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An Economic Derivation on Trade Coefficients under the Framework of Multi-regional I-O Analysis

Discussion Papers

No.029

by MENG Bo and ANDO Asao
May 2005

ABSTRACT

The gravity model, entropy model, potential type model and others like these have been adopted to formulate interregional trade coefficients under the framework of Multi-Regional I-O (MRIO) analysis. Since most of these models are based upon analogies in physics or on statistical principles, they do not provide a theoretical explanation from the view of a firm's or individual's rational and deterministic decision making. In this paper, according to the deterministic choice theory, not only is an alternative formulation of the trade coefficients presented, but also a discussion of an appropriate definition for purchasing prices indices. Since this formulation is consistent with the MRIO system, it can be employed as a useful model-building tool in multi-regional models such as the spatial CGE model.

Keywords: trade coefficients, multi-regional, input-output, Armington assumption
JEL classification: C67, C68

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