Estimation of Alonso's Theory of Movements by Means of Instrumental Variables

Alonso's Theory of Movements is a widely applicable Spatial Interaction Model, describing an equilibrium of inflows and outflows. Based on a survey of estimation attempts in the past, we conclude that econometric estimation of the so-called systemic parameters is somewhat problematic. In this paper we describe a new estimation method, using instrumental variables which are derived from the model. The distance deterrence parameter and the unobserved balancing factors can be estimated first, with known methods. The remaining parameters can be estimated in an iterative regression procedure, using instruments for the balancing factors. These instruments are derived as the predicted values of the balancing factors, based on the last obtained parameter estimates.