Int'l Accounts - International Trade

This paper reviews the similar paths followed by the UK Office for National Statistics (ONS) and the U.S. Bureau of Economic Analysis (BEA) to measure international services categorized by mode of supply. Most notably, these agencies have adopted a similar survey form that uses an innovative approach to collect information on mode of supply by simply having companies report the percentage of its services supplied though one mode as opposed to all modes, with the idea that the other modes can be estimated as a residual or using other data sources. Prior to these efforts by ONS and BEA, few countries had attempted to measure trade in services by mode of supply, and in these few cases, most measures had been based on assumptions about industry practices or on surveys that only asked for the predominant mode of supply rather than a more precise percentage supplied by mode.

Strategic behavior by U.S. multinational enterprises (MNEs) to shift profits between countries to reduce their worldwide tax burden has been well studied. Much of the existing research has focused on the use of debt payments and intrafirm intellectual property licensing agreements to explain why and how MNEs shift income across national borders. Although these tax strategies may become less important following the U.S. Tax Reform Act of 2017, there is evidence they have had a large impact on measures of economic activity in recent years. This paper explores how U.S. MNEs have used cost sharing agreements between U.S. parent companies and their foreign affiliates to shift ownership of intangible assets to lower tax jurisdictions at less-than-arm’s-length prices. These transactions reduce measured U.S. GDP and raise measured GDP in the host countries of foreign affiliates. Our empirical results are consistent with this behavior. They provide a microeconomic view of how strategic movement of intellectual property affects key measures in the national and international economic accounts, such as GDP and the trade balance.