Predicting freight ows in a globalising world

Johannes Brcker
a
, Artem Korzhenevych
b,
*
, Marie-Catherine Riekhof
c
a
University of Kiel, Institute for Regional Research and Department of Economics, D-24098 Kiel, Germany
b
Kiel Institute for the World Economy, D-24100 Kiel, Germany
c
University of Kiel, Institute for Regional Research, D-24098 Kiel, Germany
a r t i c l e i n f o
Article history:
Available online 15 December 2010
Keywords:
Interregional trade
Transport ows
Globalization
Gravity model
a b s t r a c t
In this paper we suggest a methodology to predict commodity specic transportation ows that brings
together data in value and in quantity terms in a consistent way. The approach is based on the modern
gravity formulation. There are three driving forces of the transport ows dynamics: economic growth,
the ongoing globalization (reduction of trade barriers), and the changing commodity composition of
trade, whereby the evolution of value-to-weight ratios is explicitly taken into account. The methodology
is applied to forecast the interregional trade ows in Europe.
2010 Elsevier Ltd. All rights reserved.
1. Introduction
This paper is about predicting transport ows for a system of
regions covering the entire area of Europe, and in addition including
the rest of the world ona higher level of aggregation. There are three
processes driving the dynamics of transportation ows:
The rst is economic growth at varying paces in different parts
of the world. Growth in the developed world slowed down to
moderate rates that will likely prevail in the future, while Asian
countries, in particular China, catch up, enjoying growth rates
well above historical averages. At the same time, growth
perspectives in some parts of the world, in particular in Africa,
are dismal or even devastating.
The second is the structural change accompanying this growth
process. Knowledge is becoming the decisive production factor,
and increasing quality and sophistication instead of expanding
quantity is becoming a dominant dimension of growth. This is
the more so, the higher the level of development.
The third process is a global tendency towards declining
physical as well as institutional trade barriers. This is the
process usually called globalization. Improving transportation
and communication technology makes the physical ow of
goods easier, and greatly facilitates the matching of producers
and customers worldwide, the provision of services, the
writing of contracts, and the building up of trust. As
a consequence, we observe international trade ows to grow
much faster than output in the last decades.
These processes are not independent, of course. Growth and
structural change are two sides of a coin: growth makes economies
shift from mere quantitative expansion to more innovation based
development, and knowledge accumulation is a main driver of
growth. Innovation and growth are also related to openness.
Though the literature does not seem to support the claim that
openness unambiguously favors growth (Helpman, 2004, Ch. 5), at
least there seems to be a correlation; high level of development
goes hand in hand with integration into the world market, and
there seem to be no examples of countries having experienced
rapid growth while keeping themselves isolated over a long time.
The three processes change the pattern of transportation in
a fundamental way. Long distance and cross-border ows grow
faster than local and regional ows, value-to-weight ratios for
manufactures tend to increase, and quality as well as frequency and
reliability of transport are becoming more important.
We trytocapture thesedrivingprocesses ina predictionmodel to
be presented in the following sections. This model was designed as
a part of TRANS-TOOLS, a larger system of models for transport
analysis developed for the European Commission (Petersen et al.,
2009). One of the difculties we are facing is that we have to rely
on two types of data of a fundamentally different character, quan-
tities andvalues. The transportationows inour benchmark data set
as well as the ows to be predicted are quantities, measured in
tonnes. Data inputs providing information on growth and global-
ization, however, are in values, such as GDP or foreign trade. Even
data on real GDP are not quantities in the literal sense, they are
deated values, which is something entirely different from
* Corresponding author. Tel.: 49 (0) 431 880 1724; fax: 49 (0) 431 880 3366.
E-mail addresses: broecker@economics.uni-kiel.de (J. Brcker), korzhenevych@
economics.uni-kiel.de (A. Korzhenevych), riekhof@economics.uni-kiel.de (M.-C.
Riekhof).
Contents lists available at ScienceDirect
Research in Transportation Economics
j ournal homepage: www. el sevi er. com/ l ocat e/ ret rec
0739-8859/$ e see front matter 2010 Elsevier Ltd. All rights reserved.
doi:10.1016/j.retrec.2010.11.006
Research in Transportation Economics 31 (2011) 37e44
quantities measured in tonnes. One of our methodological innova-
tions is to bring these different types of data together in a consistent
way.
The rest of the paper is organized as follows. Section 2 explains
the prediction model. One of its key elements is to merge value and
quantity data, which makes it necessary to estimate and predict
value-to-weight ratios for commodity groups. This is described in
Section 3. Another key element is to incorporate the impact of
globalization by making use of international trade predictions.
These are outlined in Section 4. Finally, we need elasticities
measuring the impact of growth on the change in the sectoral
composition of transportation ows. Their estimation is docu-
mented in Section 5. Section 6 highlights a sample of prediction
results, and Section 7 concludes.
2. The prediction model
Our aimis to predict the transport owx
[rs
t
(in quantity terms) of
commodity type [ from production region r to consumption region
s in a future year t >0. The set of regions covers the whole world.
Regions can be parts of countries, entire countries or aggregates of
countries. Most European countries are subdivided according to the
NUTS2
1
system or a comparable subdivision in case of countries
that do not have an ofcial NUTS2 subdivision. Outside Europe,
large aggregates of countries represent the rest of the world.
Middle East and North Africa enter the system country-wise. For
the details on the regional system see Appendix A. A key feature of
the array of ows is thus that it covers intranational as well as
international ows at the same time. Flows are sectorally sub-
divided according to 10 commodity types following the NSTR
classication, see Appendix B.
Year t 0 is the reference year (2005 in our case) that we have
data for, i.e. x
[rs
o
is known. The data come from the ETIS-BASE data
set (ETIS-BASE Consortium, 2005). This data set is compiled from
many national and international sources, and ows are partly
estimated. There are many gaps that had to be lled before applying
our procedure. Thus, this data is far from representing hard facts,
but it is the best we have, and work is going on to update and
improve this data basis.
The prediction starts from a modied gravity model reading
x
t
[rs
a
[
_
y
t
r
_
h
[
_
y
t
s
_
z
[
h
t
r
g
t
s
f
t
[rs
: (1)
a
[
is a multiplier representing the overall scale of commodity [. y
r
t
is
real GDP per capita in region r at time t. h
r
t
is a region of origin effect
that is common to all commodities. It represents the size of the
region of origin, its factor stocks and productivity. g
s
t
is a region of
destination effect. It represents the level of overall demand in the
destination region. f
[rs
t
is the distance decay function representing
the trade impeding effect of transport costs as well as other
barriers, in particular those erected by national borders. Finally, h
[
and z
[
are commodity specic elasticities to be estimated (see
Section 5).
As Eq. (1) is the basis for all to follow, some discussion is in order.
First, note that the GDP terms are irrelevant for the ow totals
originating in r or arriving in s. These totals are controlled by the
multipliers h
r
t
and g
s
t
. While varying across regions and over time,
these multipliers have no commodity subscript. Thus they repre-
sent level effects that are common to all commodities. Instead, the
elasticities vary across commodities, but not across regions, and
they are constant over time. They control the structural change. The
richer a region of origin, the more it specializes in goods that have
comparatively high elasticities h
[
. The richer a destination region,
the more its demand concentrates on goods with comparatively
high elasticities z
[
.
Compare this with a traditional gravity specication
x
t
[rs
a
[
_
Y
t
r
_
h
[
_
Y
t
s
_
z
[
f
t
[rs
: (2)
One deviation of (1) from(2) is that GDP per capita y
r
t
appears in (1)
instead of total GDP Y
r
t
. This is because we want the term y
t
r

