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Following the Money: U.S. Finance in the World Economy B Views of Data Compilers, Filers, and Users Many members of the Panel on International Capital Transactions are long-time users of data on U.S. international capital transactions. They considered it essential to consult with the data compilers and a broad range of data filers and data users to assess the adequacy of the existing data collection system. In order to understand compilers' perspectives, the panel invited staff of the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce, the U.S. Department of Treasury, and the Federal Reserve Bank of New York (FRBNY) to assess the efficiency, accuracy, coverage, timeliness, and relevance of the existing data system. The panel also asked filers to comment on the existing reporting requirements (in terms of content, detail, and frequency), the reporting methods, and areas for improvements. And the panel canvassed users on the kinds of data on capital transactions with which they are familiar, what they do with the data, their perceptions of the quality of the data, their current unmet data needs, and their suggestions for improving existing data. This appendix summarizes the results of the these panel activities. The last section presents the results of the panel's literature search of studies using data on international capital transactions.
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Following the Money: U.S. Finance in the World Economy DATA COMPILERS The panel queried BEA, Treasury Department, and FRBNY staff on three key aspects of the U.S. system for collection of data on international capital transactions: (1) the efficiency, coverage, accuracy, timeliness, and relevance of the data collected; (2) the reporting burden; and (3) suggestions for improvements in the data collection methods and procedures. EFFICIENCY, COVERAGE, ACCURACY, TIMELINESS, AND RELEVANCE As one might expect, BEA staff are reasonably satisfied with the collection of data on direct investment, especially given the agency's current resource constraints. They recognize, however, that improvements are needed in data on foreigners' purchases of U.S. real estate. Likewise, Treasury Department and FRBNY staff, who have primary responsibility for portfolio investment data on banking, nonbanking, and securities transactions, expressed confidence in the Treasury International Capital (TIC) data, in particular, the banking data. They attribute the strength of the banking data to the close association of many TIC components with reporting by banks to federal regulatory agencies (through, for example, the Call Reports). Treasury and FRBNY staff view nonbank coverage as more problematic. They also concede that such products as derivatives are not adequately covered. The staff of BEA, a major user of the TIC data, share this perspective. They attribute gaps in coverage of portfolio transactions to a dependence on reporting by financial intermediaries rather than by principals. They note that these problems in coverage are exacerbated by the fact that an increasing number of transactions bypass traditional financial channels and the existing data collection system. On timeliness, BEA staff judge that the quarterly U.S. balance-of-payments data are released in a timely manner. They note, however, that some countries provide these data on a monthly basis. They believe that the timeliness of U.S. balance-of-payments data could be improved through greater use of electronic filing, access to bank or credit card clearance information, improved compliance on surveys, and better processing procedures. Treasury Department and FRBNY staff stated that most respondents submit their data by prescribed deadlines and that estimation techniques are used in cases in which the data submitted are incomplete.
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Following the Money: U.S. Finance in the World Economy On questions of relevance, BEA and Treasury Department staff regard the U.S. international capital data as highly relevant and important to construct the U.S. balance-of-payments accounts and the U.S. international investment position. However, FRBNY staff noted that users are best positioned to judge the relevance of the data. They also questioned the value of reporting counterparties by country, particularly on the S form, pointing out that the majority of the countries reported are major financial hubs and not the ultimate owners. The FRBNY staff suggested that data on country breakdown be collected on a less frequent basis than monthly, since monthly collection is time consuming for respondents and compilers alike. Alternatively, the data could be made more relevant if they were redefined in a way that permitted identification of the issuer of a foreign security or the ultimate recipient or payee of a flow-of-funds. In this way, the country breakdowns would be more relevant. REPORTING BURDEN BEA staff believe they have made efforts to minimize the reporting burden on respondents. Further reductions in the reporting burden are likely to be realized not so much from reducing data items collected as from the application of more modern technology to the collection, processing, and estimation of data. Electronic data collection and development of more sophisticated estimation techniques, for example, could reduce the number of companies required to report data. Treasury Department staff noted that the burden associated with TIC reporting is reasonable, but FRBNY staff said that the current system may ask too much of smaller institutions. The latter suggested consideration be given to raising exemption levels when it would reduce the reporting burden without substantially degrading coverage. AREAS FOR IMPROVEMENT BEA staff provided the panel with a long list of suggestions on improving data on both direct and portfolio investment. In the area of direct investment, principal suggestions included increasing data exchanges with other federal agencies, such as the Treasury Department, to identify gaps and overlaps between data sets; improving the coverage of foreign direct investment in U.S. real estate; increasing data exchanges with other countries to improve
