The Gravity Equation in International Economics and International Business Research: A Note

14 Pages Posted: 6 Aug 2010

See all articles by Michele U. Fratianni

Michele U. Fratianni

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Universita' Politecnica delle Marche

Chang Hoon Oh

Simon Fraser University (SFU) - Beedie School of Business

Francesco Marchionne

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Università Politecnica delle Marche - Department of Economics

Date Written: August 4, 2010

Abstract

This note discusses methodological issues and practical concerns for international economists and international business scholars who apply the gravity equation in their research. The most important message of the note is that this equation should correct for multilateral resistance factors. We propose a relatively low-cost specification and estimation to implement such correction, which is robust in the presence of various endogeneity effects and non-stationary variables. In the presence of zero-values in the dataset, however, the multilateral specification is best estimated with a Poisson maximum likelihood.

Keywords: gravity equation, international trade, foreign direct investment, methodology

JEL Classification: C1, F1, F2

Suggested Citation

Fratianni, Michele and Oh, Chang Hoon and Marchionne, Francesco, The Gravity Equation in International Economics and International Business Research: A Note (August 4, 2010). Available at SSRN: https://ssrn.com/abstract=1653404 or http://dx.doi.org/10.2139/ssrn.1653404

Michele Fratianni

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-3360 (Phone)
812-855-3354 (Fax)

Universita' Politecnica delle Marche ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
39-071-2207120 (Phone)

Chang Hoon Oh

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Francesco Marchionne (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

1309 East Tenth Street
Bloomington, IN 47405-1701
United States
01 812 855-3756 (Phone)

HOME PAGE: http://kelley.iu.edu/BEPP/Faculty/page14113.cfm?ID=47081

Università Politecnica delle Marche - Department of Economics ( email )

Piazzale Martelli, 8
Ancona, 60121
Italy
+39 071 2207120 (Phone)

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