Gravity for FDI

Joern Kleinert () and Farid Toubal

No 313, Tübinger Diskussionsbeiträge from University of Tübingen, School of Business and Economics

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

JEL-codes: C21 F12 F23 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Gravity for FDI (2010)
Working Paper: Gravity for FDI (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuedps:313

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