The determinants of cross-border equity flows: a dynamic panel data reassessment

Portes and Rey (2005) use a static gravity model to analyse bilateral gross cross-border equity flows. Applying a dynamic gravity model reveals three additional insights. First, distance continues to exert a significant, negative effect on international asset transactions. Second, although the short-run effects of distance are generally of smaller magnitude than documented in PR, the implicit long-run effects remain quite large. Third, lagged asset flows play an important role, even after conditioning on the usual gravity model covariates.