“…Furthermore, in order to address the time trend inherited in the cross-section time series, a time variable is also included in the regression model. Formalizing the main gravity model used in this study, we obtain lnFDI ijt = β 0 + β 1 lnGDP it + β 2 lnGDP jt + β 3 lnGDPC it + β 4 lnGDPC jt + β 5 lnTrade ijt + β 6 lnDistance ijt + β 7 Time + β 8 D EU + β 9 D BSR + lnε ijt (1) where lnFDI = Total bilateral FDI stocks between home country i and host country j transformed into natural logarithms lnGDP = Gross Domestic Product transformed into natural logarithms lnGDPC = GDP per capita transformed into natural logarithms lnTrade = Total bilateral trade between home country i and host country j transformed into natural logarithms lnDistance = Distance between home country i and host country j transformed into ln ε = Error term i = Home country i j = Host country j t = time period t. As seen, the variables chosen for our FDI gravity model (1) follow the standard pattern for most analysis applications in trade and FDI research (e.g., Africano and Magalhães, 2005;Ledyaeva and Linden, 2006;Paas, 2000;Paas and Tafenau, 2005;Petri, 1994;Santos Silva and Tenreyro, 2003;Stone and Jeon, 1999). As the dependent variable, total FDI stocks are chosen as a measure for FDI due to better data availability for all countries and years in the sample.…”