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Cross-border Investments, Gravity Equations and the Double-hurdle Model

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Title: Cross-border Investments, Gravity Equations and the Double-hurdle Model
Author(s): Norring, Anni
Contributor: University of Helsinki, Faculty of Social Sciences, Department of Political and Economic Studies
Discipline: Economics
Language: English
Acceptance year: 2015
In this thesis I consider studying the determinants of international investments with the gravity model of international financial asset trade. I discuss the relevant literature and present a theoretical framework for gravity in cross-border investments. I compare three empirical approaches, the classic approach that studies the determinants of the observed levels of cross-border holdings by a fixed effects panel model, the dichotomous approach that studies the effects of determinants on the probability of there being a positive cross-border investment by a probit model and finally an approach which combines the two previous ones by a double-hurdle model. I propose that the double-hurdle model is the correct approach in the context of cross-border investments.

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