The increasing complexity of power system has made it difficult to simulate large-scale power system in detail. Therefore, to improve computational efficiency, model reduction techniques has been applied to reduce the external area and focus on the dynamics of the internal area. This paper proposes a measurement-based model reduction method which reduces the external system by replacing external system with ARX equivalents. The modeled transfer function parameters are obtained using system identification approach. Case studies on the NPCC system and EI system are carried out. Results show that the proposed reduction method can effectively retain the dynamic behavior of the study area while mitigating computation burden.