U.S. investors abroad receive a higher return on their assets than their counterparts that invest in the United States. I examine the degree to which excluding intangible assets from the measurement of foreign direct investment can account for this gap. Using a growth accounting framework, I estimate intangible capital stocks for foreign-owned affiliates and find that including unmeasured capital reduces the gap by up to two thirds. U.S. affiliates abroad hold a relatively large share of their assets as intangible capital since they are taxed at the relatively high U.S.
corporate rate and intangible investment is expensed. Accounting for intangibles
reduces a similar gap in British FDI returns by nearly half.
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