h
[
to
determine the structural composition, not the level of ows origi-
nating in r, while in (2) the term Y
t
r

h
[
has both tasks at the same
time, determining the level as well as the structural composition.
The other deviation is that, in addition to the GDP effects, Eq. (1)
also has country of origin and country of destination effects that
are common to all commodities, thus not bearing an index [. This is
essential to avoid a fundamental deciency of specication (2):
except for the unlikely case that the two elasticities just add up to
one, a prediction by Eq. (2) will e in the long run e either generate
a trade explosion (in case of h
[
z
[
>1) or a trade collapse (in case
of h
[
z
[
<1). Take the former case. Imagine a world in a steady
state where GDP in all regions grows at the same rate, 2% per
annum, say. Then, keeping distance and barrier effects constant,
trade grows at 2(h
[
z
[
)% per annum, which is obviously incon-
sistent with the steady state assumption. This is why we need the
multipliers h
r
t
and g
s
t
; they allow for keeping consistency of the
trade prediction with the prediction of the overall level of activity
represented by the regional GDP.
As a further illustration, we may also compare specication (1)
with a traditional gravity equation containing GDP as well as
population as explanatory variables, written as
x
t
[rs
a
[
_
P
t
r
_
a
[
_
Y
t
r
_
h
[
_
P
t
s
_
x
[
_
Y
t
s
_
z
[
f
t
[rs
; (3)
with population P
r
t
and corresponding elasticities a
[
and x
[
. This
specication frequently appears in the literature (Anderson, 1979;
Eaton & Tamura, 1994; Frankel & Rose, 2005). If we restrict the
parameters in the way that neither a
[
h
[
nor x
[
z
[
vary across
commodities, then we are back at (1), with
y
t
r
Y
t
r
=P
t
r
; h
t
r

