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New study exposes ‘phantom’ foreign direct investment

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A new study uses OECD and IMF data to distinguish genuine foreign direct investment from the type of ‘phantom’ investment involving no real economic activity that erodes the tax base of economies around the world.

The study by senior economists at the IMF and a professor of economics at the University of Copenhagen seeks to use the OECD’s detailed data on foreign direct investment (FDI) combined with the IMF’s coordinated direct investment survey, to create a global network that maps all bilateral investment relationships.

The authors argue that better data are needed to understand the $40 trillion in FDI being channelled around the world, of which around $15 trillion are phantom investments. As the same authors noted in their 2018 paper, Piercing the veil, Luxembourg and the Netherlands host nearly 50% of the world’s phantom investments, with a further eight jurisdictions: Hong Kong, BVI, Bermuda, Singapore, the Cayman Islands, Switzerland, Ireland, and Mauritius bringing that figure up to 85%.

The study claims its new global FDI network helps identify which economies host phantom investments and their counterparts and can give a clearer understanding of globalisation patterns. The data could also guide policymakers in their attempt to address international tax competition.

See The rise of phantom investments (Jannick Damgaard, Thomas Elkjaer, and Niels Johannesen) published in the IMF’s Finance & Development magazine (

Issue: 1456
Categories: News