Gravity for FDI
AbstractGravity equations explaining foreign affiliates' sales are ad hoc and hence, estimated coeffcients are hard to interpret. We therefore provide the theoretical underpinnings of the gravity equation applied to the analysis of sales of foreign affiliates of multinational firms. We argue that the success of the gravity equation results from the fact that it can be derived from various theoretical models. We illustrate this point by deriving a gravity equation from three different models of multinational firms. Using data on real affiliate sales, we show how this derived gravity equation can nevertheless be used to discriminate between the different theoretical models. - gravity equation ; multinational firms ; heterogeneity --
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Date of creation: 2007
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- Kleinert, Jörn & Toubal, Farid, 2005. "Gravity for FDI," Center for European, Governance and Economic Development Research Discussion Papers 46, University of Goettingen, Department of Economics.
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
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