_
P
t
r
_
a
[h
[
and g
t
s

_
P
t
s
_
x
[
z
[
:
Specication (1) thus turns out to be on the one hand more
restrictive than (3) in that it imposes a restriction on the elasticities,
while on the other hand it is more general, as the multipliers h
r
t
and
g
s
t
may represent all kinds of determinants associated with regions
of origin and destination, respectively, not just population.
Dividing the owfor some future year t through the ow for the
reference year t 0 yields the updating formula
x
t
[rs
x
o
[rs
_
y
t
r
y
o
r
_
h
[
_
y
t
s
y
o
s
_
z
[
~
h
t
r
~
g
t
s
d
t
ij
; (4)
where region r belongs to country i and region s to country j.
2
The
multipliers with a tilde are dened as
~
h
t
r
h
t
r
=h
o
r
and
~
g
t
s
g
t
s
=g
o
s
.
In (4) we assume that f
[rs
t
remains constant except for cross-border
ows. The barriers for cross-border ows are assumed to decline
due to globalization. This reduction is represented by the factor d
ij
t
,
which we call the globalization factor. The factor equals one for
t 0 and is increasing for i sj over time if the globalization process
is going to continue. Stating it in formal terms, we assume
1
NUTS stands for Nomenclature of territorial units for statistics, this is the
ofcial EU delineation of regions for statistical purposes.
2
If we speak about countries this is always meant to include country aggregates.
As already mentioned, a country may cover just one region.
J. Brcker et al. / Research in Transportation Economics 31 (2011) 37e44 38
f
t
[rs
=f
o
[rs

_
d
t
ij
if r andsbelongtocountriesi andj ;isj;respectively
1 otherwise:
Inthelight of what has beensaidaboveabout improvingtransport and
communication technologies it may appear awkward to assume the
distancefactor not tobesmaller inthefuturethanit is today, except for
international ows. In fact a general tendency of declining transport
costs could easily be incorporated. Analyzing international trade
ows, however, we foundoverwhelmingevidenceof declining border
barriers, but virtually no sign of a declining distance effect in general.
This issue deserves more scrutiny using time series data on transport
ows, but this is beyond the scope of this paper. For the moment we
workunder theassumptionthat adeclineof border barriers is theonly
process affecting the distance factors f
[rs
t
in the course of time.
For applying the updating formula (4) we need GDP predictions,
the multipliers
~
h
t
r
and
~
g
t
s
, the globalization factor d
ij
t
and elasticity
estimates. Regarding GDP predictions, we rely on external sources
(Mantzos and Capros (2006), summary is given in Appendix C).
Section 4 deals with the globalization factor and Section 5 explains
how to estimate the elasticities. What remains is to show how to
obtain the multipliers
~
h
t
r
and
~
g
t
s
. The idea is to x the multipliers
such that the predictions on transport ows are made consistent
with aggregate predictions on regional supply and demand. At this
point we encounter the problemannounced above, namely to bring
the two types of data together, quantities measured in tonnes and
values measured in dollars. Aggregate supply and demand, that we
want our predictions to be consistent with, are in values. We thus
translate quantities into values by the predicted value-to-weight
ratio p
[rs
t
. Flows in values are thus
v
t
[rs
p
t
[rs
x
t
[rs
:
The values must add up to the predicted total supply S
r
t
in the
region of origin and to the predicted total demand D
s
t
in the
destination region,

s
v
t
[rs
S
t
r
cr; (5)

