The firm export and FDI choice in the context of gravity
In this paper, I show that in a theoretical environment where monopolistic competitive firms choose between exporting and servicing through a multinational with foreign direct investment (FDI), a gravity representation of exports and FDI can be derived. I then discuss the extent to which the resulting gravity equations are comparable and suggest a gravity-type regression that allows for direct interpretation of the differential effects of variables on exports and FDI.
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