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Following the Money: U.S. Finance in the World Economy the comparability of data across countries; and further improving on-line computerized processing procedures. For portfolio investment, BEA staff suggestions included coordinating data collection efforts among BEA, the Treasury Department, and the FRBNY and exchanging data among them to reduce gaps and overlaps in coverage, duplication of effort, and reporting burdens on filers; integrating TIC C form reporting with BEA direct investment reporting; improving coverage of direct transactions by pension and mutual funds and short-term securities; and investigating new sources of information such as bank and credit card clearance and regulatory information. Treasury Department and FRBNY staff indicated that a benchmark survey on U.S. holdings of foreign securities is a priority. FRBNY staff also urged benchmarking to improve the banking data and a study of off-balance-sheet items, such as derivatives, to determine their effects on balance-of-payments flows. Treasury Department staff believe improvements are needed in the coverage of derivatives transactions, commercial paper, and zero-coupon issues. Both BEA and FRBNY staff maintained that corporations and financial institutions need to be held responsible for reporting through legal fines and greater efforts to ensure that they are aware of their reporting obligations. DATA FILERS: TIC REPORTING SYSTEM The panel received detailed responses to its canvass from six internationally active banks and securities firms that file reports in the TIC system. The panel subsequently met with more than 20 representatives from large commercial and investment banks and securities firms. Respondents indicated that they file B forms (for reporting claims and liabilities by banks, brokers, and dealers) and S forms (for reporting purchases and sales of long-term securities). None files C forms for nonbank reporting. There is wide agreement among respondents that the current forms and instructions are difficult to follow and that a general discussion, in lay terms, of the objectives and specific uses of the reported data would help filers to understand the importance of the data and the need for their compliance with the reporting requirements. In addition, respondents would like the FRBNY and the Treasury Department to ensure that reporting guidance given to individual reporting institutions is consistent and that
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Following the Money: U.S. Finance in the World Economy examples of how new transactions should be reported are included in the filing instructions. Respondents pointed out that the TIC forms are not a standard size, making them cumbersome not only to handle, but also to file and photocopy, and they recommended standardizing the size of the different TIC reports. Also, they noted that since some banks are allowed to submit modified reports, such options should be made known to all filers. Respondents asserted that the existing TIC reporting system is not cost-effective. Filers are often queried by FRBNY on the data filed; they, in turn, need to work with various units of their organizations to respond to the FRBNY's inquiries, creating a hidden reporting burden not addressed by the U.S. Office of Management and Budget when it authorized the reporting requirement. Respondents claimed that discrepancies are often due to different interpretations by FRBNY and filers of what data should be included. Both FRBNY and filers spend an inordinate amount of time and resources in reconciling their differences. Respondents believe that discrepancies could be drastically reduced if there were clearer instructions and an understanding of the purpose of the data. Respondents want to understand what the Treasury and Federal Reserve need to know and why. Furthermore, respondents pointed out that the consolidation of data from numerous internal reports and the internal reconciliation process used by the filers can lead to significant rounding of figures. They asserted that many questions raised by the FRBNY relate solely to such rounding differences. The filing of forms generally involves two basic processes. First, data are extracted from various internally generated computer reports, either from different accounting systems or from different submitting departments. Then the data are manipulated so that they are in the form that FRBNY requires. Because of the complexity of the forms, this identification and manipulation of data is at least partly manual. Methods used to complete the forms include consolidating information from different departments and areas, such as the general ledger and demand deposit system, into a final spreadsheet report; having each submitting department utilize its own system to accumulate necessary data; and using automation involving computer mainframe and personal computer applications.
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Following the Money: U.S. Finance in the World Economy SOURCES OF ERRORS AND OMISSIONS According to respondents, all areas of the reporting system are vulnerable to errors or omissions when the forms are being completed. This is especially true, however, because the data are, at least in part, manually identified and manipulated. Although respondents indicated that most errors are detected by routine internal controls before filing, problems occur if items are coded incorrectly in internal systems, if units in a financial institution are unaware of the need to report certain items, or if there is difficulty in interpreting the instructions for handling specific situations. Determining the occurrence of U.S. transactions abroad can be especially vulnerable to omissions when they are of only minimal amounts and infrequently reported by a financial institution. It is particularly difficult to maintain accurate and complete reporting when the units compiling data for the reports are only occasionally called on to identify necessary information. Because of the complex manipulation process, there may be omissions in the information provided to the TIC reporting unit. The identification of the country of residence for U.S. transactions abroad also poses difficult questions that can generate reporting errors. Most respondents cite problems with three issues related to country of residence. First, transactions with multilateral lending institutions, such as the International Bank for Reconstruction and Development (the World Bank) and the International Monetary Fund (IMF), can be miscoded as domestic transactions and therefore be inadvertently omitted from the reports, since both of these organizations have U.S. addresses. Similar errors can occur if international or regional organizations that carry the code of the country in which they are domiciled are not manually adjusted to match the requirements of TIC forms. Second, transactions with U.S. branches and agencies of foreign banks and institutions in the United States provide a dilemma for data filers on several fronts, the first of which is definitional. In one instruction (general instruction D,3,d), U.S. offices of foreign governments are to be considered foreign. In a later instruction (general instruction D,4,a), U.S. offices of foreign official banking institutions are to be considered domestic. Errors and omissions can easily result from these conflicting instructions when dealing with U.S. offices of nationalized or central banks of foreign countries. On another front, the operating systems of financial institutions may use country codes for purposes that conflict with the
