The Direct Investment Income Puzzle

56 Pages Posted: 5 Oct 2018 Last revised: 21 Jun 2019

See all articles by James F. Albertus

James F. Albertus

Carnegie Mellon University - David A. Tepper School of Business

Date Written: June 2019


The official statistics – whether the published aggregates or the confidential microdata – do not support the longstanding view that US direct investment abroad (USDIA) outperforms foreign direct investment in the US (FDIUS). Rather, the apparent yields differential results primarily from two subtleties of the data. First, USDIA business activity is "double counted" at holding companies. Second, unlike FDIUS, USDIA profits are not recorded on a fully after-tax basis. Leading explanations for the relative profitability of USDIA, such as income shifting and industry composition, have limited or countervailing effects. The US does not enjoy an exorbitant privilege in direct investment returns.

Keywords: Foreign direct investment, exorbitant privilege, income puzzle, current account adjustment

JEL Classification: E22, F21, F23, F32, H26

Suggested Citation

Albertus, James F., The Direct Investment Income Puzzle (June 2019). Available at SSRN: or

James F. Albertus (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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