r
v
t
[rs
D
t
s
cr: (6)
This provides us with equations just sufcient to x the
unknown multipliers
~
h
t
r
and
~
g
t
s
.But this raises a couple of new
problems, namely how to estimate and predict value-to-weight
ratios, and how to predict regional supply and demand. We devote
Section 3 to the estimation and prediction of value-to-weight
ratios. Predicting the regional supply and demand is relatively
simple. We start on the national level by keeping ratios between
manufacturing supply and demand on the one hand and GDP on
the other hand constant over the prediction period. The respective
ratios are taken from the GTAP database (Dimaranan, 2006). Then
we distribute thus obtained future national gures for supply and
demand across regions according to regional GDP and population,
respectively.
3. Value-to-weight ratios
For the benchmark calibration, we need value-to-weight ratios
for the reference year 2005. These are found in different ways for
international and domestic ows, respectively.
The Eurostat COMEXT database
3
provides information on
international trade ows in value (Euros) and quantity (tonnes)
terms by NSTR commodity group. Thus, it is possible to calculate
the value-to-weight ratios (e.g. thousand Euros per tonne) for
international ows directly from these data. Trade ows inside the
EU are reported from two sources: the importer side and the
exporter side. In these cases we rst took averages of ows across
these two data sources and then calculated the respective value-to-
weight ratios.
In order to nd the value-to-weight ratios for the domestic
ows, we use the following estimation procedure. We collected
a time series (1991e2005) of trade ows in value and in quantity
terms from the COMEXT database and calculate value-to-weight
ratios p
[ij
t
for international ows by commodity group. The log of
this ratio is then traced back to commodity specic origin and
destination effects and a commodity specic time trend in an OLS
regression,
log p
t
[ij
a
[i
b
[j
4
[
t 3
t
[ij
:
As before, subscripts i and j denote countries of origin and desti-
nation, respectively. a
[i
and b
[j
are the country of origin and country
of destination effects, respectively, 4
[
is the time trend. t 0 stands
for the reference year 2005. The natural assumption is that the
same equation holds for the unknown within-country ratios. For
2005 they are thus estimated as (hats denoting estimates)

p
o
[ii
exp
_

a
[i

b
[i
_
for each country i.
Let us denote the value-to-weight ratios for 2005 obtained so
far, though partly observed and partly estimated, simply as p
[ij
o
with
no hat. We take them only as a preliminary rst step estimate,
however, because the value estimates obtained by multiplying the
known ows x
[rs
o
with the respective ratios obtained so far gener-
ates value ows generally inconsistent with what we know about
regional supply, regional demand and international trade. We thus
correct the preliminary rst step estimates in a second step, to
adjust them to the known totals of regional production values,
regional values of intermediate and nal demand, and values of
international trade,
v
o
[rs
x
o
[rs
p
o
[ij
a
o
r
b
o
s
c
o
ij
x
o
[rs
p
o
[rs
; rfig; sfjg:
v
[rs
o
is the estimated trade value, p
[rs
o
is the corrected value-to-
weight ratio. The multipliers a
r
o
, b
s
o
and c
ij
o
are obtained from the
restrictions

r
v
o
[rs
D
o
s
cr; (7)

s
v
o
[rs
S
o
r
cr; (8)

rfig

sfjg
v
o
[rs
V
o
ij
ci; j: (9)
{i} and {j} denote the sets of regions belonging to countries i and j,
respectively. V
ij
o
is the value of trade owfromcountry i to country j.
Putting it differently, v
[rs
o
is the minimum information estimate
under the restrictions (7)e(9), given the prior x
[rs
o
p
[rs
o
. It makes best
use of the information supplied by the constraints that macro
values have to add up to the known totals of sales and purchases in
each region and of international trade. Data sources for supply and
demand are as described in Section 2 in the context of prediction.
Next we need to project the estimated ratio p
[rs
o
to the future
years. This is done by using the estimated commodity specic
3
http://epp.eurostat.ec.europa.eu/newxtweb/.
J. Brcker et al. / Research in Transportation Economics 31 (2011) 37e44 39
trends in the value-to-weight ratio, with trend rates 4
l
by NSTR
commodity group, summarized in Table 1.
The estimates say that e.g. the value per tonne of agricultural
products is predicted to decline at a rate of 0.6% per year, while that
of oil and gas is predicted to increase at a rate of 3.3% per year, on
average. Values are measured in terms of the commodity basket
underlying the GDP deator.
4. Predicting the globalization factor
The globalization factor is obtained from estimating a gravity
model for trade between and within countries, in a style similar to
the transportation ow model, reading
V
t
ij
exp
_
a
t
i
b
t
j
s
t
ij
f
t
D
c
ij
4
t
D
l
ij
g
t
logz
t
ij
_
3
t
ij
: (10)
a
i
t
and b
j
t
are xed effects for the countries of origin and destination,
respectively. s
ij
t
is a trade barrier for imports from i to j. By deni-
tion, barriers are zero for within-country trade, i.e. s
ij
t
0 for i j.
For i sj we assume a barrier l
j
t
applying to all countries exporting
to country j, that is however reduced if countries i and j belong to
some common free trade area k. Hence,
s
t
ij
l
t
j
D
b
j

