Estimating inter-regional trade: the radiation model versus the gravity model

Abstract

The estimation of interregional trade flows within a country is confined to the context of multi-regional input–output models. Despite the remarkable relevance of these trade flows for regional incomes, most countries have almost no official data, with Korea being an exception used here. In addition to survey-based estimation methods, there are non-survey methods, some based on gravity models, which can be used to estimate inter-regional trade flows. This paper compares the gravity model with the novel radiation model. Preliminary results show that the accuracy of the radiation model’s estimation is superior to that of the gravity model, with the invaluable benefit of not needing to estimate regression coefficients, unlike the gravity model. This finding provides a generalisation of the radiation model for estimating interregional trade in contexts where there is no prior multi-regional input–output table without restrictions derived from coefficient estimation as in the gravity model.

KEYWORDS:

• Input–output model
• inter-regional trade
• estimation
• gravity model
• radiation model

CLASSIFICATION CODES:

• D57
• R12
• R15

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 https://ecos.bok.or.kr/#/. The 2015 multi-regional input–output tables for Korea were compiled by the Bank of Korea using survey methods. Multi-regional tables for 2010 and 2013 are also available. Therefore, we use the survey data of Korea's regional trade in 2015 as a frame of reference, enabling us to assess the accuracy of the two non-survey methods, gravity and radiation models, compared in this paper.

2 https://ecos.bok.or.kr/.

3 Called non-competitive import type table (type B), wherein transactions of domestic and imported goods are treated separately.

4 Further contrast statistics have also been used, whose results lead to similar conclusions to those derived from the WASE. These results may be requested by contacting the authors.

5 Specifically, we have used the information from the 2015 table of the Full International and Global Accounts for Research in Input-Output Analysis (FIGARO). These tables are the Inter-Country Supply, Use and Input-Output Tables between EU countries (IC-SUIOT). Trade data is available for a breakdown of 21 products (NACE Rev. 2).