Technology capital and the US current account

Ellen R. McGrattan, Edward Prescott

Research output: Contribution to journalArticle

45 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1493-1522
Number of pages30
JournalAmerican Economic Review
Volume100
Issue number4
DOIs
StatePublished - Sep 1 2010

ASJC Scopus subject areas

  • Economics and Econometrics

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