International Finance Discussion Papers (IFDP)
November 2024 (Revised December 2025)
The Global (Mis)Allocation of Capital
Carol Bertaut, Stephanie E. Curcuru, Ester Faia, Pierre-Olivier Gourinchas
Abstract:
This paper studies the efficiency of international capital flows into and out of the U.S. using security-level equity holdings matched to firm-level measures of economic performance from 1995 to 2022. We find that both US and foreign investors tilt their international equity portfolio toward the top of the firm distributions of Total Factor Productivity (TFP), markups, Marginal Revenue Product of Capital (MRPK) and intangible capital. This allocation to the top occurs primarily through a between-firm component. For US firms with high initial productivity, and for foreign firms with high MRPK, increases in international investors’ equity holdings are associated with higher future investment in the near term.
Keywords: productivity, capital allocation, capital flows
DOI: https://doi.org/10.17016/IFDP.2024.1399r1
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