Offshore Profit Shifting and Domestic Productivity Measurement
Beginning in 2004, official statistics display a slowdown in U.S. productivity growth. We show how offshore profit shifting by U.S. multinational enterprises affects GDP and, thus, productivity measurement. Profit shifting increased in the mid- 1990s, resulting in lower measured productivity growth. We construct value added adjusted for profit shifting. The adjustments raise aggregate productivity growth rates by 0.09 percent annually for 1994–2004, 0.24 percent annually for 2004–2008, and lower annual aggregate productivity growth rates by 0.09 percent after 2008. The adjustments are large in R&D-intensive industries, where value added increases by as much as 8 percent in the mid-2000s.
We thank Jennifer K. Bruner and Alberto G. Ramon for their assistance with the statistical analysis. For comments and suggestions, we thank Pol Antras, Nick Bloom, Carol Corrado, Arnaud Costinot, Jason Furman, John Fernald, Sebnem Kalemli-Ozcan, Mitchell Petersen and especially our formal discussants Molly Saunders-Scott and Dan Sichel. The statistical analysis of firm-level data on U.S. multinational companies and companies engaged in international transactions was conducted at the Bureau of Economic Analysis, U.S. Department of Commerce, under arrangements that maintain legal confidentiality requirements. The views expressed in this paper are solely those of the authors and not necessarily those of the U.S. Department of Commerce, the Bureau of Economic Analysis, the Federal Reserve Bank of Minneapolis, the Federal Reserve System, or the National Bureau of Economic Research.
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