The work proposes a new econometric methodology to estimate so-called phantom FDIs, i.e. the share of Foreign Direct Investments not explained by the economic structure of the countries alone and therefore attributable to the fiscal and regulatory arbitrage opportunities present in Offshore Financial Centers (OFC).
Using an econometric model that takes into account a large number of variables capable of explaining investments between pairs of countries, our study considers the period 2009-2019 and shows that the amount of phantom FDIs grew over time, stabilizing at around $17,000 billion starting from 2017. In the period analyzed, the share of phantom FDIs out of total FDIs fluctuated between 30 and 40 per cent at a global level.
