Tax havens and the production of offshore FDI: an empirical analysis

Abstract

While most research on foreign direct investment (FDI) focuses on the ‘real’ economy, at least 30% of global FDI stock is intermediated through tax havens. Using 2010 IMF data on FDI stocks, this article sheds new light on geographical, historical and political determinants of offshore FDI. Despite its intangibility, offshore FDI is as sensitive to physical distance as real FDI. Offshore FDI links are particularly strong between colonial powers and their current and former colonies. The OECD, while officially leading an agenda against tax evasion, internalizes significant offshore FDI within its membership. Indeed, offshore FDI is pervasive, affecting wealthy economies as much as developing countries.