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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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Bibliographic Info

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. 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. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June.
  3. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-44, September.
  4. Peter Egger & Michael Pfaffermayr, 2004. "Distance, trade and FDI: a Hausman-Taylor SUR approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 227-246.
  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. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  7. Venables, Anthony J., 1999. "Fragmentation and multinational production," European Economic Review, Elsevier, vol. 43(4-6), pages 935-945, April.
  8. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  9. Henrik Braconier & Pehr-Johan Norback & Dieter Urban, 2002. "Vertical FDI Reviseted," Development Working Papers 167, Centro Studi Luca d\'Agliano, University of Milano.
  10. Braconier, Henrik & Norbäck, Pehr-Johan & Urban, Dieter, 2003. "Reconciling the Evidence on the Knowledge Capital Model," Working Paper Series 590, Research Institute of Industrial Economics.
  11. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  12. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  13. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
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Cited by:
  1. Anokye M. Adam, 2013. "Currency Union and Foreign Direct Investment Inflow: Evidence from Economic Community of West African States (ECOWAS)," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 63(1-2), pages 121-132, June.
  2. Octavio Escobar, 2011. "The location pattern of FDI in Mexico after NAFTA," ERSA conference papers ersa10p804, European Regional Science Association.
  3. Paniagua, Jordi & Sapena, Juan, 2014. "Is FDI doing good? A golden rule for FDI ethics," Journal of Business Research, Elsevier, vol. 67(5), pages 807-812.
  4. Christophe Gouel & Houssein Guimbard & David Laborde, 2012. "A Foreign Direct Investment database for global CGE models," Working Papers 2012-08, CEPII research center.
  5. James E. Anderson, 2011. "The Gravity Model," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 133-160, 09.
  6. Jörn Kleinert & Farid Toubal, 2013. "Production versus distribution-oriented FDI," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(3), pages 423-442, September.
  7. Ronald B Davies & Amélie Guillin, 2011. "How Far Away is an Intangible? Services FDI and Distance," Working Papers 201120, School Of Economics, University College Dublin.
  8. Valeriano Martínez-San Román & Marta Bengoa-Calvo & Blanca Sánchez-Robles Rute, 2013. "The Trade-FDI Nexus: Evidence from the European Union," Working Papers 2013/15, Economics Department, Universitat Jaume I, Castellón (Spain).
  9. Monarch, Ryan & Park, Jooyoun & Sivadasan, Jagadeesh, 2013. "Gains from Offshoring? Evidence from U.S. Microdata," Working Papers 635, Research Seminar in International Economics, University of Michigan.
  10. Markus Leibrecht & Aleksandra Riedl, 2012. "Modelling FDI based on a spatially augmented gravity model: Evidence for Central and Eastern European Countries," Working Paper Series in Economics 239, University of Lüneburg, Institute of Economics.
  11. Miroudot, Sebastien & Shepherd, Ben, 2012. "The paradox of “preferences”: regional trade agreements and trade costs in services," MPRA Paper 41090, University Library of Munich, Germany.
  12. Bergstrand, Jeffrey H. & Egger, Peter, 2007. "A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises," Journal of International Economics, Elsevier, vol. 73(2), pages 278-308, November.
  13. Amélie Guillin, 2011. "Comparison between FDI motivations in goods and services," Economics Bulletin, AccessEcon, vol. 31(4), pages 2744-2756.
  14. Christian Gormsen, 2012. "The Declining barriers to Foreign Direct Investments and how to see them," Documents de travail du Centre d'Economie de la Sorbonne 12015, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  15. Kleinert, Jörn & Toubal, Farid, 2006. "Dissecting FDI," CEI Working Paper Series 2006-7, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  16. Christian Gormsen, 2012. "The Declining Barriers to Foreign Direct Investments and How to See Them," Post-Print halshs-00676508, HAL.
  17. Jérôme Hergueux, 2012. "How does Religion Bias the Allocation of Foreign Direct Investment? The Role of Institutions," Working Papers of LaRGE Research Center 2012-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg (France).
  18. Ronald B. Davies & Amelie Guillin, 2011. "Foreign direct investment (FDI) in services has grown significantly in recent years. Evidence of spatial relationships in FDI decisions have been provided for goods manufacturing by utilizing physical," The Institute for International Integration Studies Discussion Paper Series iiisdp380, IIIS.
  19. Schmeiser, Katherine N., 2013. "The firm export and FDI choice in the context of gravity," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 592-596.
  20. Kleinert, Jörn & Toubal, Farid, 2006. "Distance costs and Multinationals' foreign activities," CEI Working Paper Series 2006-6, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.

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