Foreign direct investment and the gravity of knowledge

Kox, Henk L.M. (2026): Foreign direct investment and the gravity of knowledge.

Abstract

Gravity models of foreign direct investment (FDI) have until now been based on the attraction power each country's market size. This paper presents and test a new structural gravity model that explains international FDI patterns from two separate attractors, market size and national knowledge characteristics. The model allows to separate and measure the gravity push and pull forces per country pair. The model is tested using a data panel with 150 indicators for firm-based and public knowledge activities, and bilateral FDI for about 200 jurisdictions over the full period 2001-2022. We find that knowledge-based comparative advantages have a separate impact on bilateral FDI, alongside the impact of market size. The impacts differ between partner countries, quantitatively and qualitatively (type of national knowledge assets). Knowledge factors often have a stronger impact than a country's gross domestic product. We have subjected these results that are new to the literature to severe robustness tests, but the results remain standing. The FDI Knowledge-Enriched Gravity (FKEG) model can become a powerful new tool for international economics.

• Item Type: MPRA Paper
• Language: English
• Keywords: knowledge-enriched structural gravity model; foreign direct investment; proprietary knowledge; gravity push and pull factors; Multilateral resistance terms; empirical test.
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O34 - Intellectual Property and Intellectual Capital

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