Estimating Export Activity in a Regional Economy: A Theoretical and Empirical Analysis of Alternative Methods

Abstract

Four methods of estimating exports are widely used in regional analysis, particularly with the economic base model. The theoretical rationales for each are examined. An interpretation of the minimum requirement method is offered which solves the oft-noted, non-importation problem. The difference between the minimum requirement and location quotient estimates is proven not to be an estimate of imports as is widely believed, and a relatively new econometric method is shown to over-estimate exports. Estimates of exports are calculated for 101 metropolitan areas in the United States. Both theoretical and empirical evidence indicates that the location quotient method underestimates, yet the minimum requirement method produced lower estimates for 22 areas. The results suggest that the choice of estimation method may affect the results of sub-sequent analyses.