Gravity for FDI
23 Pages Posted: 11 Nov 2005
Date Written: October 24, 2007
We derive gravity equations from three different general equilibrium models incorporating multinational firms. We show that gravity equations are particularly adapted to the analysis of foreign affiliates' activities of multinational firms. However, the different theoretical models lead to different specifications and interpretations of the empirical results. This is particularly the case considering gravity equations derived from factor proportion models compared to those derived from proximity concentration theories.
Keywords: Gravity equation, multinational firms, heterogeneity
JEL Classification: F23, F12, C21
Suggested Citation: Suggested Citation