k
m
t
k
D
k
ij
: (11)
The Ds are several kinds of dummies. D
j
b
is the import barrier
dummy for country j, attaining one for imports to country j and zero
for the intranational ow. D
ij
k
is a dummy representing the free
trade area k, attaining one if countries i and j, i sj, both belong to
some free trade area k, and zero otherwise. D
ij
c
is a proximity
dummy attaining one if countries i and j share a common border or
if i j, and zero otherwise. Finally, D
ij
l
is a language dummy
attaining one if countries i and j speak the same language or if i j,
and zero otherwise. l
j
t
, 4
t
, 4
t
and m
k
t
are the respective parameters,
all expected to be positive. z
ij
t
is distance as the crow ies, and g
t
is
the respective elasticity, also expected to be positive. Distances are
population weighted great-circle distances. For population
weighting, we use the CIESIN (2005) database, offering population
of the world, geographically assigned to a very ne grid
(2.5 2.5 min) of the land map of the world. Note that this method
implies that the distances are time varying.
Inserting the barrier (11) into (10) yields the gravity equation
V
t
ij
exp
_
a
t
i
b
t
j
l
t
j
D
b
j
f
t
D
c
ij
4
t
D
l
ij

k
m
t
k
D
k
ij
g
t
log z
t
ij
_
3
t
ij
:
(12)
It is fairly standard, except that it applies to intranational as well as
international ows alike. This is essential for being able to estimate
border barriers, whose tendency to decline is a key element in our
trade prediction. Recent research brought about ample evidence
that these barriers are high. This was for the rst time demon-
strated by Brcker (1984), using within-country and between
country transport ows for the EU6. The most often cited reference
nowadays is McCallum (1995). Helliwell (1998) and Helliwell and
Schembri (2005) review lots of literature, showing that recent
estimates of border barriers turn out to be somewhat lower than
McCullums estimates, but similar to Brckers estimates.
We estimate the equation for trade between 187 countries of the
world for each year between 1993 and 2004 by the method of
Brcker (1984) (see also Brcker & Rohweder, 1990). The approach
has been reinvented by Silva and Tenreyro (2006) under the name
Poisson pseudo-maximum-likelihood (PPML). The original source
of trade data is the UN COMTRADE database
4
. This way we generate
estimated time series

l
t
j
for the trade barriers, among others. While
the other parameters (

f
t
;

4
t
;

m
t
k
;

g
t
) are fairly stable over time,
trade barriers tend to decline rapidly. Hence we base our prediction
on the assumption that, besides the xed effects, it is only these
barriers that will change in the course of time.
To project the barriers to the years beyond 2005 we lay a linear
trend through the series. As one would expect, however, the trend
lines have rather heterogeneous slopes across countries, with many
extreme values. To rule out outliers, we use average slopes for
country groups. We group together countries with similar institu-
tional, historical, and geographical properties. For each of the
resulting 15 groups named in Table 2 we calculate a GDP weighted
average slope.
The second column of Table 2 shows barrier estimates

l
t
j
for
2004, averaged (GDP weighted) over all countries within the
respective group. As expected, barriers are positive and highly
signicantly different from zero; the standard errors (not shown)
are extremely small. As frequently noted in the literature, despite
ongoing globalization, barriers are surprisingly large. On average
across all country groups, border barriers are around 4, meaning
that within-country trade exceeds cross-border trade by a factor
larger than 50, other things equal.
The third column shows average slopes of the linear trend line,
i.e. the per annum changes of the barriers. As expected, average
slopes are all negative. Barriers tend to decline, some of them
sharply. As a case in point look at the newEUmembers: if the trend
Table 1
Trend rates of value-to-weight ratios.
NSTR commodity group (short name) Trend rate, % p. a.
a
Agriculture 0.60 (0.16)
Foodstuffs 0.77 (0.11)
Solid fuels 0.67 (0.27)
Oil and Gas 3.30 (0.20)
Ores 0.62 (0.38)
Metals 0.50 (0.12)
Minerals 0.71 (0.29)
Fertilizers 2.13 (0.32)
Chemicals 2.21 (0.20)
Manufactures 0.44 (0.14)
a
Standard errors in parentheses.
Table 2
Barriers and per annum barrier changes, GDP weighted averages for country groups.
Country group Barrier level
2004
Barrier change
per annum
Old EU members and EFTA countries 2.0 .030
New EU members (after 2004) 3.7 .113
Balkan States 5.4 .144
Ex-Soviet Union
a
4.2 .068
Non-European Mediterranean Area 4.6 .030
Arabian Peninsula 5.2 .042
Southeast Asian Nations 2.4 .056
Remaining Asian Countries 2.7 .051
South African Countries
b
4.2 .068
Remaining African Countries 7.2 .017
North America 1.5 .001
Central America 5.1 .038
South America 3.6 .049
Oceania 1.6 .002
Rest of the world 7.4 .011
a
Estimation based on the years 1995e2005.
b
Estimation based on the years 2000e2005.
4
http://comtrade.un.org/db/.
J. Brcker et al. / Research in Transportation Economics 31 (2011) 37e44 40
of decline held on, the barrier would decline to zero in 33 years.
Obviously that is not to be expected; it would mean that the ratio of
cross-border to within-country trade would increase by a factor of
40 within these three decades.
Thus, for projecting the barriers, it would not make sense to
extrapolate the linear trend, because this would let the barriers
turn into negative sooner or later, which is to say that cross-border
trade would become larger than within-country trade under
otherwise equal conditions. We have to let the barriers approach
a lower bound in a smooth manner. Let s denotes the lower bound
to be attained in the long run, and let

