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Application of Machine Learning in Forecasting International Trade Trends

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Listed:
  • Feras Batarseh
  • Munisamy Gopinath
  • Ganesh Nalluru
  • Jayson Beckman

Abstract

International trade policies have recently garnered attention for limiting cross-border exchange of essential goods (e.g. steel, aluminum, soybeans, and beef). Since trade critically affects employment and wages, predicting future patterns of trade is a high-priority for policy makers around the world. While traditional economic models aim to be reliable predictors, we consider the possibility that Machine Learning (ML) techniques allow for better predictions to inform policy decisions. Open-government data provide the fuel to power the algorithms that can explain and forecast trade flows to inform policies. Data collected in this article describe international trade transactions and commonly associated economic factors. Machine learning (ML) models deployed include: ARIMA, GBoosting, XGBoosting, and LightGBM for predicting future trade patterns, and K-Means clustering of countries according to economic factors. Unlike short-term and subjective (straight-line) projections and medium-term (aggre-gated) projections, ML methods provide a range of data-driven and interpretable projections for individual commodities. Models, their results, and policies are introduced and evaluated for prediction quality.

Suggested Citation

  • Feras Batarseh & Munisamy Gopinath & Ganesh Nalluru & Jayson Beckman, 2019. "Application of Machine Learning in Forecasting International Trade Trends," Papers 1910.03112, arXiv.org.
  • Handle: RePEc:arx:papers:1910.03112
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    File URL: http://arxiv.org/pdf/1910.03112
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    1. Ad. J. W. van de Gevel & Charles N. Noussair, 2013. "The Nexus between Artificial Intelligence and Economics," SpringerBriefs in Economics, Springer, edition 127, number 978-3-642-33648-5, March.
    2. Abadie, Alberto & Diamond, Alexis & Hainmueller, Jens, 2010. "Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program," Journal of the American Statistical Association, American Statistical Association, vol. 105(490), pages 493-505.
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