Offshore Profit Shifting and Domestic Productivity Measurement

Raymond Mataloni, Kim Ruhl, Dylan Rassier and Fatih Guvenen
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Raymond Mataloni: U.S. Department of Commerce
Dylan Rassier: Bureau of Economic Analysis

No 1382, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: U.S. labor productivity growth has slowed considerably, falling from 2.2 percent per year in 2000–04 to 0.63 percent per year in 2004–07. This slowdown took place primarily in sectors that either produce or use information technology (IT) services. At about the same time, U.S. multinational enterprises (MNEs) were accumulating considerable overseas earnings that were not being repatriated to the United States, distorting the return to intangible investments made in the United States. In this paper we ask: To what extent is the mismeasurement of MNE production responsible for the measured slowdown in productivity growth? Our preliminary results show that adjusting for the overseas production shifting of U.S. MNEs has a significant impact on measured productivity, particularly in IT-related industries that are research-and-development intensive — the industries that Fernald (2014) finds most responsible for the aggregate productivity slowdown. In the R&D intensive industries, our adjustment adds 5.1 percentage points to cumulative labor productivity growth in 1973–2014, and in IT-related R&D intensive industries, the cumulative gain in labor productivity is 4.5 percentage points. Notably, most of our adjustment happens after 2004, the period in which unadjusted productivity slows down.

Date: 2016
New Economics Papers: this item is included in nep-eff and nep-ino
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Related works:
Working Paper: Offshore Profit Shifting and Domestic Productivity Measurement (2018)
Working Paper: Offshore Profit Shifting and Domestic Productivity Measurement (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1382

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