Trade, Spillovers and Leakage
MODEL LAB · LABORATORY 07
Trade, Spillovers
& Leakage.
Follow expenditure beyond the region where it begins. Separate locally sourced production from interregional imports and foreign leakage, then judge how supply-chain geography changes the effectiveness and distribution of policy.
THE SOURCING IDENTITY
Every purchase
has an origin.
Regional demand may be fulfilled locally, by producers elsewhere in the national economy, or through international imports. These are distinct geographic destinations of expenditure.
Regional retention
The share of demand satisfied by producers located inside the region initiating the shock.
Domestic spillover
The share supplied by other domestic regions, remaining inside the national production system.
Foreign leakage
The share supplied from abroad and therefore not generating domestic production in the modelled system.
THREE RELATED MEASURES
Trace the euro.
Name the effect correctly.
Retention rate
RR = xʳʳ / Σₛxˢʳ
The proportion of the system response generated within the demand-origin region.
Spillover rate
SR = Σₛ≠ʳxˢʳ / Σₛxˢʳ
The proportion generated in other domestic regions through interregional supply chains.
Leakage rate
LR = Mʳ / Dʳ
The proportion of regional demand fulfilled through imports from outside the modelled economy.
SOURCING & TRANSMISSION LAB
Rewire the
trade structure.
Change the local and foreign sourcing shares. The interregional share balances automatically, preserving the complete sourcing identity.
POLICY READINGRegion A retains 58% of potential output. A further 25% spills into other domestic regions, while 17% leaks through foreign supply.
POLICY INTERPRETATION
Retention is not
the only objective.
Build local capacity
Skills, infrastructure and supplier development can raise retention without imposing inefficient barriers.
Value domestic spillovers
Benefits elsewhere may support cohesion, resilience and national production networks.
Inspect import content
High leakage may be unavoidable when technology, energy or specialised capital is not locally available.
Avoid autarkic reasoning
Lower leakage is not automatically superior when trade improves productivity, quality or long-run competitiveness.
SCIENTIFIC CHECKPOINT
Is every regional import
a national leakage?
Region A imports an intermediate input from Region B in the same country. How should this be recorded?
The geographic boundary of the model determines what counts as leakage.