s
t0
ij
> s denote the estimate
according to Eq. (11) for a reference year t
0
(2004, the last year of
the trade data). We obtain a barrier s
ij
(t) predicted for year t, that
smoothly asymptotically approaches s from above, if we use the
formula
s
ij
t s
_

s
t0
ij
s
_
exp
_
2
g
t t
0
=
_

s
t0
ij
s
__
;
with country j belonging to country group g. Note that, according to
this formula, s
ij
t
0


s
t0
ij
, lim
t/N
s
ij
t s and d=d ts
ij
t
0

2
g
< 0. We call s
ij
(t) the barrier curve.
Fig. 1 shows barrier curves for two typical cases, China and
Germany, vis--vis countries that they do not have any free trade
agreement with. The estimated barriers are in the left panels. Lower
and upper bounds of the 95% condence band (labelled min95 and
max95, respectively) are also shown. They can hardly be distin-
guished from the curve itself, meaning that the barriers are esti-
mated with an extremely high precision, as already mentioned. The
right panels show the projections of the barrier curves until 2050.
The curves start with the slopes of the trend lines for the respective
group that the country belongs to, and they smoothly approach the
lower bound (the dotted line) in the long run.
Choosing a lower bound is somewhat arbitrary. A radical
perspective is to predict perfect global integration in the long run,
meaning s 0. Thus, only physical and language barriers would
prevail. We take a more conservative view: the lower bound is the
lowest barrier that we actually observe for 2004, which applies to
ows from the new member states of the EU to the Netherlands,
which is s 0:2.
From the barrier curve the globalization factor is derived in an
obvious way,
d
t
ij
exp
_
s
ij
0 s
ij
t
_
:
Note that s
ij
(t) declines over time, such that d
ij
t
starts at d
ij
o
1 and
increases over time.
5. Estimating commodity specic elasticities
The commodity specic elasticities h
[
and z
[
in (1) are estimated
in a regression explaining the time series of international trade
ows in tonnes by NSTR, taken from the Eurostat COMEXT data-
base. The regression is specied like Eq. (1), but applying to inter-
national instead of interregional trade. The within-country ows
are not included in the sample. The distance decay term is assumed
to be constant over the estimation period and therefore repre-
sented by xed effects with a triple subscript, commodity, origin,
and destination. In a style similar to Eq. (12) the regression thus
reads
x
t
[ij
exp
_
a
t
i
b
t
j
d
[ij
h
[
log y
i
z
[
log y
j
_
3
t
ij
:
x
[ij
t
is the trade ow in tonnes from country i to country j, i sj, for
commodity [. a
i
t
and b
j
t
are time specic origin and destination xed
effects, respectively corresponding to the logs of h
r
t
and g
s
t
in Eq. (1).
d
[ij
is the commodity specic origin-destination xed effect
Fig. 1. Barrier curves for China and Germany, estimated barriers (left panel); estimated barriers, trend lines and barrier projections (right panel).
J. Brcker et al. / Research in Transportation Economics 31 (2011) 37e44 41
representing the log of the distance decay function, including any
kind of constant barrier. Representing distance and other barriers
by a xed effect instead of a distance function and a set of dummies
avoids misspecications of the barriers to bias the elasticity esti-
mates, the only parameters we are interested in. This comes at the
cost of losing lots of degrees of freedom, of course, and therefore
renders the standard errors of the elasticities rather high.
The parameters are not fully identied. This is however only
a concern with regard to the elasticities. They are both identied
up to an arbitrary additive constant. Note that adding a constant
k, say, to h
[
and subtracting (klog y
i
) from a
i
t
obviously leaves the
bracketed expression unchanged (similarly for z
[
). Fortunately,
that is all we need for the prediction model. It is immediate from
Eq. (4) and the way we determine the multipliers
~
h
t
r
and
~
g
t
s
that
adding a constant to the h
[
s and some other constant to the z
[
s
does not change the prediction, because it would be exactly
compensated by a corresponding change of
~
h
r
and
~
g
s
. The level
of the elasticities does not matter, only the differences across
commodities matter. For identication we restrict the average of
the elasticities across commodities to zero. This is natural, but
