Gravity in International Finance

Okawa, Yohei; Wincoop, Eric van

doi:10.2139/ssrn.1628043

Cited by 81 publications

(131 citation statements)

References 28 publications

Supporting

Mentioning

126

Contrasting

Order By: Relevance

“…Theoretical foundations for the application of a gravity framework to foreign portfolio investment have tended to build upon existing models in the trade literature. In recent influential work, Okawa and van Wincoop () (hereafter Okawa and van Wincoop () model) derive a gravity equation for financial asset trade. They find that a gravity specification for financial asset trade is more robust in the presence of a number of inter‐related variables that include the presence of significant information asymmetries between local and foreign investors, additional fixed costs associated with overseas investment and investor segmentation between purely domestic and international investors.…”

Section: The Gravity Frameworkmentioning

confidence: 99%

“…In their framework, the presence of such variables tends to emphasize the importance of distance and size variables generating a gravity equation. In common with the Okawa and van Wincoop () model, other theoretical models that generate a gravity specification for asset trade also identify the importance of transaction costs. Specifically, Portes and Rey (2004) identified international transaction costs such as banking commissions and variable fees, exchange‐rate transaction costs and information costs as important sources of friction.…”

Section: The Gravity Frameworkmentioning

confidence: 99%

“…Partly due to the availability of data from the IMF's Co‐ordinated Portfolio Investment Survey, there has been an “explosion of papers” applying various gravity equations to modelling international portfolio flows in the bond and equity sectors (Okawa and van Wincoop, , p. 206). A number of stylized facts emerge from the literature.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Does Real Estate Defy Gravity? An Analysis of Foreign Real Estate Investment Flows

McAllister

Nanda

2016

Rev International Economics

View full text Add to dashboard Cite

This paper investigates the scale and determinants of foreign investment flows between national real estate markets. Using data for over 100 countries over 2007-2012, the results indicate that, consistent with previous studies for trade, foreign direct and portfolio investment variables such as size and distance have significant effects on foreign real estate investment flows. Large positive size effects are consistent with a combination of scale economies and information externalities producing investment concentration across markets and in conjunction with direct and indirect transaction costs specific to real estate markets. Physical distance coefficients are relatively small compared to the studies of FDI.

show abstract

Section: The Gravity Frameworkmentioning

confidence: 99%

Section: The Gravity Frameworkmentioning

confidence: 99%

See 1 more Smart Citation

Does Real Estate Defy Gravity? An Analysis of Foreign Real Estate Investment Flows

McAllister

Nanda

2016

Rev International Economics

View full text Add to dashboard Cite

show abstract

“…The development of these empirical models finds its roots in the home bias literature, where informational asymmetries between domestic and foreign investors have been identified as one of the main determinants of cross‐border asset holdings . In particular, Martin and Rey () and Okawa and van Wincoop () provide general theoretical frameworks that produce a gravity form specification of bilateral financial holdings. Additional factors—such as institutional quality and institutional distance—could play a role in accounting for bilateral financial asset holdings.…”

Section: Related Literaturementioning

confidence: 99%

The euro area bias and the role of financial centres

Floreani

Habib

2018

Int. J Fin Econ

View full text Add to dashboard Cite

This paper investigates the euro area bias—a stronger preference for euro area securities in the cross‐border portfolio of euro area residents with respect to the prediction of an international finance gravity model. Compared with previous studies, we disentangle different partitions of the euro area and, crucially, isolate euro area financial centres, finding some novel results. First, the euro area bias is not always present and remarkably weak for securities issued by euro area high‐rating economies, those that would be expected to provide better insurance during crisis periods. Second, the extent of the euro area bias could be overstated, because euro area financial centres may conceal round‐tripping flows from euro area low‐rating economies. Finally, in the case of equity, the euro area bias did not decline during the crisis period but, in the case of debt issued by euro area low‐rating economies, unsurprisingly, weakened. The decline in exposure towards euro area debt securities was common among all cross‐border investors, not a specific retrenchment of euro area investors. Overall, our results call for a prudent treatment of cross‐border financial statistics in the presence of a financial centre bias.

show abstract

“…Note that including country‐pair fixed effects addresses some of the criticism raised by Okawa and Van Wincoop () for gravity‐type models of international capital flows.…”

mentioning

confidence: 99%

The Euro and the Geography of International Debt Flows

Hale

Obstfeld

2016

Journal of the European Economic Association

View full text Add to dashboard Cite

Greater financial integration between core and peripheral European Monetary Union (EMU) members not only had an effect on both sets of countries but also spilled over beyond the euro area. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms. Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. We present a stylized model that illustrates possible mechanisms for these developments. We then analyze the geography of international debt flows using multiple data sources and provide evidence that after the euro's introduction, core EMU countries increased their borrowing from outside of the EMU and their lending to the EMU periphery. Moreover, we present evidence that large core EMU banks' lending to periphery borrowers was linked to their borrowing from outside of the euro area.

show abstract

Gravity in International Finance

Cited by 81 publications

References 28 publications

Does Real Estate Defy Gravity? An Analysis of Foreign Real Estate Investment Flows

Does Real Estate Defy Gravity? An Analysis of Foreign Real Estate Investment Flows

The euro area bias and the role of financial centres

The Euro and the Geography of International Debt Flows

Contact Info

Product

Resources

About