Offshore Profit Shifting and Domestic Productivity Measurement
Official statistics display a significant slowdown in U.S. aggregate productivity growth that begins in 2004. In this paper, we investigate a source of mismeasurement in official statistics, which arises from offshore profit shifting by multinational enterprises operating in the United States. This profit shifting causes part of the economic activity generated by these multinationals to be attributed to their foreign affiliates, leading to an understatement of measured U.S. gross domestic product. Profit-shifting activity has increased significantly since the mid-1990s, resulting in an understatement of measured U.S. aggregate productivity growth. We construct adjustments to correct for the effects of profit shifting on measured gross domestic product. The adjustments raise aggregate productivity growth rates by 0.1 percent annually for 1994–2004, 0.25 percent annually for 2004–2008, and leave productivity unchanged after 2008; Our adjustments mitigate, but do not overturn, the productivity slowdown in the official statistics. The adjustments are especially large in R&D-intensive industries, which are most likely to produce intangible assets that are easy to move across borders. The adjustments boost value added in these industries by as much as 8.0 percent annually in the mid-2000s.
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Document Object Identifier (DOI): 10.3386/w23324