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  5. Technology Capital and the US Current Account

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Technology Capital and the US Current Account

  • Ellen R. McGrattan
  • Edward C. Prescott
American Economic Review
vol. 100, no. 4, September 2010
(pp. 1493–1522)
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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. (JEL F23, F32)

Citation

McGrattan, Ellen R., and Edward C. Prescott. 2010. "Technology Capital and the US Current Account." American Economic Review, 100 (4): 1493–1522. DOI: 10.1257/aer.100.4.1493

Additional Materials

JEL Classification

  • F23 Multinational Firms; International Business
  • F32 Current Account Adjustment; Short-term Capital Movements