Page 254 - Invited Paper Session (IPS) - Volume 1

IPS152 Ryan N.
Following the process outlined by the OECD economists, the value of pass-
through equity in an affiliate is defined as the smaller of its outward and inward
equity positions—i.e., the value of equity invested in the affiliate by its parent
that the affiliate then invests in its own foreign affiliates down the ownership
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chain. In other words, inward equity positions that are large enough to
account for outward equity positions are assumed to be pass-through equity.
Subtracting this pass-through value from both the inward and outward
positions provides a new estimate of owner’s equity and equity in subsidiaries
for each affiliate that seeks to remove double counting of equity that passes
through the affiliate and identify where the equity is ultimately being
invested.
5

3. Result
III-A. Foreign (nonresident) SPE affiliates of U.S. MNEs
This section identifies and provides descriptive statistics about nonresident
SPEs using the methodology described in the previous section. Nonresident
SPEs, from the perspective of BEA, are foreign affiliates of U.S. MNEs.
In 2016, there were 78,413 majority-owned foreign affiliates (MOFAs) of
U.S. MNEs. Of these MO-FAs, 16,021 (20.4 percent) met the SPE criteria and
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accounted for 39.7 percent of total affiliate (SPE and non-SPE) assets. SPEs
were identified in 182 of the 199 industries in which MOFAs operated in 2016.
Table 1 shows the five industries with the largest share of assets and the
number of affiliates in each industry. Holding companies, which are companies
that only own the financial securities of other companies, accounted for 85
percent of SPE assets and nearly half of the number of SPE affiliates. By share
of SPE assets, holding companies were followed by financial sector industries
including financial investment activities, non-depository credit intermediation,
banking, and securities and commodities.

4 Borga and Caliandro.
5 While these estimates better reflect the ultimate destination of the funds, there are at least
three possible sources of mis-measurement. First, not all outward equity positions are
necessarily funded by inward equity positions large enough to cover them. Second, there can
be errors or omissions in the information about the chains of ownership among foreign
affiliates. Third, there can be ambiguous relationships between inward and outward equity
positions when directly-held affiliates have equity positions in multiple indirectly-held affiliates.
Assets are used as a proxy for FDI position because position is only available for directly held
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affiliates, while assets are available for both directly and indirectly held affiliates. Assets are
collected on company balance sheets and are not adjusted for ownership percentage.
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