Measuring the Location of Production in a World of Intangible Productive Assets, FDI, and Intrafirm Trade

Robert E. Lipsey

NBER Working Paper No. 14121
Issued in June 2008
NBER Program(s):   IFM   ITI   PR

As production comes to depend more on intangible productive assets, the location of production by multinational firms becomes increasingly ambiguous. The reason is that, within the firm, these assets have no clear geographical location, but only a nominal location determined by the firm's tax or legal strategies.

The effects of these location ambiguities, and the resulting distortions for tax reasons of the location of production, are described and it is estimated that for U.S. firms' affiliates in a few tax havens alone, the exaggeration of value added in those locations amounted, in 2005, to about 4 percent of worldwide affiliate sales, and the exaggeration of sales to about 10 percent of worldwide affiliate sales.

Some possibilities for estimating the location of production that could supersede the present dependence on accounting measures distorted by tax-saving policies are described.

(64 K)

Published: Robert E. Lipsey, 2010. "Measuring The Location Of Production In A World Of Intangible Productive Assets, Fdi, And Intrafirm Trade," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(s1), pages S99-S110, 06.

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