International footprint of global firms

Transcription

1 International footprint of global firms Hyun Song Shin* Bank for International Settlements 7th Annual JRCPPF Conference on The future of globalization: trade, finance and politics Princeton University, 22 February 2018 * The views expressed here are mine, not necessarily those of the Bank for International Settlements.

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3 Traditional approach: Start with boundary for national income accounting Economic territory 1 Economic territory 2 Output 1 Output 2 3

4 Traditional approach: National income boundary defines decision-making unit Economic territory 1 Economic territory 2 Assets Liabilities Assets Liabilities 4

5 Global current account balances 5

6 Current account and the output gap 6

7 Current account and exchange rates 7

8 Global firms Operation of global firms straddle traditional boundaries Offshoring of manufacturing process Redomiciling of firms headquarters Mobility of assets Owners of global firms are dispersed across the world Dividends received by portfolio investors Direct investment income 8

9 Residence Key concept in balance of payments Legal concept denoting relationship between an entity and a location ( economic territory ) Economic territory with which it has the strongest connection, expressed as its center of predominant economic interest [BPM6 (IMF (2009, p. 70)] Resident in A engages in production or employment in A Export of A goods cross boundary of A 9

10 Domicile Legal concept similar to residence Indicates greater permanence or as place of origin Implications for taxation Firms can be redomiciled by changing location of headquarters Triggers cascade of changes in accounting relationships Assets (as well as firms) can be redomiciled Physical assets (eg aircraft) Intangible assets (eg intellectual property) 10

11 Example from Avdjiev et al. (2018) Redomiciling of headquarters Redomiciling of intellectual property assets Impact on the current account Balance of trade and investment income are all affected Bilateral relationships in global value chain are rearranged [Avdjiev, Everett, Lane and Shin (2018) Tracking the international footprints of global firms, forthcoming in BIS Quarterly Review] 11

12 Island A exports to Island D A Owners HQ D consumers 12

13 Island A exports to Island D Workers, owners, managers, HQ all physically located in A A Owners Goods cross the boundary of A HQ D consumers 13

14 Pre-offshoring A HQ B C Manufacturer D Rest of the world Exports Imports Trade balance Primary income credit Primary income debit Net primary income Current account balance

15 Offshoring to C through subsidiary A Owners Direct investment income C HQ D consumers 15

16 Post-offshoring A HQ B C Manufacturer D Rest of the world Exports Imports Trade balance Primary income credit Primary income debit Net primary income Current account balance

17 Redomiciling of headquarters to Island B B A Owners HQ C D consumers 17

18 Post-redomiciliation A B C D Original HQ New HQ Manufacturer Rest of the world Exports Imports Trade balance Direct investment income credit Direct investment income debit Portfolio investment income credit Portfolio investment income debit Net primary income Current account balance

19 Offshoring to C through contract manufacturing A Owners Intellectual property assets HQ Contract manufacturing D consumers C 19

20 Offshoring to C through contract manufacturing Owners, managers, HQ remain in A A Owners Intellectual property assets HQ Goods never cross the boundary of A But are counted as exports of A Contract manufacturing D consumers C 20

21 Pre-relocation of capital asset A B C D HQ New location of IP Manufacturer Rest of the world Goods exports Goods imports Services exports Services imports Trade balance Primary income credit Primary income debit Net primary income Current account balance

22 Redomiciling of intellectual property assets to Island B A Owners HQ Intellectual property assets export B D consumers C 22

23 Redomiciling of intellectual property assets to Island B A Owners Intellectual property assets export B C HQ Redomiciling of IP assets sets in motion a cascade of changes in bilateral relationships D consumers 23

24 Post-relocation of capital asset A B C D HQ New location of IP Manufacturer Rest of the world Goods exports Goods imports Services exports Services imports Trade balance Primary income credit Primary income debit Net primary income Current account balance

25 Direct investment income scaled by trade 25

26 United States, United Kingdom and Ireland 26

27 GDP for Ireland 27

28 Current account for Ireland 28

29 GDP to household disposable income Quantile ranges Selected countries 29

30 Current account and investment income 30

31 Current account and portfolio investment income 31

32 Current account and direct investment income (debit) 32

33 Cash holding of non-financial corporates 33

34 Lessons Consolidated balance sheets of firms may be a useful complement to traditional analysis BIS consolidated banking statistics as a model Other international initiatives Firms can be lenders, rather than borrowers 34