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Indiana University Bloomington

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Journal Articles

A Commentary on the Gravity Equation in International Business

2011, Multinational Business Review

Michele U. Fratianni, Francesco Marchionne, Chang Hoon Oh

Abstract

Purpose – This commentary aims to discuss methodological issues and practical concerns of international business scholars who apply the gravity equation in their research.

Design/methodology/approach – The paper summarizes and compares theories and several advanced empirical specifications in the gravity equation.

Findings – The paper proposes 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.

Originality/value – The most important message of the commentary is that this equation should correct for multilateral resistance factors.

Citation

Fratianni, Michele, Francesco Marchionne and Chang Hoon Oh (2011), "A Commentary on the Gravity Equation in International Business," Multinational Business Review, Vol. 19, No. 1, pp. 36-46.

Keywords

gravity equation; international trade; foreign direct investment; methodology