DP14756 Grey Zones in Global Finance: the distorted Geography of Cross-Border Investments

Author(s): Anne-Laure Delatte, Amélie Guillin, Vincent Vicard
Publication Date: May 2020
Date Revised: September 2021
Keyword(s): Capital openness, Cross-border investments, Gravity Equation, tax havens
JEL(s): F23, G21, H22, H32
Programme Areas: Financial Economics, International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14756

Complex cross-border financial structures inflate 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 -- and operated through tax havens. 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.