Incorporating Transportation Network Structure in Spatial Econometric Models of Commodity Flows

Abstract We use a spatial econometric extension of the traditional regression-based gravity model to model commodity flows, focusing on a formal methodology for incorporating information regarding the highway network into the spatial connectivity structure of the spatial autoregressive econometric model. We show that our simple approach to incorporating this information in the model produces improved model fit and higher likelihood function values. Empirical estimates of the relative importance of the different types of origin–destination connectivity between regions indicates that the strongest spatial autoregressive effects arise when both origin and destination regions have neighbouring regions located on the highway network.