Discussion Paper Details

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Title: Grey Zones in Global Finance: the distorted Geography of Cross-Border Investments

Author(s): Anne-Laure Delatte, Amélie Guillin and Vincent Vicard

Publication Date: May 2020

Keyword(s): Capital openness, Cross-border investments, Gravity Equation and tax havens

Programme Area(s): Financial Economics and International Macroeconomics and Finance

Abstract: Tax avoidance schemes generate artificially complex cross-border financial structures inflating measured international investment stocks in tax havens. Using a standard gravity framework, we estimate that about 40% of global assets (FDI, portfolio equity and debt) are 'abnormal' - unexplained - stocks. Abnormal stocks are increasing over time and concentrated in a limited number of jurisdictions. Six jurisdictions including three European countries are the largest contributors: Cayman, Bermuda, Luxembourg, Hong Kong, Ireland and the Netherlands. Interestingly, the Luxleaks in 2014 do not appear to have diverted cross-border investments away.

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Bibliographic Reference

Delatte, A, Guillin, A and Vicard, V. 2020. 'Grey Zones in Global Finance: the distorted Geography of Cross-Border Investments'. London, Centre for Economic Policy Research.