0.200 - 0.945 0.142 

Net interest paid × SPE indicator 0.118 0.882 

Profit-type return 1.049 0.001 1.308 0.000 

Profit-type return × SPE indicator - 1.264 0.005 

Constant 37,809 0.000 50,138 0.001 

SPE indicator - 24,259 0.225 

F test for fixed effects 25.400 0.000 30.090 0.000 

Within R20.370 0.381 

Observations 21,931 21,931 

Groups 6,851 6,851 

Note: Estimation includes fixed effects for parent-industry-country groups, and p-values are based on standard errors 

clustered by parent-industry-country groups. The SPE indicator takes a value of 1 if a foreign affiliate has no local 

inputs (i.e., no compensation) and takes a value of 0 if a foreign affiliate has local inputs. 

20 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 12 

Regression of Foreign Total Affiliate Sales on Value-Added Components and Subcomponents 

(1) (2) 

Coefficient P-Value Coefficient P-Value 

Compensation 4.119 0.000 4.117 0.000 

Capital consumption allowance 3.689 0.003 3.494 0.005 

Indirect business taxes 1.962 0.000 1.959 0.000 

Indirect business taxes × SPE indicator 3.652 0.006 

Net interest paid - 0.359 0.420 - 0.250 0.687 

Net interest paid × SPE indicator - 0.635 0.391 

Net income 1.182 0.001 1.570 0.000 

Net income × SPE indicator - 1.652 0.000 

Equity income - 1.164 0.001 - 1.556 0.000 

Equity income × SPE indicator 1.635 0.000 

Holding gains - 0.671 0.132 - 0.959 0.050 

Holding gains × SPE indicator 1.479 0.022 

Foreign taxes paid 0.224 0.596 - 0.002 0.997 

Foreign taxes paid × SPE indicator 1.087 0.172 

Constant 38,925 0.000 53,764 0.000 

SPE indicator - 31,477 0.116 

F test for fixed effects 18.540 0.000 20.170 0.000 

Within R2 0.376 0.392 

Observations 21,931 21,931 

Groups 6,851 6,851 

Note: Estimation includes fixed effects for parent-industry-country groups, and p-values are based on standard errors 

clustered by parent-industry-country groups. The SPE indicator takes a value of 1 if a foreign affiliate has no local 

inputs (i.e., no compensation) and takes a value of 0 if a foreign affiliate has local inputs. 

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