Gravity for FDI

13 Pages Posted: 18 Jan 2010

See all articles by Jörn Kleinert

Jörn Kleinert

affiliation not provided to SSRN

Farid Toubal

Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management; National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Abstract

Gravity equations explaining foreign affiliates' sales are ad hoc and hence estimated coefficients 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 the gravity equation can nevertheless be used to discriminate between the different theoretical models.

Suggested Citation

Kleinert, Jörn and Toubal, Farid, Gravity for FDI. Review of International Economics, Vol. 18, Issue 1, pp. 1-13, February 2010. Available at SSRN: https://ssrn.com/abstract=1537434 or http://dx.doi.org/10.1111/j.1467-9396.2009.00869.x

Jörn Kleinert (Contact Author)

affiliation not provided to SSRN

Farid Toubal

Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management ( email )

France

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

9 rue Georges Pitard
Paris Cedex 15, F-75015
France

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