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Following the Money: U.S. Finance in the World Economy form S definition of foreign customer, making it necessary to identify and temporarily reclassify U.S. branches of foreign banks each time an S form is filed. For example, the New York branch office of the Reserve Bank of Australia is coded as a U.S. resident for the purpose of addressing transaction confirmations and other documents, but it must be classified as foreign for S form reporting. Another problem with U.S. branches of foreign banks arises because operating systems of reporting financial institutions may have limited information, which requires manual identification and verification. A system may have been devised to name the holdings of the bank's customer (e.g., Bank of Tokyo) and not distinguish between the New York agency and the parent bank in Japan. Even if an address field is incorporated in the operating system, it does not determine whether U.S. branches and agencies of foreign banks are acting on behalf of their foreign parent; it only provides the name of the organization and cites a U.S. or foreign paying agent. Thus, it is not known whether the issuer is the U.S. branch or agency of the foreign bank or the foreign parent. Third, the TIC instructions require that an individual must reside in a foreign country for 1 year to be considered a resident of that country. This information is difficult for reporting units to determine. Entering the correct U.S. dollar amounts is not considered a significant source of error because these amounts can be checked by internal systems. Nonetheless, financial institutions that have multiple feeder systems—that is, numerous departments contributing data to be consolidated by the TIC reporting group—are vulnerable to duplication errors. Moreover, monthly TIC forms are now reported in millions of dollars, while the semiannual forms are required to be reported in thousands: this difference often results in reported amounts on semiannual forms being erroneously inflated by 1,000. Errors and omissions can also arise when instructions are not clear about reporting new types of instruments. In general, reporters are not aware of or are confused about filing requirements. Examples of financial instruments whose inclusion is often questioned are certificates of deposits, repurchase agreements (''repos"), and "other deposit balances." There are also certain transactions whose treatment is not discussed in the instructions but for which the Federal Reserve banks have verbally indicated the approved treatment. For instance, buy- and sell-back trades are to be treated as repos and resales, according to the verbal instructions of the
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Following the Money: U.S. Finance in the World Economy FRBNY, but these transactions are not mentioned in the written instructions. Most respondents engage in financial derivative transactions with foreign entities. Such off-balance-sheet transactions are not reported on TIC forms, however, because instructions do not specifically include derivatives as reportable items. Instructions for the BL-1 and BC forms specifically exclude swaps, futures, foreign exchange forwards, options, and warrants. One respondent noted that, to the extent that the transactions create assets and liabilities for the bank, it reports such assets or liabilities on Forms BC or BL, as appropriate, although another respondent stated that it reports foreign positions not on TIC forms but on Treasury forms FC-3 and FC-4. The respondents did not indicate awareness of private international capital transactions not covered in the TIC system and, understandably, they did not call for additional data to be reported within the system. Some suggested, however, expanding the CM, CQ, and CQ-2 forms to capture transactions that bypass financial intermediaries. FORM-SPECIFIC PROBLEMS Many specific sections of the instructions were reported as unclear or inconsistent by respondents. Their comments are listed in this section by forms. General Instructions are unclear on whether domestic operating subsidiaries (nondepository) of a bank are to be included in the bank or nonbank reports. The treatment of bankers' acceptances executed by a U.S. head office on behalf of its foreign branches is unclear. Because the foreign office has the claim on the foreign customer, some banks treat the head office claim as a claim on its own foreign office. Because the head office creates the bankers' acceptance, other banks treat the claim as a third-party one on a foreign customer. The instructions are unclear regarding the appropriate classification. It is not clear what entities are reportable in the "own foreign office" category. It appears that only transactions with foreign branches or majority-owned subsidiaries of the filer are to be included. It is not clear whether transactions with other related
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Following the Money: U.S. Finance in the World Economy parties are reportable (e.g., a U.S. bank's liability to a foreign subsidiary of its parent bank holding company or a foreign branch of another U.S. bank that is part of the same holding company). Claims are not sufficiently defined. Definitions should be consistent with other regulatory reports: for example, the Country Exposure Report includes accrued interest receivable and long-term securities. The term transaction is defined neither in the TIC form general instructions nor in the specific reports. It is not clear whether the term is limited to purchases or sales or also applies to conversions, exchanges, etc. It is not clear how to report commercial paper issued by a U.S. subsidiary of a foreign company but guaranteed by the foreign parent. The converse is also not clear. Informing filers of the purposes and objectives of the TIC reports could help answer these kinds of questions. The TIC data requirements are often impractical to implement, since they exceed the capabilities of financial institutions to capture and report the data. Generally, a bank's automated system(s) is tailored to one set of reporting criteria or classifications. The inconsistencies in the TIC reports make it difficult to construct criteria that can be applied uniformly. B Forms Instructions are confusing regarding mutual funds (BL-2) as they relate to trust business. The terms foreign public borrowers (form BC, column 1) and foreign official institutions (form BL-1, columns 1 through 3) in two different reports cover similar institutions (including central banks). However, column titles are different for each report, which causes confusion. Filers suggest that references to foreign public borrowers be eliminated and that the entities covered under foreign official institutions be expanded to include additional entities currently included in foreign public borrowers. Claims on form BC exclude long-term securities. Because of the increased securitization of assets by banks, the distinction between long-term loans and long-term securities has become blurred. Consideration should be given to including both classes of assets on form BC. The instructions for form BL-2 are confusing. The title of the form refers to custody liabilities to foreigners; however, the instructions require the reporting of claims on U.S. persons.
