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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.

Suggested Citation

  • Massimo Riccaboni & Stefano Schiavo, 2013. "Stochastic Trade Networks," Working Papers 1/2013, IMT Institute for Advanced Studies Lucca, revised Jan 2013.
  • Handle: RePEc:ial:wpaper:1/2013

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    More about this item


    international trade; networks; preferential attachment; urn models; proportionate growth;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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