CEPII, Recherche et Expertise sur l'economie mondiale
Grey Zones in Global Finance: the Distorted Geography of Cross-Border Investments


Anne-Laure Delatte
Amélie Guillin
Vincent Vicard

 Points clés :
  • We employ a standard gravity framework to quantify abnormal stocks of FDI and portfolio securities over 2009-2017 for up to 236 jurisdictions.
  • We provide evidence that about 40% of global asset are abnormal stocks and that:
  • (a) the bulk of international assets in tax havens are `abnormal', i.e unexplained by standard gravity factors;
  • (b) there is a strong heterogeneity among jurisdictions, the bulk of unexplained international investments is concentrated on six jurisdictions, among which five large tax havens;
  • c) while Luxembourg is among them, we find that the Luxleaks were paradoxically followed by a rise of unexplained FDI in and from Luxembourg.

 Résumé :
Tax avoidance schemes generate artificially complex cross-border financial structures inflating measured international investment stocks in tax havens. Using a standard gravity framework, we estimate that about 40% of global assets (FDI, portfolio equity and debt) are `abnormal' – unexplained – stocks. Abnormal stocks are increasing over time and concentrated in a limited number of jurisdictions. Six jurisdictions including three European countries are the largest contributors: Cayman, Bermuda, Luxembourg, Hong Kong, Ireland and the Netherlands. Interestingly, the Luxleaks in 2014 do not appear to have diverted cross-border investments away.

 Mots-clés : Cross-Border Investments | Capital Openness | Tax Havens | Gravity Equation

 JEL : F23, G21, H22, H32
CEPII Working Paper
N°2020-07, May 2020

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