On the Measurement of Foreign Direct Investment and Its Relationship to Activities of Multinational Corporations

This paper discusses the different concepts of measuring multinational corporations' activities to provide empirical researchers helpful guidelines about which measures to use in their work. I discuss which economic relations exist between the measures and show that a tight relationship can be established in theory and is indeed present in the actual data. A main conclusion is that foreign direct investment (FDI) stock data is generally recommendable to measure the importance of multinational firms but the preferred measure depends on the analytical question under investigation. The second part of the paper argues that estimating the determinants of multinational firms by using static equilibrium models can be quantitatively misleading and hence be problematic for our understanding of multinational firms and for the design of policy. In this context, I suggest some guidelines how data on multinationals could and should be used for empirical estimation