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The Structure and Growth of World Trade, and the Role of Europe in the Global Economy

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  • Sufrauj, Shamnaaz
  • Schiavo, Stefano
  • Riccaboni, Massimo

Abstract

This paper presents a simple stochastic model of proportionate growth to describe international trade and it applies this set-up to the relationship between export dynamics and economic development. Trade flows are assumed to grow as a geometric Brownian motion while new trade links follow a preferential attachment mechanism, and these two processes are assumed to be independent. This simple set-up accurately describes many of the empirical features that characterize the structure and growth of the international trade network. Furthermore, it reconciles diverging views of industrial policy in the economic development literature: although export is very concentrated so that large bilateral flows are rare, countries characterized by a large number of export relations are more likely to capture such “big hits”. The stochastic model provides a simple benchmark against which we can assess countries’ export performance. We then investigate the determinants of deviation of empirical data from the predictions of the model in terms of the number of “big hits”.

Suggested Citation

  • Sufrauj, Shamnaaz & Schiavo, Stefano & Riccaboni, Massimo, 2014. "The Structure and Growth of World Trade, and the Role of Europe in the Global Economy," MPRA Paper 54122, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:54122
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    References listed on IDEAS

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    More about this item

    Keywords

    export; big hits; development; international trade; industrial policy;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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