DP14508 Redrawing the Map of Global Capital Flows: The Role of Cross-Border Financing and Tax Havens
Global firms finance themselves through foreign subsidiaries, often shell companies
in tax havens, which obscures their true economic location in official statistics. We
associate the universe of traded securities issued by firms in tax havens with their
issuer’s ultimate parent and restate bilateral investment positions to better reflect
the financial linkages connecting countries around the world. Portfolio investment
from developed countries to firms in large emerging markets is dramatically larger
than previously thought. The national accounts of the United States, for example,
understate the U.S. position in Chinese firms by nearly 600 billion dollars, while China’s
official net creditor position to the rest of the world is overstated by about 50 percent.
Further, we demonstrate how offshore issuance in tax havens affects our understanding
of the currency composition of external portfolio liabilities and the nature of foreign
direct investment. Finally, we provide additional restatements of bilateral investment
positions, including one based the geographic distribution of sales.