| The tradition of gravity models is in the analysis of trade flows with market size and geographic or economic distance as core variables. Both these variables can be important determinants of FDI, too. However, when such models are used to explain FDI, there can be differences in the mode of operation of these variables so that the interpretation can become uncertain. Market size can reach beyond the host country and distance can be an incentive as well as an impediment to FDI. In the present paper, we use gravity-type models in order to assess the level of German FDI in CEE countries, distinguishing between the four nearby core countries and the other six EU accession countries. Estimates are done both on the basis of an in-sample as well as an... |
