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Gravity for FDI

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  • Kleinert, Jörn
  • Toubal, Farid

Abstract

Gravity 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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Paper provided by University of Tübingen, School of Business and Economics in its series Tübinger Diskussionsbeiträge with number 313.

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Date of creation: 2007
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Handle: RePEc:zbw:tuedps:313

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  1. Braconier, Henrik & Norbäck, Pehr-Johan & Urban, Dieter, 2003. "Reconciling the Evidence on the Knowledge Capital Model," Working Paper Series, Research Institute of Industrial Economics 590, Research Institute of Industrial Economics.
  2. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(3), pages 451-71, June.
  4. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, American Economic Association, vol. 94(1), pages 300-316, March.
  5. Stephen Redding & Anthony J. Venables, 2003. "Geography and Export Performance: External Market Access and Internal Supply Capacity," NBER Working Papers 9637, National Bureau of Economic Research, Inc.
  6. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2005. "Vertical Production Networks in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 664-678, November.
  7. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, Elsevier, vol. 16(3-4), pages 205-226, May.
  8. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262633078, December.
  9. Peter Egger & Michael Pfaffermayr, 2004. "Distance, trade and FDI: a Hausman-Taylor SUR approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(2), pages 227-246.
  10. Santos Silva, Joao & Tenreyro, Silvana, 2005. "The Log of Gravity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5311, C.E.P.R. Discussion Papers.
  11. Braconier, Henrik & Norbäck, Pehr-Johan & Urban, Dieter, 2002. "Vertical FDI Revisited," Working Paper Series, Research Institute of Industrial Economics 579, Research Institute of Industrial Economics.
  12. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3381, C.E.P.R. Discussion Papers.
  13. Venables, Anthony J., 1999. "Fragmentation and multinational production," European Economic Review, Elsevier, Elsevier, vol. 43(4-6), pages 935-945, April.
  14. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, American Economic Association, vol. 87(4), pages 520-44, September.
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