Characteristics of Special Purpose Entities in Measures of U.S. Direct Investment Abroad

Under international guidelines, official statistics on international trade and investment include transactions within multinational enterprises (MNEs) and positions on foreign direct investment. A complicating factor in the interpretation and understanding of the official statistics is the role of transactions and positions for MNEs structured with one or more special purpose entities (SPEs). In contrast to operating entities (OEs), SPEs generally have few or no employees, little or no physical presence, and little or no production or economic activity. While recent research explores the effects of SPEs on some U.S. macroeconomic statistics, very little is known from a microeconomic perspective about the underlying characteristics of SPEs. This paper provides an empirical look at non-resident SPEs whose transactions are included in official statistics on U.S. direct investment abroad. In particular, the paper treats OE affiliates as a benchmark group in a univariate and a multivariate analysis of characteristics available in survey data. The results reveal a large number of non-resident SPEs sponsored by U.S. MNEs, which are not isolated to a few industries or a single global region. Significant differences exist between SPE affiliates and OE affiliates in their balance sheet components, income statement components, and measured production. Given the fact pattern demonstrated in the microdata, measured production attributed to SPE affiliates appears to be incongruent with reported economic activity.