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Following the Money: U.S. Finance in the World Economy Form BL-2 instructions (page 2) contain the phrase "financial claims" but do not define it. Form BC requires U.S. banks to report monthly their claims on foreigners payable in dollars. Form BQ-1 requires U.S. banks to report quarterly those same claims and domestic customer claims on foreigners payable in dollars. The purpose of having two overlapping reports is not clear. S Form The reporting requirements of the S form are difficult to follow. The title of the S form indicates that the report covers purchases and sales of long-term securities by foreigners. However, the instructions require the reporting of redemptions as purchases or sales. This seems inconsistent. If a stock is purchased from a foreigner, it is to be reported as a "sale," and sales are to be reported in the "purchaser" column. This is because the form is structured from the standpoint of foreigners. From the viewpoint of the staff of a domestic reporting financial institution, this is confusing. It is also confusing when viewed in terms of other TIC reports in the series. In completing the S form, the location of a foreign broker with whom a trade for a U.S. customer is made is said to determine the "foreign country" line on which the transaction is to be reported. This seems to contradict the purpose of the report, which seems to suggest reporting the issuer. For example, the purchase of German securities from a U.K. broker would be reported as a purchase from (sale by) the United Kingdom. REPORTING BURDEN Generally, respondents indicated that the 15-calendar-day period for filing reports is inadequate. They note that consideration should be given to allowing 15 or 20 business days, or 20 calendar days, for several reasons. Operating systems and financial staffs are occupied with other priorities during the period from the end of one month through the first 10 business days of the next month. Information on the activities of branches located in U.S. possessions or on subsidiaries located outside the city where the head office is located is generally mailed to the head office and may not be available by the reporting deadline.
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Following the Money: U.S. Finance in the World Economy The FRBNY frequently raises questions that relate to the TIC reports after comparing the TIC data with other reports. (The time required of the filers to respond to questions often is longer than that required for the actual preparation of the reports.) There are several issues related to the FRBNY's telephone inquiries. For several reasons, respondents think that much of this questioning could be eliminated. Because of time differences, in the cases of certain transactions, the reports of international branch offices will not match. For example, the head office of a bank may deposit funds with its London branch on the afternoon of September 30. Because of time differences (London is already closed), the London branch will not record this transaction until October 1. In this case, the head office will show a "due" from London on its BC report for September 30. However, the London branch will not report the off-setting "due" to its parent corporation on FR 2502 for September 30, since the transaction did not appear on the books in London until the following day. For a branch like that in London, the fluctuations or differences can be extremely large. At present, the FRBNY receives copies of all tickets generated from foreign official purchases and sales of U.S. long-term securities, that is, all the information on these transactions required on the S form. Reporting by financial institutions on these transactions should be eliminated, since it poses an unnecessary reporting burden on filers to report duplicative information. Differences between data on copies of the tickets the FRBNY receives on foreign official purchases and sales of long-term securities and information on such transactions submitted by filers on the S form at times can be attributed to the inclusion of financing charges in the total amounts of transactions by filers. Respondents believe that consolidation and elimination of reports could reduce reporting burden. Depending on the organizational structure of a bank's operations and level of automation, reporting entities frequently experience difficulty in compiling data at the required consolidation level (i.e., bank, nonbank, and IBF). In some instances, it is easier for financial institutions to submit one consolidated report for the entire bank holding company than multiple reports. For other institutions, filers believe that it is easier to submit data by legal vehicle, business segment, division, or department. Currently, there are ten separate TIC forms applicable to banking institutions. Since separate reports are required for at least three
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Following the Money: U.S. Finance in the World Economy spondents stated that the information requested is generally available from accounting and management records; others indicated that there are major problems in obtaining it. The latter respondents noted, for example, that units preparing reports need to work with subsidiaries overseas to obtain data not available locally. Furthermore, they indicated that the BE-10 and BE-11 forms often require nonaccounting data or data tabulated in ways that are different from the way they are normally collected by companies (especially for their reporting to the Securities and Exchange Commission or the Internal Revenue Service). All respondents who have significant financial claims or liabilities with nonaffiliated foreign entities indicated that they report them on TIC nonbanking C forms. The level of detail requested is at times beyond that in available records. Respondents' comments show that the number of employee hours required to complete each of the forms varies widely from company to company. The experience of one major U.S. multinational corporation—which is shared by others that have extensive direct investment abroad—is worth noting. The corporation estimated that the periodic (i.e., 5-7 years) BE-10 form requires approximately 3 employee-years to complete the individual forms for its several hundred foreign affiliates and to consolidate data from the numerous domestic affiliates that qualify. It noted that it has not been cost-effective to develop a completely computerized collection system for the benchmark