Weighted spatial dynamic shift-share model as a forecasting tool for a regional economy: The case of South Korea

Abstract

This study proposes a weighted spatial dynamic shift-share model that considers two regional attributes, namely, interregional interactions and regional receptive capabilities for domestic and international economic change, to improve the forecasting capability of the traditional shift-share model. In particular, the spatial dependence among regions is embodied by a spatial weight matrix based on contiguity. Additionally, regional receptive capabilities are represented by weights imposed on regional industries. Forecasts over the period of 2014-2016 are made for 14 regions in South Korea using the proposed model. The results are compared with actual data from the same period and evaluated in terms of the mean absolute percentage error. The results indicate that the proposed model is more reliable and accurate than the traditional model and other dynamic extensions.