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A note on implementing gravity datasets with abundant zeros

Author

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  • Jordi Paniagua

    (Catholic University of Valencia)

Abstract

This note presents a procedure to construct lighter FDI gravity datasets. The standard estimates using all potential dyads and many zeros are inefficient and present convergence issues. The standard balanced approach overlooks the fact that FDI is highly unbalanced and numerous country pairs rarely show investment activity. An empirical application reveals that our method improves the quality of statistical estimation. Standard datasets underestimate the effect of firm selection and heterogeneity and overestimate the negative effect of distance. Our method to construct gravity datasets reduces the number of zeros and yields unbiased estimates.

Suggested Citation

  • Jordi Paniagua, 2016. "A note on implementing gravity datasets with abundant zeros," Economics Bulletin, AccessEcon, vol. 36(1), pages 268-280.
    • Handle: RePEc:ebl:ecbull:eb-15-00116
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    References listed on IDEAS

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    Cited by:

    1. Federico Carril-Caccia & Juliette Milgram-Baleix & Jordi Paniagua, 2019. "Foreign Direct Investment in oil-abundant countries: The role of institutions," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-23, April.
    2. Jordi Paniagua & Jesús Peiró-Palomino & Andrés J. Picazo-Tadeo, 2021. "Asylum Migration in OECD Countries: In Search of Lost Well-Being," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 153(3), pages 1109-1137, February.
    3. Andrew Myburgh & Jordi Paniagua, 2016. "Does International Commercial Arbitration Promote Foreign Direct Investment?," Journal of Law and Economics, University of Chicago Press, vol. 59(3), pages 597-627.
    4. Matteo Fiorini & Giorgia Giovannetti & Mauro Lanati & Filippo Santi, 2021. "Asymmetric cultural proximity and greenfield foreign direct investment," The World Economy, Wiley Blackwell, vol. 44(9), pages 2572-2603, September.
    5. Cuadros, Ana & Martín-Montaner, Joan & Paniagua, Jordi, 2019. "Migration and FDI: The role of job skills," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 318-332.
    6. Jordi Paniagua & Cristina Villó & Maria Escrivà-Beltran, 2022. "Cross-Border Higher Education: The Expansion of International Branch Campuses," Research in Higher Education, Springer;Association for Institutional Research, vol. 63(6), pages 1037-1057, September.
    7. Ana Cuadros & Antonio Navas & Jordi Paniagua, 2022. "Moving ideas across borders: Foreign inventors, patents and FDI," The World Economy, Wiley Blackwell, vol. 45(12), pages 3652-3678, December.

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    More about this item

    Keywords

    foreign direct investment; FDI; gravity equation; zeros; dataset; PPML;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General
    • F2 - International Economics - - International Factor Movements and International Business

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