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Trade Network Reconstruction and Simulation with Changes in Trade Policy

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  • Yuichi Ikeda
  • Hiroshi Iyetomi

Abstract

The interdependent nature of the global economy has become stronger with increases in international trade and investment. We propose a new model to reconstruct the international trade network and associated cost network by maximizing entropy based on local information about inward and outward trade. We show that the trade network can be successfully reconstructed using the proposed model. In addition to this reconstruction, we simulated structural changes in the international trade network caused by changing trade tariffs in the context of the government's trade policy. The simulation for the FOOD category shows that import of FOOD from the U.S. to Japan increase drastically by halving the import cost. Meanwhile, the simulation for the MACHINERY category shows that exports from Japan to the U.S. decrease drastically by doubling the export cost, while exports to the EU increased.

Suggested Citation

  • Yuichi Ikeda & Hiroshi Iyetomi, 2018. "Trade Network Reconstruction and Simulation with Changes in Trade Policy," Papers 1806.00605, arXiv.org.
  • Handle: RePEc:arx:papers:1806.00605
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    File URL: http://arxiv.org/pdf/1806.00605
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    References listed on IDEAS

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    1. Barigozzi, Matteo & Fagiolo, Giorgio & Mangioni, Giuseppe, 2011. "Identifying the community structure of the international-trade multi-network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(11), pages 2051-2066.
    2. Marco DueƱas & Giorgio Fagiolo, 2013. "Modeling the International-Trade Network: a gravity approach," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 8(1), pages 155-178, April.
    3. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
    4. Garlaschelli, Diego & Loffredo, Maria I., 2005. "Structure and evolution of the world trade network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 355(1), pages 138-144.
    5. K. Bhattacharya & G. Mukherjee & J. Saramaki & K. Kaski & S. S. Manna, 2007. "The International Trade Network: weighted network analysis and modelling," Papers 0707.4343, arXiv.org, revised Mar 2008.
    6. Matteo Barigozzi & Giorgio Fagiolo & Diego Garlaschelli, 2009. "Multinetwork of international trade: A commodity-specific analysis," Papers 0908.1879, arXiv.org, revised Jun 2010.
    7. Giulio Cimini & Tiziano Squartini & Diego Garlaschelli & Andrea Gabrielli, 2014. "Systemic risk analysis in reconstructed economic and financial networks," Papers 1411.7613, arXiv.org, revised May 2015.
    8. D. Garlaschelli & M. I. Loffredo, 2005. "Structure and Evolution of the World Trade Network," Papers physics/0502066, arXiv.org, revised May 2005.
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    1. repec:gam:jsusta:v:11:y:2019:i:10:p:2744-:d:230989 is not listed on IDEAS

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