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Technology Capital and the U.S. Current Account

Ellen McGrattan and Edward Prescott

No 13983, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The U.S. Bureau of Economic Analysis (BEA) estimates the return on investments of foreign subsidiaries of U.S. multinational companies over the period 1982--2006 averaged 9.4 percent annually after taxes; U.S. subsidiaries of foreign multinationals averaged only 3.2 percent. Two factors distort BEA returns: technology capital and plant-specific intangible capital. Technology capital is accumulated know-how from intangible investments in R&D, brands, and organizations that can be used in foreign and domestic locations. Used abroad, it generates profits for foreign subsidiaries with no foreign direct investment (FDI). Plant-specific intangible capital in foreign subsidiaries is expensed abroad, lowering current profits on FDI and increasing future profits. 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-codes: F32 (search for similar items in EconPapers)
Date: 2008-05
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-ifn, nep-int and nep-opm
Note: EFG IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as McGrattan, Ellen R. & Prescott, Edward C., 2009. "Openness, technology capital, and development," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2454-2476, November.
Published as Ellen R. McGrattan & Edward C. Prescott, 2010. "Technology Capital and the US Current Account," American Economic Review, American Economic Association, vol. 100(4), pages 1493-1522, September.

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Related works:
Journal Article: Technology Capital and the US Current Account (2010) Downloads
Working Paper: Technology capital and the U.S. current account (2009) Downloads
Working Paper: Technology Capital and the U.S. Current Account (2008) Downloads
Working Paper: Technology capital and the U.S. current account (2007) Downloads
Working Paper: Technology Capital and the U.S. Current Account (2007) Downloads
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