The Global Capital Allocation Project.

• Author: Maggiori, Matteo

In recent decades, global flows of assets and goods have grown rapidly relative to GDP and have shifted aggressively during crises such as the global financial crisis and the current pandemic. Corporations and governments increasingly borrow from foreign investors, who face more options for allocating their capital in terms of asset class, currency, and geography. A sense of "who owns what" around the world, and why, is required to understand what these trends mean for the global economy. Our research aims to expand this understanding and explores the key elements driving global capital allocation.

Our work demonstrates the preference of investors for assets denominated in their own currency and details the consequences of this home currency bias for firm financing around the world. We find that the global demand for dollar-denominated assets implies that American firms have special access to global markets because they do not need to borrow in foreign currency to borrow from foreign investors. In recent work, we restate bilateral investment positions around the world by unwinding investments made in tax havens such as the Cayman Islands. This new map of capital allocation shows much larger bond investments by large developed countries in emerging economies such as Brazil, China, and Russia. The use of tax havens by large Chinese firms distorts our understanding of China as a global creditor. Finally, we organize the accompanying tools and data so that other users in academia and among policymakers can build on them.

Microdata in International Macro

In recent years, large-scale data collection by public institutions and commercial data providers has made it possible to go beyond aggregate statistics to reach a better understanding of how capital is allocated globally. Our work uses security-level holdings from mutual funds worldwide, US insurance companies, and the Norwegian sovereign wealth fund, together with various firm and security-level datasets on corporate ownership chains around the world, to better understand key patterns and determinants of global portfolio investment.

Cross-Border Financing and Tax Havens

In recent research with Antonio Coppola, we use these data to restate bilateral investment positions after taking into account the fact that companies often borrow from international investors through affiliates in tax havens and other financing centers. (1) For example, official data show that the Cayman Islands account for 14 percent of all foreign stock and bond positions held by American investors, a staggeringly large share for a country with a GDP of only about $5 billion. These positions clearly reflect the fact that companies with operations in third countries often raise money from Americans using foreign financing affiliates. Researchers have been long aware of this problem, but a key contribution of...