Statistical Issues Related to Global Economic Imbalances: Perspectives on "Dark Matter"

There has been a large amount of recent interest in how the U.S. can be the so-called world's largest debtor nation and at the same time have a persistent surplus on income in its balance of payments accounts. Based on BEA's published data, two factors explain the incongruence -- a difference in the composition of U.S.-owned assets abroad compared to foreign-owned assets in the U.S., and a higher rate of return earned by U.S. investors on their overseas assets, particularly on direct investment, than the rate of return that foreign investors earn on similar classes of assets invested in the U.S. In contrast, some others have recently argued that the explanation for the incongruence is that U.S.-owned assets abroad are undervalued, mainly because large exports of intangible assets by U.S. direct investors to their foreign affiliates have gone undetected. This paper reviews the main points of this argument and discusses some of its implications.