Search results for "gravity equation"

Bilateral De-Jure Exchange Rate Regimes and Foreign Direct Investment: A Gravity Analysis

2021

Abstract This paper introduces a novel dataset on bilateral de-jure exchange rate regimes. The new dataset accounts for the fact that officially pegging to one currency is uninformative about the exchange rate regime prevailing vis-a-vis other currencies, and it allows characterizing bilateral exchange rate regimes based on countries’ ex-ante announcements rather than ex-post observations. We use this data to estimate the effect of expected exchange rate volatility on foreign direct investment (FDI). Starting from a simple model that suggests that announced exchange rate stability enhances bilateral FDI flows, we provide empirical evidence that lends support to this claim: countries that ar…

EMU and trade: A PPML re‐assessment with intra‐national trade flows

2020

This paper examines the EMU effect on trade for the eleven early joiners and Greece relying for the first time on data that include both international and intra‐national trade flows, in line with all the microfoundations of the structural gravity model of trade. We find that the overall EMU impact on trade is positive between its members and, specially, for trade between members and non‐members. Interestingly, we further show that the effect of the EMU on bilateral trade remarkably differs across countries. For Ireland, Belgium–Luxembourg, Spain, Portugal and Austria, we find robust evidence that EMU has boosted trade both with other members and with third countries, while for Finland, Fran…

Migration and fdi: the role of job skills

2018

Abstract Using a multi-country gravity framework, this paper models and quantifies the relevance of migrants' job position in fostering Foreign Direct Investment (FDI). High-skilled migrants are defined as those individuals born in the investors' home/host country occupying managerial or professional positions in the host/home country of investment. Our estimates show that higher shares of migrants with management skills in a given country promote FDI into that country. In contrast, an increase in the share of migrants in non-qualified positions (regardless of their educational attainment) has a negative impact on FDI decisions. These findings highlight that the FDI-enhancing effect of migr…

Warning: Bilateral trade agreements do not create trade

2021

Cultural Distance and International Trade in Services: A Disaggregate View

2020

Abstract In this paper, we estimate the effect of “cultural distance” on bilateral trade in services. The measure of cultural distance we use is based on scores that reflect country averages of individuals’ attitudes towards inequality, self-orientation, competition, uncertainty, traditions, and indulgence. Controlling for standard ingredients of gravity equations, we show that an aggregate measure of cultural distance has a significantly negative effect on total bilateral services trade. Once we take a more disaggregate view, we find that the strength of this effect differs across various types of services and various aspects of cultural distance.

Do credit constraints reduce foreign jobs? A note on foreign direct employment

2014

This article studies the effect of credit constraints on the jobs created by multinational enterprises in host countries. Although most FDI is labour intensive, few studies delve into the determinants of foreign direct employment (FDE). This article constructs a model of limited commitment between the financed and financing parties to explain how FDE is affected by financial frictions. Moreover, this study examines FDE’s determinants empirically on a global data set including FDE data from 161 countries during 2003–2010 by means of the gravity equation. Results show that credit constraints during the Great Recession roughly halved FDE, tripling the effect on FDI and suggesting that domestic…

International trade and migrant networks: Is It really about qualifications?

2014

Personal characteristics of migrants could help to strengthen the impact of migrant networks on bilateral trade. While most of the attention has been focused on immigrants' educational attainment, this paper focuses on the relevance of the tasks carried out by migrants. Our empirical results confirm that the existence of a large number of foreign-born workers with managerial duties is critical to explain the reduction of transaction costs caused by migrant networks.

Heterogeneous Firms, Globalisation and the Distance Puzzle

2015

Despite the strong pace of globalisation, the distance effect on trade is persistent or even growing over time (Disdier and Head, 2008). To solve this distance puzzle, we use the recently developed gravity equation estimator from Helpman et al. (2008) (HMR henceforth). Using three different data sets, we find that the distance coefficient increases over time when ordinary least squares (OLS) is used, while the non-linear estimation of HMR leads to a decline in the distance coefficient over time. The distance puzzle, thus, arises from a growing bias of OLS estimates. The latter is explained by an increase in the importance of the bias from omitting the number of heterogeneous exporting firms…

Do nonreciprocal preferential trade agreements increase beneficiaries' exports?

2014

Abstract This paper investigates whether and to what extent nonreciprocal preferential trade agreements (NRPTAs) have increased developing countries' exports to richer countries. Using recent developments in the econometric analysis of the gravity equation over the period 1960–2008, we find robust evidence that, on the whole, NRPTAs and the Generalized System of Preferences have had an economically significant effect on exports from developing countries. However, the estimation of catch-all dummies masks heterogeneous results for the individual programs.

The impact of embassies and consulates on tourism

2007

Abstract This paper estimates the effect of embassies and consulates on tourist flows from the G-7 countries. The results indicate that embassies and consulates have a positive and significant effect on tourism that ranges between 15% and 30% depending on the estimation technique. Moreover, the impact is larger for the sample of developing countries. The disaggregated analysis shows that, after controlling for both origin and destination fixed effects, a significant impact is found in the seven origin countries.