We derive gravity equations from three different general equilibrium models incorporating multinational firms. We show that gravity equations are particularly adapted to the analysis of foreign affiliates' activities of multinational firms. However, the different theoretical models lead to...

We derive gravity equations from three different general equilibrium models incorporating multinational firms. We show that gravity equations are particularly adapted to the analysis of foreign affiliates' activities of multinational firms. However, the different theoretical models lead to...

Gravity equations explaining foreign affiliates' sales are ad hoc and hence, estimated coeffcients are hard to interpret. We therefore provide the theoretical underpinnings of the gravity equation applied to the analysis of sales of foreign affiliates of multinational firms. We argue that the...

Firms cluster their economic activities to exploit technological and informational spillovers from other firms. Spillovers through the entry of multinational firms can be particularly beneficial to domestic firms because of their technological superiority. Yet, the importance of foreign firm's...