Technology Capital and the U.S. Current Account

By Ellen R Mcgrattan, Edward C. Prescott. 2009

172 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/dd8d762cf74f34c9c45d3a707a6115219af0b68a

Citations in the corpus

• The Bright Side of Political Uncertainty: The Case of R&D (2015, unknown): “The technological change induced by R&D significantly increas s the productivity and boosts endogenous growth for firms (e.g., Arrow (1962), Hall (2002), Bond et al. (2003), McGrattan and Prescott (2009, 2010) and Holmes et al. (2011)).”
• Financial Integration, Financial Development, and Global Imbalances (2009, unknown): “2 See also Attanasio, Kitao, & Violante (2006),Bernanke (2005), Croke, Kamin, & Leduc (2005), Gourinchas & Rey (2007), Hausmann & Sturzenegger (2006), Henriksen (2005), Lane & Milesi-Ferretti (2007), Caballero, Farhi, & Gourinchas (2008), Cavallo & Tille (2006), Engel & Rogers (2006), Fogli & Perri ”
• The Value and Ownership of Intangible Capital (2014, unknown): “2See the important contributions in Corrado, Haltiwanger and Sichel (2005), Atkeson and Kehoe (2005), McGrattan and Prescott (2010), and Corrado, Hulten and Sichel (2009). talent essentially owns the cash flows from intangible capital they generate to the extent that such capital is portable.”
• Multinational Firms and International Business Cycle Transmission (2016, unknown): “…in the literature on multinational production, see, among many others, Helpman (1984); Markusen (1984); Helpman et al. (2004) and more recently McGrattan and Prescott (2009, 2010); Burstein and Monge-Naranjo (2009); Keller and Yeaple (2013); Ramondo and Rodríguez-Clare (2013); Ramondo (2014);…”
• Migrants, Ancestors, and Foreign Investments (2018, unknown): “Peri (2014): “Isolating the Network Effect of Immigrants on Trade,” The World Economy, 37, 434–45. Alesina, A., A. Devleeschauwer, W. Easterly, S. Kurlat, and R. Wacziarg (2003): “Fractionalization,” Journal of Economic Growth, 8, 155–194. Alesina, A., J. Harnoss, and H. Rapoport (2015a): “Birthplac”
• Americans Do I.T. Better: US Multinationals and the Productivity Miracle (2012, unknown): “Interestingly, these results are also consistent with the literature reporting that US multinationals appear to be earning extremely high rates of return abroad from intangible capital ( “dark matter” , particularly since the mid-1990s ( e.g., McGrattan and Prescott 2008 .”
• Intrafirm trade and vertical fragmentation in U.S. multinational corporations (2015, unknown): “…to solve related problems, as in Garicano and Rossi-Hansberg (2006); the stock of technology capital — specific to goods of similar characteristics — as in McGrattan and Prescott (2010); managerial ability, as in Bloom and Van Reenen (2007); core capabilities, as in Bernard et al. (2011); and the…”
• Quid Pro Quo: Technology Capital Transfers for Market Access in China (2015, unknown): “The first innovation of our model, relative to McGrattan and Prescott (2009, 2010), is that firms can choose to deploy their technology capital or not, location by location.”
• Offshore Profit Shifting and Domestic Productivity Measurement (2017, unknown): “Our approach follows Rassier and Koncz-Bruner (2015), which proposes formulary apportionment as an alternative method for attributing the profits component of incomebased value added to foreign affiliates of U.”
• Innovation and Production in the Global Economy (2018, unknown): “…interpreted as MP, while trade takes place only as a way to transfer the returns to capital (see, for example, Burstein & Monge-Naranjo (2009), McGrattan & Prescott (2010), McGrattan (2011), and Ramondo (2012)).4 The simplification on the trade dimension in these papers allows for a more…”
• Mathiness in the Theory of Economic Growth (2015, unknown): “In contrast, McGrattan and Prescott (2010) give a label – "location" – to their proposed new input in production, but their mathiness leaves so much slippage that the word could mean anything.”
• Misallocation, Establishment Size, and Productivity (2017, unknown): “…productivity, along with φ, cg, the exit rate λ, the real interest rate R, and the average level of distortions τ .36 Given values for λ, R, and τ , we choose a value for θ to match the share of value added invested in intangible capital estimated by McGrattan and Prescott (2010), equal to 0.135.”