Competing-destinations gravity model: an application to the geographic distribution of FDI |
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Authors: | Felipa de Mello-Sampayo |
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Affiliation: | 1. Department of Economics , ISCTE - Higher Institute for Labour and Business Studies , Lisbon, 1600 Portugal filipa.sampayo.iscte.pt |
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Abstract: | The competing-destinations formulation of the gravity model ensues from the fact that unlike the classical version, this approach explicitly acknowledges the interdependence of the flows between a set of alternative locations, i.e. country-recipients are competing for Foreign Direct Investment (FDI). This article examines empirically a range of theoretical hypotheses about the determinants of FDI location in a panel data regression framework. The results of the estimation of a gravity model lend support to the proximity-concentration and internalization hypotheses. Also, the fact that FDI has been found to be decreasing in the competition posed by alternative locations is suggestive of the superiority of the competing-destinations version of the gravity equation over its classical formulation. |
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