BE-10 because of its periodic nature; consequently, some manual transmission, completion, and assembly are required. The annual BE-11 form requires approximately 1 employee-year to complete individual forms for the several hundred affiliates and to consolidate the records of the numerous domestic affiliates that qualify. The BE-11 is submitted on the company's own computer-generated forms. The quarterly BE-577 requires approximately 2 employee-months, to complete each quarter's individual forms for the more than 100 foreign affiliates subject to reporting requirements. The BE-577 is also submitted on the company's own computer-generated forms. The corporation also noted that the information needed to complete these BEA forms is not always available in its U.S. headquarters location. Generally, responses to the more detailed questions on forms BE-10 and BE-11 must be requested from the field: such items include geographic allocations of revenues and balance sheet items, as well as imports and exports into and out of the United States. This
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Following the Money: U.S. Finance in the World Economy information requires the company to establish and maintain a supplementary data collection system. The corporation further pointed out that there are difficulties in reconciling the reporting requirements with the company's accounting system. Internal collection of financial data is by individual affiliate. In a number of cases, several affiliates operate in the same country. Ownership of these companies by the U.S. filer can be either direct or indirect. The reporting of consolidated data to the BEA on several foreign affiliates directly owned by the U.S. filer would require considerable effort. In addition, the corporation indicated that the reporting of branch earnings is subject to different interpretations. The annual profit or loss reported by a foreign branch results in an increase or decrease in the payable (receivable) with the U.S. home office. The actual transfer of funds offsets this accounting entry. It is not clear which of these transactions should be reported in the BE reports. Furthermore, the corporation noted that matching exports from the U.S. parent company to its foreign affiliates with records of imports from the U.S. parent company kept by these foreign affiliates becomes difficult because trading companies are used as intermediaries in these transactions. The U.S. exporter does not always know the final destination of its goods. Likewise, the importing foreign affiliate may not record the country of origin in its purchase records, making a detailed review of its transactions time-consuming. Respondents' suggestions on how to reduce the reporting burden without sacrificing data were both general and specific. General suggestions included requesting information in a manner consistent with accounting systems, being able to answer questions by referring to annual reports, and extending the time allowed for filing. An example of a specific suggestion was that filers should not be required to obtain information from foreign entities in which they have only a minority ownership interest. Respondents indicated that any reduction in the reporting burden, whether by following general or specific suggestions, would improve the quality of data they submit to BEA. Respondents also noted that improving the clarity of the instructions could ease the filing burden. Cross-referencing, both between sections of one form and between different forms, would be helpful. They added that it would be helpful to explain in the general instructions the purpose of the data filing, how the data are tabulated, and what the final publications look like. The respondents were not familiar with BEA publications that report
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Following the Money: U.S. Finance in the World Economy the data supplied by filers. None indicated that they use the data (in large part because they work in accounting offices, not economic offices); one requested that copies of the published report be sent to it. Some respondents would like to have additional time to file reports. Others would like definitions to conform as closely as possible to accounting practices used in their businesses or required in submissions to the Securities and Exchange Commission or the Internal Revenue Service. Some respondents would like to file reports in electronic form; others want to continue to process and file data manually. A number of respondents proposed higher exemption levels for reporting; they asserted that this would reduce the reporting burden and cut errors. DATA FILERS: BEA'S SURVEYS OF FOREIGN DIRECT INVESTMENT IN THE UNITED STATES Substantive responses about BEA's surveys of foreign direct investment in the United States were received from four large U.S. affiliates of foreign firms. All indicated that they have the information available for completion of BEA forms, but none of them uses (or is familiar with) the resulting statistical output published by BEA. Respondents suggested providing more time for filers to complete reports, restricting inquiries of filers to areas that involve direct investment, and consolidating these reports with other federal ones that collect the same data. Some suggested that the reports be consolidated with other government statistical reports collecting the "same" data. Quarterly and annual reports (BE-605, BE-606B, and BE-15) were commonly recognized as reports filed. Although most respondents stated that the information requested is generally available from accounting and management records, they indicated that there are some items that are so irrelevant that they would not be tracked were it not for the reporting forms. In addition, data on specific locations required on the forms necessitates investigation because records are not kept on that basis. The amount of time required to complete the reports varied. Most respondents indicated that the instructions are fairly clear or that sufficient help can be obtained by calling the assistance number. They also believe that the coverage is complete. Respondents indicated that they do not use BEA publications that report direct investment data. Respondents who have significant financial claims or liabilities with nonaffiliated foreign
