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...

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...