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The Gravity Equation in International Economics and International Business Research: A Note

Author

Listed:
  • Michele Fratianni

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Francesco Marchionne

    (Universita Politecnica delle Marche)

  • Chang Hoon Oh

    (Faculty of Business, Brock University)

Abstract

This note discusses methodological issues and practical concerns for international economists and international business scholars who apply the gravity equation in their research. The most important message of the note is that this equation should correct for multilateral resistance factors. We propose a relatively low-cost specification and estimation to implement such correction, which is robust in the presence of various endogeneity effects and non-stationary variables. In the presence of zero-values in the dataset, however, the multilateral specification is best estimated with a Poisson maximum likelihood.

Suggested Citation

  • Michele Fratianni & Francesco Marchionne & Chang Hoon Oh, 2010. "The Gravity Equation in International Economics and International Business Research: A Note," Working Papers 2010-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    • Handle: RePEc:iuk:wpaper:2010-08
    as

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    File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2010-08-fratianni-marchionne-oh.pdf
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    References listed on IDEAS

    as
    1. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    2. Alvaro Cuervo-Cazurra, 2008. "The effectiveness of laws against bribery abroad," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(4), pages 634-651, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    gravity equation; international trade; foreign direct investment; methodology;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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