Retained Earnings and Foreign Portfolio Ownership: Implications for the Current Account Debate

23 Pages Posted: 1 Jun 2023

See all articles by Stefan Goldbach

Stefan Goldbach

Deutsche Bundesbank

Philipp Harms

Johannes Gutenberg University Mainz

Axel Jochem

Deutsche Bundesbank

Volker Nitsch

Technical University of Darmstadt

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 8, 2023

Abstract

In some countries, a sizable fraction of savings is derived from corporate savings. Although larger, traded corporations are often co-owned by foreign portfolio investors, current international accounting standards allocate all corporate savings to the host country. This paper suggests a framework to correct for this misleading attribution and applies this concept to Germany. For the years 2012 to 2020, our corrections retrospectively reduce German savings and consequently the German current account surplus by, on average, €11.5bn annually. This amounts to approximately five percent of Germany’s average official current account surplus (€226.6bn) across these years.

Keywords: current account; balance of payments; corporate savings; retained earnings, foreign portfolio investment; Germany

JEL Classification: F32, E21

Suggested Citation

Goldbach, Stefan and Harms, Philipp and Jochem, Axel and Nitsch, Volker and Weichenrieder, Alfons J., Retained Earnings and Foreign Portfolio Ownership: Implications for the Current Account Debate (May 8, 2023). SAFE Working Paper No. 389, Available at SSRN: https://ssrn.com/abstract=4465838 or http://dx.doi.org/10.2139/ssrn.4465838

Stefan Goldbach

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Philipp Harms

Johannes Gutenberg University Mainz ( email )

Saarstrasse 21
Mainz, D-55099
Germany

Axel Jochem

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Volker Nitsch

Technical University of Darmstadt ( email )

Universitaets- und Landesbibliothek Darmstadt
Magdalenenstrasse 8
Darmstadt, Hesse D-64289
Germany

Alfons J. Weichenrieder (Contact Author)

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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