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Technology Capital and the U.S. Current Account

  • Ellen R McGrattan
  • Edward C Prescott

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. (JEL F23, F32)

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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000001827.

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Date of creation: 09 Jan 2008
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Handle: RePEc:cla:levrem:122247000000001827
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