Gravity equations: Workhorse or Trojan horse in explaining trade and FDI patterns across time and space?Remco Zwinkels () and Sjoerd Beugelsdijk () International Business Review, 2010, vol. 19, issue 1, 102-115 Abstract: Gravity equations are a widely used tool in the International Business (IB) literature to explain country-level trade and FDI flows. Against the background of its increased popularity and data availability, a range of commonly made econometric mistakes have recently been discussed in the literature, mostly pertaining to the (omitted) characteristics of countries or country pairs in gravity models. In this paper we complement this literature by focusing on the time-series aspects of gravity models, something that has become crucial with the increased use of panel data. Specifically, we concentrate on the possible non-stationarity of both the dependent variable (trade or FDI flows) and of one or more of the explanatory variables. In this paper we (i) show that there is indeed a problem with the non-stationarity of variables commonly used in gravity equations; (ii) show that not correcting for this yields overestimated results; and (iii) propose an effective solution. Keywords: FDI; Gravity; equation; Time; series; Trade (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:iburev:v:19:y:2010:i:1:p:102-115 Ordering information: This journal article can be ordered from Access Statistics for this article International Business Review is currently edited by P. Ghauri More articles in International Business Review from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.