Firm foundations: The statistical footprint of multinational corporations as a problem for political economy

Abstract

The discipline of comparative political economy (CPE) relies heavily on aggregate, country-level economic indicators. However, the practices of multinational corporations have increasingly undermined this approach to measurement. The problem of indicator drift is well documented by a growing critical literature and calls for systematic methodological attention in CPE. We present the case for a rocky but ultimately rewarding middle road between indicator fatalism and indicator faith. We illustrate our argument by examining two important cases—Sweden’s recent export success and the financialization of non-financial corporations in France. A careful parsing of the data suggests corrections to common characterizations of the two cases. Swedish exports have been reshaped by intragroup trade among foreign subsidiaries of domestic corporations. The growth of financial assets held by French firms is attributable to the growth of foreign direct investment and to cumulative revaluation effects, while what remains of financialization is concentrated among the very largest firms. Based on these findings, we propose a methodological routine that parses data by zooming in on the qualitative specifics of countries, sectors, and firms, while using all available options for disaggregation.

Illicit financial flows and country-by-country reporting in extractive industries

“…Data standards on the international economy are made to fit standard transactions, in which a good or service is traded from country A to country B. Longer and more complex streams of production which involve multi-jurisdictional trade (Ergen et al 2021) or factoryless manufacturing (Coyle and Nguyen 2022) have made such transactions more complex, and created problems for registering trade data (Linsi and Mügge 2019). At the same time, MNCs have a newfound ability to register financial assets strategically to gain tax advantages (Seabrooke and Wigan 2017;Zucman 2015).…”

“…This changes the reporting of foreign direct investment (Damgaard et al 2019;Haberly and Wójcik 2015) or bank liabilities (Haberly and Wójcik 2020). Since corporate tax avoidance poses challenges to the old data standards (Ergen et al 2021) and since corporate tax avoidance has increased over the past three decades , challenges to the old data standards have likely increased, too.…”

“…Recently, debates have emerged on underlying conceptual as well as accuracy issues in widely used international macro statistics (Blanchard and Acalin 2016;Linsi and Mügge 2019;Zucman 2013) and their political foundations (Alenda-Demoutiez 2022; Mügge 2020). A particular focus is the effect of illicit financial flows, stemming from for example corruption or tax avoidance, which undermine public finances as well as the reliability of international economic figures (Damgaard et al 2019;Ergen et al 2021;Guvenen et al 2021).…”

“…National economic aggregates and bilateral trade statistics, in particular, were first compiled during the economic depression of the 1930s (Linsi and Mügge 2019). The changing composition of the world economy, not least the rise of multinational corporations (MNCs) with intra-firm trade and intangible assets, presents a challenge for statistical conventions from a 'simpler' time (Ergen et al 2021). The tax-minimization techniques undertaken by these corporations skew the figures by which the international economy is governed and thereby call into question fundamental economic facts and potentially decades of empirical research based on these figures (Blanchard and Acalin 2016;Damgaard et al 2019;Zucman 2013).…”

Financialization goes South: Foreign capital flows and financial accumulation in emerging markets

“…Reliance on some national-level data is almost impossible to avoid (including in the present study) and can be informative. However, what recent scholarship is increasingly making clear are the pitfalls of “methodological nationalism” in studies of the global economy and inequality (Ergen et al, in press). This includes findings, for example, that global trade is really inter-firm trade (Dallas, 2015), the “organizational turn” within sociology (Tomaskovic-Devey and Avent-Holt, 2019), and critical macrofinancial theorists arguing that the global economy should be grasped as interconnected balance sheets between organizations (Gabor, 2020).…”