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Revisiting the distance elasticity and investment motives in the FDI gravity model: Aggregate vs. sector-level evidence

Author

Listed:
  • Nicola Rebmann
  • Konstantin M. Wacker

    (The Vienna Institute for International Economic Studies, wiiw)

Abstract

This paper re-examines foreign direct investment motives in the ‘FDI gravity’ model (Kleinert and Toubal, 2010), focusing on the role of distance. More precisely, we investigate whether aggregate and pooled gravity models for FDI obscure relevant heterogeneities across sectors. This is possible through the novel MREID dataset, which provides us with FDI data at the 2-digit NAICS level for 184 countries over the period 2010 to 2020. Our results reveal that aggregate and pooled models mask significant sector heterogeneities in two aspects (i) in the importance of horizontal versus vertical FDI motives, and (ii) in the distance elasticity. The latter reflects that distance potentially captures more complex sector-specific components than are captured in the current gravity model for FDI.

Suggested Citation

  • Nicola Rebmann & Konstantin M. Wacker, 2025. "Revisiting the distance elasticity and investment motives in the FDI gravity model: Aggregate vs. sector-level evidence," wiiw Working Papers 268, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:wpaper:268
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    File URL: https://wiiw.ac.at/revisiting-the-distance-elasticity-and-investment-motives-in-the-fdi-gravity-model-aggregate-vs-sector-level-evidence-dlp-7399.pdf
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    Keywords

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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