A Spatial Interaction Model with Spatially Structured Origin and Destination Effects

41 Pages Posted: 17 Aug 2006

See all articles by James P. LeSage

James P. LeSage

Texas State University - McCoy College of Business Administration

Carlos Llano

Universidad Autónoma de Madrid

Date Written: July 9, 2006

Abstract

We introduce a Bayesian hierarchical regression model that extends the traditional least-squares regression model used to estimate gravity or spatial interaction relations involving origin-destination flows. Spatial interaction models attempt to explain variation in flows from n origin regions to n destination regions resulting in a sample of N=n^2 observations that reflect an n by n flow matrix converted to a vector. Explanatory variables typically include origin and destination characteristics as well as distance between each region and all other regions. Our extension introduces latent spatial effects parameters structured to follow a spatial autoregressive process. Individual effects parameters are included in the model to reflect latent or unobservable influences at work that are unique to each region treated as an origin and destination. That is, we estimate $2n$ individual effects parameters using the sample of N=n^2 observations. We illustrate the method using a sample of commodity flows between 18 Spanish regions during the 2002 period.

Keywords: commodity flows, spatial autoregressive random effects, Bayesian hierarchical models, spatial connectivity of origin-destination flows

JEL Classification: C12, C52, L92, R10, R42

Suggested Citation

LeSage, James P. and Llano, Carlos, A Spatial Interaction Model with Spatially Structured Origin and Destination Effects (July 9, 2006). Available at SSRN: https://ssrn.com/abstract=924603 or http://dx.doi.org/10.2139/ssrn.924603

James P. LeSage (Contact Author)

Texas State University - McCoy College of Business Administration ( email )

Finanace and Economics Department
601 University Drive
San Marcos, TX 78666
United States
512-245-0256 (Phone)
512-245-3089 (Fax)

HOME PAGE: http://www.spatial-econometrics.com

Carlos Llano

Universidad Autónoma de Madrid ( email )

Facultad de Ciencias Económicas y Empresariales
Departamento de Análisis Económico
Madrid, Madrid 28049
Spain
+34 914972910 (Phone)

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