Redrawing the Map of Global Capital Flows : The Role of Cross-Border Financing and Tax Havens

Global firms finance themselves through foreign subsidiaries, often shell companies in tax havens, which obscures their nationality in aggregate statistics. We associate the universe of traded securities with their issuer's ultimate parent and restate bilateral investment positions to better reflect the true financial linkages connecting countries around the world. We find that portfolio investment from developed countries to firms in large emerging markets is dramatically larger than previously thought. The national accounts of the United States, for example, understate the U.S. position in Chinese firms by nearly 600 billion dollars, while China's official net creditor position to the rest of the world is overstated by about 50 percent. We additionally show how taking account of o↵shore issuance is important for our understanding of the currency composition of external portfolio liabilities, the nature of foreign direct investment, and the growth of financial globalization