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

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Author Info

  • 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.

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File URL: http://www.bus.indiana.edu/riharbau/RePEc/iuk/wpaper/bepp2010-08-fratianni-marchionne-oh.pdf
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Bibliographic Info

Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2010-08.

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Date of creation: Aug 2010
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Handle: RePEc:iuk:wpaper:2010-08

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Keywords: gravity equation; international trade; foreign direct investment; methodology;

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  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, vol. 39(4), pages 634-651, June.
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