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What Is Real and What Is Not in the Global FDI Network?

Author

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  • Jannick Damgaard
  • Thomas Elkjaer
  • Niels Johannesen

Abstract

Macro statistics on foreign direct investment (FDI) are blurred by offshore centers with enormous inward and outward investment positions. This paper uses several new data sources, both macro and micro, to estimate the global FDI network while disentangling real investment and phantom investment and allocating real investment to ultimate investor economies. We find that phantom investment into corporate shells with no substance and no real links to the local economy may account for almost 40 percent of global FDI. Ignoring phantom investment and allocating real investment to ultimate investors increases the explanatory power of standard gravity variables by around 25 percent.

Suggested Citation

  • Jannick Damgaard & Thomas Elkjaer & Niels Johannesen, 2019. "What Is Real and What Is Not in the Global FDI Network?," IMF Working Papers 2019/274, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/274
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    Keywords

    WP; Total FDI; investor economy; FDI position; conversion factor; Global FDI Network; Special Purpose Entities; Phantom FDI; Real FDI; inward FDI; FDI statistics; FDI network; Foreign direct investment; Special purpose vehicle; Tax avoidance; Offshore financial centers; Business enterprises; Global;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F30 - International Economics - - International Finance - - - General

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