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Following the Money: U.S. Finance in the World Economy entities indicated that they report them on CQ-1 and CQ-2 forms. Other comments concerned the term parent company. A 10 percent investment by a single foreign entity in a U.S. business is considered a parent company according to BEA filing instructions, but respondents from companies that have more than 10 percent foreign ownership stated that they are not affiliates of foreign parent companies. Others resented the implication that they are subsidiaries of foreign companies that own 25 percent of their common stocks. DATA USERS In addition to two large industry groups that expressed the collective views of their members, nearly 40 other respondents provided comments on the capital account data in the U.S. balance of payments. Respondents in the canvass include experienced researchers and policy analysts who fall into four principal groups: staff of federal agencies or international institutions, academic users, staff of private financial institutions or research organizations, and people associated with industry or commerce. Since the perspectives of these user groups differ, we report their comments separately, after presenting a few general views that were shared by most of the respondents. Overall, users are generally satisfied with the data, although a considerable number of frequent users would welcome more timely data (mainly banking and securities data). These requests were primarily from private-sector users, who reported that a 3-month delay in publication makes the data difficult or impossible to use for market analysis. Users from U.S. government agencies also indicated they would like timeliness improved; academic users were not troubled by current publication schedules. Users generally believe that improving data comparability among different sectors of the economy and standardizing data standards among countries are essential to enhance the usefulness of existing data. Users also urged that up-to-date data be provided on the market value of U.S. holdings of foreign securities. Some also recommended categorizing securities data along the format used by large financial institutions, which group data by country; region; security type (bonds versus stocks); maturity, and indices of volume and price; and purposes of investments, differentiating corporate acquisitions (such as in mergers and acquisitions) and institutional investment for portfolio reasons.
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Following the Money: U.S. Finance in the World Economy FEDERAL AND INTERNATIONAL AGENCY STAFFS In considering the various types of capital flow data, respondents from federal and international agencies were most familiar with data on foreign direct investments in the United States, followed by U.S. direct investments abroad, and U.S. banks' claims on foreigners. There was little familiarity with data on nonbanks' international assets (other than securities or direct investments). Consistent with users' familiarity with direct investment data, the most frequently cited data source was the Survey of Current Business and related Commerce Department publications, followed by the Treasury Bulletin . Other than BEA and Treasury Department sources, respondents make use of publications from the IMF and the Organization for Economic Cooperation and Development (OECD), the balance-of-payments accounts of other countries, and country exposure reports. Most of the respondents in this group use the data to prepare internal reports for the management of their agencies and for other reports. In evaluating the published data, most respondents judged coverage as ''good," a few said "excellent"; accuracy was judged mainly "good," a few "excellent," some "unknown"; timeliness was judged mainly "good" or "excellent," but some said "poor"; and judgments about relevance were divided equally between "good" and "excellent." Respondents noted, however, that the errors and omissions in the U.S. balance-of-payments accounts are large, that there is inadequate detail on portfolio data, and that the data are not available electronically. There were several suggestions for improvement: (1) to publish securities data by categories similar to those used in analyses of domestic financial markets, that is, to show flows before and after valuation changes, give more country detail, and use more position country data; (2) to provide time-series data; (3) to publish on a more timely basis; and (4) to make data available electronically, in the form of diskettes, CD-ROM forms, and other methods. ACADEMIC AND PUBLIC POLICY RESEARCHERS Academic and public policy researchers expressed greatest interest in direct investment data, almost equal interest in each of the other principal categories of capital flows, and least interest in the more amorphous nonbank portfolio data. Most described the quality of the U.S. data as "good"; a few characterized it as
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Following the Money: U.S. Finance in the World Economy "excellent." Some, however, consider the country identification of security holdings to be useless. The most frequently cited source of data is the Survey of Current Business, followed by the Treasury Bulletin. Also used are the IMF's International Financial Statistics and OECD publications. Many respondents indicated that they use the data for general research purposes. A few mentioned specific projects involving exchange rates, trade, the service sector, valuation of assets and liabilities, and teaching. Suggestions to augment the data included: (1) providing currency details; (2) establishing closer concordance between direct investment and trade data; (3) publishing data on a more timely basis; and (4) providing up-to-date market valuations for data on securities holdings. USERS IN FINANCIAL INSTITUTIONS Replies from individuals in financial organizations—banks, securities dealers, and financial research institutions—indicated that they are especially interested in the data on international transactions in U.S. and foreign securities and, to a lesser extent, in the data on direct investments. Most find the quality of the data "good" in general and "excellent" in some respects; only timeliness was rated "poor.'' Most of these respondents use the data as published in the Survey of Current Business or Treasury Bulletin, but there is also considerable dependence on industry sources (for example, Data Resources Inc.), and the Federal Reserve Board's flow-of-funds data. A wide variety of additional data sources was also mentioned, including publications by the IMF, the OECD, industry and trade associations, and government of Japan data (in part because they are not revised). The principal use of the data is market research of various kinds. Other uses mentioned included interest and exchange rate forecasts, internal planning, and training courses. This group of respondents also noted that revisions in Treasury data are difficult to follow over time, and data are not sufficiently timely. Among data not now published that would be useful are more detail on foreign dealings in U.S. government securities, data on U.S. activities in specific foreign financial markets, separation of short-term and long-term transactions, data on joint ventures and mergers, and detailed data on securities held in the U.S. and foreign portfolios. Other suggestions for improvement were to revise data presentation using selected industry presentations
