Drezner on the Net Income From Abroad Puzzle
Apparently, I was not the only one reading this paper by Matthew Higgins, Thomas Klitgaard, and Cédric Tille:
Although the United States has seen its net liabilities surge in recent years, its investment income balance has remained positive—largely because U.S. firms operating abroad earn a higher rate of return than do foreign firms operating here. The continuing buildup in liabilities, however, should soon push the U.S. income balance below zero. In that event, net income flows will begin to boost the nation’s current account deficit instead of reducing it.
The New Economist provides a summary. Daniel Drezner asks “Why are Americans Better at FDI” providing several possible explanations. See the comments to Dan’s post as well, which include Brad Setser discussing transfer pricing manipulation.