Modeling the International-Trade Network: a gravity approach

• Published in: Journal of economic interaction and coordination Vol. 8; no. 1; pp. 155 - 178
• Main Authors: Dueñas, Marco, Fagiolo, Giorgio
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer-Verlag 01.04.2013; Springer Nature B.V
• Subjects: Computer Appl. in Social and Behavioral Sciences; Econometrics; Economic models; Economic statistics; Economic theory; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Finance; Globalization; International trade; Mathematical and Computational Physics; Regular Article; Studies; Theoretical; Econophysics; D85; F10; International Trade Network; Topological properties; Gravity equation; Weighted network analysis
• ISSN: 1860-711X; 1860-7128
• DOI: 10.1007/s11403-013-0108-y

We investigate whether the gravity model (GM) can explain the statistical properties of the International Trade Network (ITN). We fit data on trade flows with a GM using alternative estimation techniques and we build GM-based predictions for the weighted topological properties of the ITN, which are then compared to the observed ones. Our exercises show that the GM: (i) may replicate part of the weighted-network structure only if the observed binary architecture is kept fixed; (ii) is not able to explain higher-order statistics that, like clustering, require the knowledge of triadic link-weight topological patterns, even if the binary structure perfectly replicates the observed one; (iii) performs very badly when asked to predict the presence of a link, or the level of the trade flow it carries, whenever the binary structure must be simultaneously estimated.