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Following the Money: U.S. Finance in the World Economy as models and to provide detailed information on the basis for revisions in the data. Most often, respondents recommended publication on a more timely basis. USERS IN COMMERCE AND INDUSTRY Two major industry groups responded to the panel's canvass. In both cases the emphasis was on data on inward and outward direct investments. One industry group rated the data as "excellent" in most respects and "poor" in none; the other rated the information generally between "good" and "poor.'' Both industry groups rely primarily on BEA publications. In both cases, the data are used regularly in the preparation of reports, testimony before Congress, and general policy analysis. Other data sources used by these groups include the IMF, the OECD, and European Community publications. Several suggestions were made by these two industry groups: (1) to standardize industry codes across sectors in the economy; (2) to standardize country codes among databases; (3) to identify data on flows pertaining to offshore banking centers; (4) to provide longer time series for direct investment data; and (5) to furnish industry breakdowns of direct investments in wholesale and retail trade. USE OF DATA IN PUBLISHED STUDIES Our literature search revealed that there are more published studies using BEA's information on direct investment than the Treasury Department's TIC data on portfolio investment. Although most of these studies appear in the References and Bibliography, the selected list below (Figures B-1 and B-2) shows them by topic.
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Following the Money: U.S. Finance in the World Economy FIGURE B-1 Selected Published Studies Using BEA Data on Foreign Direct Investment in the United States and U.S. Direct Investment Abroad GENERAL Caves, R.E. 1982 Multinational Enterprise and Economic Analysis. New York: Cambridge University Press. Hufbauer, G.C. 1975 The multinational corporation and direct investment. Pp. 253-319 in P.B. Kenen, ed., International Trade and Finance: Frontiers for Research. New York: Cambridge University Press. Stekler, L., and G.V.G. Stevens 1991 The adequacy of direct investment data. In P. Hooper and J.D. Richardson, eds., International Economic Transactions. Chicago: University of Chicago Press. Stevens, G.V.G. 1974 The determinants of investment. Chapter 3 in J.H. Dunning, ed., Economic Analysis and the Multinational Enterprise. London: George Allen & Unwin. SHARE OF DIRECT INVESTMENT ENTERPRISES IN A MARKET OR THE ECONOMY Eisner, R., and P.J. Peiper 1988 The World's Greatest Debtor Nation? Paper presented to Joint Session of North American Economics and Finance Association. New York. Stekler, L., and G.V.G. Stevens 1991 The adequacy of direct investment data. In P. Hooper and J.D. Richardson, eds., International Economic Transactions. Chicago: University of Chicago Press. Ulan, M., and W.G. Dewald 1989 The U S Net International Investment Position. The Numbers Are Misstated and Misunderstood. Washington, D.C.: U.S. Department of State. DIRECT INVESTMENT, TRADE, AND COMPETITIVENESS Bergsten, C.F., T. Horst, and T.H. Moran 1978 American Multinationals and American Interests. Washington, D.C.: The Brookings Institution. Bloomstron, M., R.E. Lipsey, and K. Kulchycky 1988 U.S. and Swedish direct investment exports. In R.E. Baldwin, ed., Trade Policy Issues and Empirical Analysis. Chicago: University of Chicago Press. Kester, Anne Y., ed. 1992 Behind the Numbers: U.S. Trade in the World Economy. Panel on Foreign Trade Statistics, Committee on National Statistics. Washington, D.C.: National Academy Press.
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Following the Money: U.S. Finance in the World Economy Lipsey, R.E., and I.B. Kravis 1987 The competitiveness and comparative advantage of U.S. multinationals, 1957-1984. Banca Nazionale del Lavoro Quarterly Review 40(161):147-165. Lipsey, R.E., and M.Y. Weiss 1981 Foreign production and exports in manufacturing industries. The Review of Economics and Statistics 63(4):488-494. FORECASTING DIRECT INVESTMENT FLOWS IN MACROECONOMIC MODELS Helkie, W., and L. Stekler 1987 Modeling Investment Income and Other Services in the U.S. International Transactions Accounts. International Finance Discussion Paper No. 319. Washington, D.C.: Board of Governors of the Federal Reserve System. DETERMINANTS OF MULTINATIONAL BEHAVIOR Corbo, V., and O. Havrylyshyn 1982 Production Technology Differences Between Canadian-Owned and Foreign-Owned Firms Using Translog-Production Functions. NBER Working Paper No. 981. Cambridge, Mass.: National Bureau of Economic Research. Courtney, W.H., and D.M. Leipziger 1975 Multinational corporations in LDC's: the choice of technology. Oxford Bulletin of Economic Statistics 37(4):297-304. Froot, K.A., and J.C. Stein 1989 Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach. NBER Working Paper No. 2914. Cambridge, Mass.: National Bureau of Economic Research. Lim, D. 1977 Do foreign companies pay higher wages than their local counterparts in Malaysian manufacturing? Journal of Development Economics 4(1):55-66. Lipsey, R.E., I.B. Kravis, and R.A. Roldan 1982 Do multinational firms adapt factor proportions to relative factor prices? In A.O. Krueger, ed., Trade and Employment in Developing Countries' Factor Supplies and Substitution. Chicago: University of Chicago Press. Morley, S.A., and G.W. Smith 1977 The choice of technology: multinational firms in Brazil. Economic Development and Cultural Change 25(2):239-264. Ray, E.J. 1989 The determinants of foreign direct investment in the United States: 1979-1985. In R. Feenstra, ed., Trade Policies for International Competitiveness. Chicago: University of Chicago Press.
