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Global imbalances and asymmetric returns to US foreign assets: fitting the missing pieces of the US balance of payments puzzle

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  • Mona Ali

Abstract

The issue of whether the US earns a persistently higher return on its foreign direct investment (relative to returns to foreign-owned direct investment in the US) has received considerable attention but little closure in the ‘global imbalances’ debate. Measuring the rate of returns to US direct investment abroad and foreign direct investment in the US we find higher returns to US foreign direct investment relative to its foreign counterparts in the US. Given the evidence indicating higher returns to US direct investment overseas, we link the irresolution in the contemporary literature regarding the existence of these returns to the unsettled debate over the origin of global imbalances. Reviewing the macro-financial literature on global imbalances, we find a failure to acknowledge that the US current account deficit is, in part, the outcome of transnational production networks in a global economy under-pinned by dollar hegemony. Given the growth in US multinational supply chains, we argue that the US trade deficit is consistent with asymmetric returns to US direct investment and that the sustainability of these return differentials rests on the stability of the status quo.

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  • Mona Ali, 2016. "Global imbalances and asymmetric returns to US foreign assets: fitting the missing pieces of the US balance of payments puzzle," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(2), pages 167-187, March.
    • Handle: RePEc:taf:irapec:v:30:y:2016:i:2:p:167-187
    DOI: 10.1080/02692171.2015.1085002
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    1. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
    2. Juann H. Hung & Angelo Mascaro, 2004. "Return on Cross-Border Investment: Why Does U.S. Investment Abroad Do Better? Technical Paper 2004-17," Working Papers 16204, Congressional Budget Office.
    3. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993, October.
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    Cited by:

    1. Stefan Angrick, 2018. "Structural conditions for currency internationalization: international finance and the survival constraint," Review of International Political Economy, Taylor & Francis Journals, vol. 25(5), pages 699-725, September.

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