Formulary measures for the U.S. current account: Accounting for transactions attributable to special purpose entities of multinational enterprises

Abstract

To better understand the role of special purpose entities (SPEs) in economic accounting statistics, international guidelines on foreign direct investment(FDI) positions and transactions recommend supplemental measures on SPEs but leave the accounting method for supplemental measures open to further research. This paper considers formulary apportionment as an accounting method for current account transactions related to FDI and for supplemental measures on SPEs, with an application for transactions in income in the U.S. current account. The empirical results reveal that formulary apportionment reduces U.S. income receipts and U.S. income payments on FDI, which yields an implied increase in U.S. gross domestic product (GDP) of 0.9 percent for the period 2005 to 2009. The results suggest that transactions attributable to non-resident SPEs have a relatively large effect on U.S. GDP while transactions attributable to resident SPEs have a relatively small effect on U.S. GDP.