2011 Reports

FDI stocks are a biased measure of foreign affiliate activity

Beugelsdijk, Sjoerd; Hennart, Jean-Francois; Slangen, Arjen; Smeets, Roger

Researchers often call the value added (VA) in a host country by firms based in another country foreign direct investment (FDI) and use FDI stocks and flows from a country‘s balance of payments to measure it. What FDI stocks and flows actually measure, however, is narrower, since they record long term financial transactions by which domestic firms exert control over foreign firms. French FDI stocks in Australia, for example, measure the value of shares and reinvested earnings of Australian firms owned by French firms and the net indebtedness of these Australian firms to their French parents.