Returns of FDI
Subtitle: does the U.S. really do better?
By: Barry Bosworth, Susan M. Collins, Gabriel Chodorow-Reich.
Contributors: Collins, Susan Margaret.; Chodorow-Reich, Gabriel.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13313.; Working paper series (National Bureau of Economic Research) -- working paper no. 13313.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 20
Subjects: Rate of return -- United States -- Mathematical models; Investments, Foreign -- United States
Description: According to the U.S. external accounts, U.S. investors earn a significantly higher rate of return on their foreign investments than foreigners earn in the United States. This continued strong performance has produced a positive net investment income balance despite the deterioration in the U.S. net asset position in recent years. We examine the major competing explanations for the apparent differential between the rates of return. In particular, almost the entire difference occurs in FDI, where American firms operating abroad appear to earn a persistently higher return than that earned by foreign firms operating in the U.S. We first review a number of explanations in the literature for this differential. We then offer some new evidence on the role of income shifting between jurisdictions with varying rates of taxation. Using country-specific income and tax data, we find that about one-third of the excess return earned by U.S. corporations abroad can be explained by firms reporting "extra" income in low tax jurisdictions of their affiliates.
Notes: "August 2007"

Includes bibliographical references (p. 19-20).

Also available in PDF from the NBER World Wide Web site (www.nber.org).