we emphasize that any other way of restricting the level would
do.
As before, the error is assumed to have zero expectation, to be
uncorrelated across different observations, and to have a variance
proportional to the expected ow. The estimation methods are the
ones described in Section 4.
Table 3 shows the elasticity estimates; heteroscedasticity
robust standard errors are in brackets. As the row averages are
zero, positive (negative) gures indicate above (below) average
elasticities. Commodities with positive (negative) h-elasticities are
those whose share in production increases (decreases) with
increasing income per capita. For example, if income per capita
doubles, the ratio of chemical products (the category with the
highest elasticity) over fertilizers (the category with the lowest
elasticity) increases by the factor 2
0.510.60
2.16. Similarly,
commodities with positive (negative) z-elasticities are those
whose share in demand increases (decreases) with increasing
income per capita. The range of these elasticities is smaller than
that of the h-elasticities, meaning that in a growing country
demand ratios change less than production ratios, ceteris paribus.
One should keep in mind, however, that the evidence for
systematic tendencies in structural change revealed by the esti-
mates is not very strong; no more than about one half of the
estimates are signicantly different from zero.
6. Selected results
The results presented beloware meant to illustrate the impact of
the three driving forces dened in Section 1 e economic growth,
structural change, and ongoing globalization eon the magnitude of
the predicted transport ows. We will mostly concentrate on the
EU countries, as they are characterized by the most detailed and
reliable data.
Fig. 2 illustrates the rst point: countries with higher projected
rates of economic growth are also expected to expand their trade
more. Germany, characterized by one of the lowest growth rates in
Europe, will expand external trade by the smallest share (although,
it would still be the largest increase in absolute terms). The newest
EU members, Romania and Bulgaria, may roughly double their
trade ows if the projected high growth persists.
Moreover, Fig. 2 also gives a hint on the impact of our
assumptions concerning the further reduction of the international
trade barriers. For the countries with low projected economic
growth rates (like Germany or Italy), the reduction of the trade
barriers leads to the decoupling of the rates of growth of interna-
tional and domestic ows. The domestic ows may grow much
slower or even decline. Further, the trade barriers within the EU are
already quite low, and for most of the EU members, the expansion
of trade with the rest of the world will be larger than the expansion
of trade with the European partners.
Fig. 3 illustrates the overall tendencies in the commodity
structure of the global trade ows. In correspondence to the trend
rates for value-to-weight ratios reported in Table 1, the growth of
trade in value terms will fall short of the growth of trade in quantity
terms for two commodity groups: agricultural goods and minerals.
Table 3
Parameters of the transport prediction model.
NSTR commodity
group
Elasticity of commodity
structure with respect
to exporters GDP
a
Elasticity of commodity
structure with respect
to importers GDP
a
Agriculture 0.01 (0.07) 0.12 (0.07)
Foodstuffs 0.06 (0.05) 0.31 (0.05)
Solid fuels 0.14 (0.10) 0.20 (0.13)
Oil and Gas 0.19 (0.11) 0.02 (0.09)
Ores 0.10 (0.10) 0.05 (0.12)
Metals 0.14 (0.07) 0.34 (0.06)
Minerals 0.02 (0.09) 0.34 (0.08)
Fertilizers 0.60 (0.13) 0.01 (0.12)
Chemicals 0.51 (0.06) 0.18 (0.05)
Manufactures 0.27 (0.05) 0.15 (0.05)
a
Standard errors in parentheses.
Fig. 2. Total growth of transportation ows for selected countries, 2005e2030.
Fig. 3. Total growth of worldwide transportation ows by commodity group,
2005e2030.
J. Brcker et al. / Research in Transportation Economics 31 (2011) 37e44 42
The estimated trend rates for these two groups are negative. The
growth of trade ows in value terms is highest for petroleum
products, for which the estimated increase in the value-to-weight
ratio is equal to 3.3% per annum.
In addition, Fig. 4 presents details on the development of the
commodity structure of the EUimports until the year 2030. For four
commodity groups, solid fuels, ores, chemicals, and metals, the
