Bilateral Regional Trade Flows in Italy: an Origin-Destination-Commodity GWR-SAR approach

The main purpose of this paper is to present an innovative approach to estimate the Italian inter-regional trade flows in terms of final and intermediate consumption. It contributes to the literature in several ways. The first innovative feature concerns the data used in the analysis. We reconstruct the flow of households’ final consumption by using administrative data from the Italian VAT returns. The result is then used for estimating a traditional gravity model for final consumption trade; the estimated coefficients are furtherly exploited to compute the flows of intermediate consumption. The second contribution relates to the modeling approach: we combine the literature on gravity models with a spatial autoregressive specification, to take into account spatial dependence in the bilateral flows, and a geographically weighted regression estimator, to control for behavioral instability of data over space. In addition to that, our model controls for commodity dependence by including them as a fixed effect in a pseudo-panel view, where the time dimension captures the commodities dynamics. Therefore, the strategy here introduced is useful to consider both local level economic relations and spillovers, existing between regions, and the link among different types of products.