(When) Should We Use Foreign Direct Investment Data to Measure the Activities of Multinational Corporations? Theory and Evidence

Abstract

This paper reviews the different concepts of measuring activities of multinational corporations. It aims at working out the economic relationships that theoretically exist between these measures under general economic assumptions and then empirically investigates to which extent such relationships exist in the data. As a main conclusion, foreign direct investment (FDI) stock data is indeed a good proxy for measuring most real economic activities of multinational firms. Discrepancies between FDI stock and other data can to a large extent be given a reasonable economic meaning, but observed asset‐to‐employment patterns in multinational production also call for more thorough future research.