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American Economic Review Vol. 100 No. 4 2010

Technology Capital and the US Current Account

Ellen R. McGrattan1; Edward C. Prescott2

1 Federal Reserve Bank of Minneapolis, Research Department, 90 Hennepin Avenue, Minneapolis, MN 55480–0291, and University of Minnesota. · 2 Arizona State University, Department of Economics, P.O. Box 873806, Tempe, AZ 85287-3806, and Federal Reserve Bank of Minneapolis.

Abstract

The US Bureau of Economic Analysis (BEA) estimates that the return on investments of foreign subsidiaries of US multinational companies over the period 1982–2006 averaged 9.4 percent annually after taxes; US subsidiaries of foreign multinationals averaged only 3.2 percent. BEA returns on foreign direct investment (FDI) are distorted because most intangible investments made by multinationals are expensed. We develop a multicountry general equilibrium model with an essential role for FDI and apply the BEA's methodology to construct economic statistics for the model economy. We estimate that mismeasurement of intangible investments accounts for over 60 percent of the difference in BEA returns.

DOI
10.1257/aer.100.4.1493
Volume
100
Issue
4
Pages
1493-1522
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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