Foreign direct investment and trade : a bi-directional gravity approach

by Monika Harach and Ernesto Rodriguez-Crespo

This paper compares the traditional gravity model with a bidirectional approach when multilateral resistance is implemented to analyze the effect of inward foreign direct investment (FDI) on exports. We use cross-sectional HS trade data disaggregated at a 6-digit level in 2010 with controls for HS 2-digit level. Our results show that FDI increases exports only in the in the direction of exporter-importer, and the effect is higher when multilateral resistance is implemented and the effect is different across sections. Our robustness checks show that when FDI is removed, the coefficients and the effect on sectors are similar.

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Year of publication:	2014
Authors:	Harach, Monika ; Rodriguez-Crespo, Ernesto
Publisher:	Kiel : Kiel Inst. for the World Economy
Subject:	FDI \| bilateral trade \| gravity model \| cross-section data \| Harmonized System 2-digit code \| Auslandsinvestition \| Foreign investment \| Gravitationsmodell \| Gravity model \| Schätzung \| Estimation \| Internationale Wirtschaft \| International economy \| Welt \| World \| Internationale Wirtschaftsbeziehungen \| International economic relations