TY  - JOUR
AU  - McGrattan,Ellen R.
AU  - Prescott,Edward C.
TI  - Technology Capital and the U.S. Current Account
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13983
PY  - 2008
Y2  - May 2008
UR  - http://www.nber.org/papers/w13983
L1  - http://www.nber.org/papers/w13983.pdf
N1  - Author contact info:
Ellen McGrattan
Research Department
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
Tel: 612/204-5523
Fax: 612/204-5515
E-Mail: erm@mcgrattan.mpls.frb.fed.us

Edward C. Prescott
Economics Department
ASU / Main Campus
PO BOX 873806
Tempe, AZ  85287-3806
Tel: 480/727-7977
Fax: 480/965/0748
E-Mail: edward.prescott@asu.edu
AB  - 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.
ER  -