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Stochastic Trade Networks

  • Massimo Riccaboni

    ()

    (IMT Lucca Institute for Advanced Studies)

  • Stefano Schiavo

    (School of International Studies and Department of Economics and Management, University of Trento)

This paper develops a simple network model to describe the dynamic of the intensive and extensive margin of international trade flows. The result is achieved by means of the combination of two mechanisms of proportional growth: the first (discrete) determines the formation of trade links, the second (continuous) governs trade intensity. We show that our setup is able to simultaneously match a large number of empirical regularities, such as the fraction of zero trade flows across pairs of countries or the high concentration of trade with respect to both products and destinations. Our findings suggest that stylized facts are strongly interconnected across different levels of aggregation of trade data , so that a unifying explanation is called for. By incorporating stochastic elements into standard trade models we can improve their ability to explain relevant facts about world trade.

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File URL: http://eprints.imtlucca.it/1461/1/EIC_WP_1_2013.pdf
File Function: First version, 2013
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Paper provided by IMT Institute for Advanced Studies Lucca in its series Working Papers with number 1/2013.

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Length: 29 pages
Date of creation: Jan 2013
Date of revision: Jan 2013
Handle: RePEc:ial:wpaper:1/2013
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