A probabilistic method for reconstructing the foreign direct investments network in search of ultimate host economies

Nadia Accoto (), Valerio Astuti () and Costanza Catalano ()
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Nadia Accoto: Bank of Italy
Valerio Astuti: Bank of Italy
Costanza Catalano: Bank of Italy

No 760, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The Ultimate Host Economies (UHEs) of a given country are defined as the ultimate destinations of Foreign Direct Investment (FDI) originating in that country. Bilateral FDI statistics struggle to identify them due to the non-negligible presence of conduit jurisdictions, which provide attractive intermediate destinations for pass-through investments due to favorable tax regimes. At the same time, determining UHEs is crucial for understanding the actual paths followed by FDI among increasingly interdependent economies. In this paper, we first reconstruct the global FDI network through mirroring and clustering techniques, starting from data collected by the International Monetary Fund. Then we provide a method for computing an (approximate) distribution of the UHEs of a country by using a probabilistic approach to this network, based on Markov chains. More specifically, we analyze the Italian case.

Keywords: foreign direct investment; ultimate host economies; Special Purpose Entities; network reconstruction; clustering; absorbing Markov chains (search for similar items in EconPapers)
JEL-codes: C51 C60 F23 G15 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-ifn, nep-int and nep-net
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_760_23

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