individuals shares in total ows are predicted to remain at roughly
the same level as in 2005 (13% for four groups together), and we do
not show separate trend curves for these groups.
As of year 2005, minerals (including building materials)
account for 40% of total transportation volume. This share is
expected to increase to 45% by 2030. Another group for which
the share is predicted to increase contains the manufacturing
products (rise from 17% to 19%). All other commodity groups are
going to shrink in terms of the share in transportation volume,
the largest decrease being in the group of foodstuffs, from above
10% to under 8%.
7. Conclusions
In this paper we described the data-intensive methodology to
forecast interregional trade and transportation ows by commodity
group. This approach allowed us to take account of three major
driving forces underlying the dynamics of trade: economic growth,
globalization, and changing commodity composition of trade ows.
For the nal prediction a doubly-constrained gravity model was
specied that combined all these factors. The impact of globaliza-
tion was taken into account by estimating the evolution of border
barriers between a set of 187 countries. The time trends in
commodity specic value-to-weight ratios and in the commodity
composition of trade ows were estimated based on the time series
of transportation ows. A distinguishing feature of the model is
that it is specied for a large system of regions covering the entire
area of Europe on a ne scale, and in addition including the rest of
the world on a higher level of aggregation.
Appendix A. List of NUTS2 regions
The 27 EU and 4 EFTA countries (Norway, Switzerland,
Iceland, and Liechtenstein) are divided according to the ofcial
NUTS2 classication.
5
In addition, the following regions are
dened:
Fig. 4. Dynamics of the commodity structure of the EU imports (in quantity terms).
Code Name of the region Country or area
AL Albania Albania
BA Bosnia and Herzegovina Bosnia and Herzegovina
BY Republic of Belarus Republic of Belarus
MK Macedonia, The Former
Yugoslav Republic of
Macedonia, FYR
HR Croatia Croatia
MD Moldova Moldova
RU Russian Federation Russian Federation
TR Turkey Turkey
UA Ukraine Ukraine
YU Serbia Montenegro Serbia Montenegro
AUNZ Australia and New Zealand Australia and New Zealand
DZ Algeria Algeria
EG Egypt Egypt
GAA Georgia, Armenia and
Azerbaijan
Georgia, Armenia and Azerbaijan
IL Israel Israel
JP Japan Japan
LB Lebanon Lebanon
LY Libya Libya
MA Morocco Morocco
MIAS Middle Asia Middle Asia
MSAM Middle and South America Middle and South America
RAFR Rest of Africa Rest of Africa
RASI Rest of Asia Rest of Asia
REUR Rest of Europe Rest of Europe
RNAM Rest of Northern America Rest of Northern America
RWOL Rest of the World Rest of the World
SY Syria Syria
TN Tunisia Tunisia
USA USA USA
Appendix B. List of NSTR commodity groups.
Group Description Short name
0 Agricultural products and live animals Agriculture
1 Foodstuffs and animal fodder Foodstuffs
2 Solid mineral fuels Solid fuels
3 Petroleum products and crude oil Oil and Gas
4 Ores and metal waste Ores
5 Metal products Metals
6 Crude and manufactured minerals,
building materials
Minerals
7 Fertilizers Fertilizers
8 Chemicals Chemicals
9 Machinery, transport equipment,
manufactured articles
and miscellaneous articles
Manufactures
Appendix C. Assumed GDP growth rates.
Country or country group GDP growth rate, 2005e2030, % p.a.
Austria 2.1
Belgium and Luxembourg 2.1
Germany 1.5
Denmark 2.0
Spain 2.7
Finland 2.2
France 2.0
Greece 2.2
Ireland 4.8
Italy 1.7
Netherlands 1.6
Portugal 2.2
Sweden 2.7
United Kingdom 2.7
Cyprus 4.1
Czech Republic 3.2
Estonia 4.6
Hungary 3.0
(continued on next page)
5
http://ec.europa.eu/eurostat/ramon/nuts/home_regions_en.html.
J. Brcker et al. / Research in Transportation Economics 31 (2011) 37e44 43
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Appendix C. (continued)
Country or country group GDP growth rate, 2005e2030, % p.a.
Lithuania 5.0
Latvia 5.6
Malta 2.2
Poland 4.0
Slovenia 3.0
Slovak Republic 3.0
Albania 1.6
Bosnia 4.5
Bulgaria 5.3
Belarus 5.3
Switzerland and Liechtenstein 1.4
Macedonia 2.9
Croatia 4.5
Iceland 2.6
Moldavia 2.9
Norway 3.2
Romania 4.5
Russia 4.6
Turkey 4.7
Ukraine 5.0
Serbia, Montenegro, Kosovo 4.0
Other areas 4.0
J. Brcker et al. / Research in Transportation Economics 31 (2011) 37e44 44