With the increasing attention to global imbalances and cross-border investments, the interest of analysts towards bilateral Foreign Direct Investment (FDI) statistics is growing.

In the past, financial transactions took place directly between a resident and a related non-resident enterprise and FDI were mainly “one-to-one investments”, which meant that a relationship was established between only two economies.

Recently, multinational enterprises have become a widespread phenomenon and FDI progressively changed from “one-to-one” to “network” investments. Many indirect links between enterprises have been established in order to reduce production costs, optimize liquidity management, lower tax burden. As a result nowadays traditional FDI statistics broken down by immediate investor country are hardly applicable to sound economic analysis. Conversely, the breakdown by Ultimate Controlling Parent (UCP) country can explain where the company investing capital, taking decisions and transferring know-how and technology is really located.

The recent revision of FDI statistical manuals takes into account this phenomenon encouraging the allocation of FDI according to the UCP as a supplemental item.

Even though compiling FDI broken down simultaneously by immediate investor and UCP could be particularly burdensome, nonetheless the analysis of both statistical sets of data could significantly improve the knowledge of international economic relationships.

Presently Italy is among the few countries which are able to compile both sets of statistics because the new data collection system allows the application of both criteria. The empirical analysis proposed in the paper is based on these data. We expect to find that the distribution of FDI by country of immediate investor may be significantly biased by round-tripping phenomena, overestimating FDI towards tax heavens and countries hosting cash pooling centres and hiding the real driving forces of globalization. The aim is measuring how FDI relationships between countries change when different allocation criteria are applied.

Keywords: Foreign direct investment; Ultimate investing country; Global imbalances; Geographical breakdown

Biography: Senior statistician responsible for Foreign Direct Investment statistics in the External Statistics Division of the Statistics Collection and Processing Department of the Bank of Italy