Grey ZOnes in Global Finance: the Distorted Geography of Cross Border Investments
Abstract
Tax avoidance schemes generate artificially complex cross-border financial structures inflatingmeasured international investment stocks in tax havens. Using a standard gravity framework, weestimate that about 40\% of global assets (FDI, portfolio equity and debt) are 'abnormal' -unexplained - stocks. Abnormal stocks are increasing over time and concentrated in a limitednumber of jurisdictions. Six jurisdictions including three European countries are the largestcontributors: Cayman, Bermuda, Luxembourg, Hong Kong, Ireland and the Netherlands.Interestingly, the Luxleaks in 2014 do not appear to have diverted cross-border investments away