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Following the Money: U.S. Finance in the World Economy Reuber, G.L. 1973 Private Foreign Investment in Development. Oxford: Clarendon Press. Stevens, G.V.G. 1969 Fixed investment expenditures of foreign manufacturing affiliates of U.S. firms: theoretical models and empirical evidence. Yale Economic Essays 9(1):137-198. 1972 Capital mobility and the international firm. In F. Machlup, W. Salant, and L. Tarshis, eds., The International Mobility and Movement of Capital. New York: National Bureau of Economic Research. Stevens, G.V.G., and R.E. Lipsey 1992 Interactions between domestic and foreign investment. Journal of International Money and Finance 11(1):40-62. Wells, L.T. 1973 Economic man and engineering man: choice in a low-wage country. Public Policy 21(Summer):219-242. DIRECT INVESTMENT AND ECONOMIC WELFARE Encarnation, D.J., and L.T. Wells 1986 Evaluating foreign investment. In T.H. Moran, ed., Investing in Development: New Roles for Private Capital? New Brunswick, NJ: Transactions Books. Graham, E.M., and P.R. Krugman 1989 Foreign Direct Investment in the United States. Washington, D.C.: Institute for International Economics. Little, I.M.D., and J.A. Mirrlees 1974 Project Appraisal and Planning for Development. New York: Basic Books. Musgrave, P.B. 1975 Direct Investment Abroad and the Multinationals: Effects on the United States Economy. U.S. Congress, Senate Subcommittee on Multinational Corporations of the Committee on Foreign Relations, 98th Congress, 1st Session. Washington, D.C. Roemer, M., and J.J. Stern 1975 The Appraisal of Development Projects. New York: Praeger. Stekler, L., and G.V.G. Stevens 1991 The adequacy of direct investment data. In P. Hooper and J.D. Richardson, eds., International Economic Transactions. Chicago: University of Chicago Press. U.S. General Accounting Office 1988 Foreign Investment: Growing Japanese Presence in the U.S. Auto Industry . NSIAD-88-111. Washington, D.C.: U.S. Government Printing Office. Vendrell-Alda, J.L.M. 1978 Comparing Foreign Subsidiaries and Domestic Firms: A Research Methodology Applied to Efficiency in Argentine Industry. New York: Garland.
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Following the Money: U.S. Finance in the World Economy OTHER IMPORTANT TOPICS Caves, R.E. 1982 Multinational Enterprise and Economic Analysis: Chapter 8. New York: Cambridge University Press. Grubert, H., T. Goodspeed, and D. Swenson 1991 Explaining the Low Taxable Income of Foreign-Controlled Companies in the United States. Washington, D.C. Hartman, D. 1984 Tax policy and foreign direct investment in the United States. National Tax Journal 37(4):475-488. Slemrod, J. 1990 Tax effects on foreign direct investment in the United States. In A. Razin and J. Slemrod, eds., Taxation in the Global Economy. Chicago: University of Chicago Press. Wheeler, J.E. 1988 An academic look at transfer pricing in a global economy. Tax Notes 40(1)87-96. NOTE: We thank Guy V.G. Stevens of the staff of the Federal Reserve Board for his assistance in preparing this table. FIGURE B-2 Selected Published Studies Using TIC Data Cooper, I.A., and Kaplanis, E. 1991 What Explains the Home Bias in Portfolio Investment? Unpublished paper, London Business School. French, K., and Poterba, J. M. 1989 Are Japanese Stock Prices Too High? Working paper, University of Chicago. 1991 Investor diversification and international equity markets. American Economic Review 81(May):222-226. Howell, M., and Cozzini, A. 1990 International Equity Flows. International Equity Research, Salomon Brothers. Tesar, L.L., and I.M. Werner 1992 Home Bias and the Globalization of Securities Markets. Working paper, University of California at Santa Barbara and Stanford University. NOTE: We thank Linda L. Tesar of the University of California, Santa Barbara, and Ingrid M. Werner of Stanford University for contributing information for use in this table.
Representative terms from entire chapter: