How Links are Formed According to the Distance in Transaction Network of 800,000 Firms

Abstract:     
In International Economics, so-called gravity equation has been successful. In the present paper, we show that similar equation concerning transaction network holds well. The weight of transaction network among Japanese prefectures is explained by Sales-i*Sales-j/Distance-ij very well. The definitions of terms are as follows. Sales-i is the total sales of all the firms in prefecture-i. Distance-ij is the physical distance between prefecture i and j. Weight-ij is the number of transaction links between all the firms in prefecture-i and all the firms in prefecture-j.

We also obtain power parameters of Sales and Distance. They are very close to 1 and -1. The estimated power parameters as well are in excellent agreement with the network gravity equation.

For this purpose we used Japanese firms' transaction network data which consists of 800,000 firms.

Number of Pages in PDF File: 9

Keywords: Transaction Network, Gravity Equation, Geography, Network

JEL Classification: R3, R4, L14, L16

working papers series