Offshore Profit Shifting and Domestic Productivity Measurement
55 Pages Posted: 17 Apr 2017
Date Written: April 2017
Beginning in 2004, official statistics display a slowdown in U.S. productivity growth. We show how offshore profit shifting by U.S. multinational enterprises affects GDP and, thus, productivity measurement. Profit shifting increased in the mid- 1990s, resulting in lower measured productivity growth. We construct value added adjusted for profit shifting. The adjustments raise aggregate productivity growth rates by 0.09 percent annually for 1994–2004, 0.24 percent annually for 2004–2008, and lower annual aggregate productivity growth rates by 0.09 percent after 2008. The adjustments are large in R&D-intensive industries, where value added increases by as much as 8 percent in the mid-2000s.
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