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Technology Capital and the U.S. Current Account

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Author Info
Ellen R. McGrattan
Edward C. Prescott

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Abstract

The U.S. Bureau of Economic Analysis (BEA) estimates the return on investments of foreign subsidiaries of U.S. multinational companies over the period 1982--2006 averaged 9.4 percent annually after taxes; U.S. subsidiaries of foreign multinationals averaged only 3.2 percent. Two factors distort BEA returns: technology capital and plant-specific intangible capital. Technology capital is accumulated know-how from intangible investments in R&D, brands, and organizations that can be used in foreign and domestic locations. Used abroad, it generates profits for foreign subsidiaries with no foreign direct investment (FDI). Plant-specific intangible capital in foreign subsidiaries is expensed abroad, lowering current profits on FDI and increasing future profits. 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13983.

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Date of creation: May 2008
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Handle: RePEc:nbr:nberwo:13983

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F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "From World Banker to World Venture Capitalist: U.S. External Adjustment and the Exorbitant Privilege," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 11-66 National Bureau of Economic Research, Inc. [Downloadable!]
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  2. Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, regulations, and the value of U.S. and U.K. corporations," Staff Report 309, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  3. Ricardo Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2006. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," Center for International and Development Economics Research, Working Paper Series 1067, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
    Other versions:
  4. Stephanie E. Curcuru & Tomas Dvorak & Francis E. Warnock, 2008. "Cross-Border Returns Differentials," NBER Working Papers 13768, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Alessandra Fogli & Fabrizio Perri, 2006. "The "Great Moderation" and the US External Imbalance," NBER Working Papers 12708, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Ellen R. McGrattan & Edward C. Prescott, 2003. "Average Debt and Equity Returns: Puzzling?," American Economic Review, American Economic Association, vol. 93(2), pages 392-397, May. [Downloadable!]
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  7. David Backus & Espen Henricksen & Frederic Lambert & Chris Telmer, 2005. "Current Account Fact and Fiction," 2005 Meeting Papers 115, Society for Economic Dynamics.
  8. Enrique G. Mendoza & Vincenzo Quadrini & Jose-Victor Rios-Rull, 2007. "Financial Integration, Financial Deepness and Global Imbalances," NBER Working Papers 12909, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Maurice Obstfeld & Kenneth Rogoff, 2005. "The Unsustainable US Current Account Position Revisited," Center for International and Development Economics Research, Working Paper Series 1063, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  10. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2006. "Transfer Pricing by U.S.-Based Multinational Firms," NBER Working Papers 12493, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Carol Corrado & Charles Hulten & Daniel Sichel, 2005. "Measuring Capital and Technology: An Expanded Framework," NBER Chapters, in: Measuring Capital in the New Economy, pages 11-46 National Bureau of Economic Research, Inc. [Downloadable!]
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  12. Ellen R. McGrattan & Edward C. Prescott, 2008. "Openness, technology capital, and development," Staff Report 396, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  13. Ricardo Hausmann and Federico Sturzenegger, 2006. "Global imbalances or bad accounting? The missing dark matter in the wealth of nations," Business School Working Papers globalimbal, Universidad Torcuato Di Tella. [Downloadable!]
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Cited by:
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  1. Barry Bosworth & Susan M. Collins & Gabriel Chodorow-Reich, 2007. "Returns on FDI: Does the U.S. Really Do Better?," NBER Working Papers 13313, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Ellen R. McGrattan & Edward C. Prescott, 2008. "Openness, technology capital, and development," Staff Report 396, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
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