The economic potential via the gravity model of the trade


Trade, as a gauge of economic activity, can be used as an indicator to identify the relative economic potential among the areas. At t he policy level this may aid in the allocation of resources and in designing incentives. For example, if the goal is to create economic opportunities away from the traditional growth centers, trade estimates could identify towns with high relative economic potential among the poor towns in which government resources could be poured. On the other hand, if the goal is to shift investments to less developed areas, the tax incentives could be offered to areas with low trade estimates.
Given the potential of i ts uses, trade estimate is available only at regional disaggregation, even though planning mostly happens down to the municipal level. This research fills this gap by estimating trade at town or city level via the Gravity Model of Trade. Normally it is est imated using Ordinary Least Regression but this research uses Poisson Regression which is better at handling zero trade values without transformation. The research results have been applied by couple of government agencies in their respective programs.

Source InstitutionNational Statistical Coordination Board
Source URL
Page Count9
Place of PublicationQuezon City
Original Publication Date