What does the global FDI network actually look like? Opening the black box of offshore investment

There is a growing recognition that offshore structures fundamentally distort the world map of foreign direct investment (FDI). This paper advances efforts to map the ultimate owners hidden behind offshore or ‘phantom’ FDI, by using a novel methodology to deconstruct the ultimate origins of FDI in 18 major economies representing 75% of world GDP. In contrast to previous studies, this methodology unpicks distortions created by the offshore re-domiciliation of corporate groups at the parent level, by determining the ‘true’ ultimate nationality of 12,000 offshore domiciled group ultimate owners (GUOs) in Orbis. By combining this offshore GUO ‘census’ with a Monte Carlo simulation approach to integrating micro-level Orbis data with macro-level official FDI data, the analysis estimates a 4D matrix of inward FDI in major world economies that is cross-disaggregated by (1) host economy, (2) immediate investing, (3) ‘ostensible’ ultimate investing, and (4) ‘true’ ultimate investing country. The results show that offshore structures are widely constituted at the group parent as well as subsidiary level, with groups that have ‘inverted’ to offshore jurisdictions at the parent level disproportionately engaged in offshore FDI round-tripping in their own home countries. This substantially increases estimated round-tripping in major economies, with nearly two thirds of all offshore FDI found to consist of either round-tripping, or outward investment by offshore-inverted groups more broadly. This has important implications for our understanding of offshore investment, suggesting that it is principally a byproduct of the home-country-oriented logic of corporate inversions and round-tripping, and not primarily a means for channeling investment between economies. The results also show that offshore investment is no longer overwhelmingly dominated by western multinational corporations. Rather, the offshore world has become an predominantly tripolar Sino–American-European system, that principally serves as an arena for the outward as well as round-trip investments of United States (US), Western European, and Chinese firms, and the integration of the US and Chinese capital markets.