A Two-Methodology Comparison Study of a Spatial Gravity Model in the Context of Interregional Trade Flows

Abstract

This paper argues that the introduction of spatial interactions to model the determinants of origin-destination (OD) flows can potentially result in excessive contiguity. To explain flows between OD regions, it is not only what happens in the origin and destination that is relevant, but also what happens in their neighbouring regions. However, what happens if there is a high degree of overlap between origin neighbouring areas and destination neighbouring areas? The paper presents an empirical illustration to re-examine the evidence presented in previous research (Alamá-Sabater et a., 2013) and more closely analyses the territorial level, focusing on the case of interregional trade of goods at the NUTS3 level (Spanish provinces). We then use two different methodologies within the framework of a spatial gravity equation for interregional trade modelling. The findings confirm the importance of spatial dependence on trade flows and in particular that logistics decisions within a province affect shipments from contiguous provinces.