Modeling the International-Trade Network: A Gravity Approach

Details Modeling the International-Trade Network: A Gravity Approach Modeling the International-Trade Network: A Gravity Approach

2011-12-13

arxiv.org/abs/1112.2867v1

Economy

Quantitative Finance

General Finance

Scientific paper

This paper investigates whether the gravity model (GM) can explain the statistical properties of the International Trade Network (ITN). We fit data on international-trade flows with a GM specification using alternative fitting techniques and we employ GM estimates to build a weighted predicted ITN, whose topological properties are compared to observed ones. Furthermore, we propose an estimation strategy to predict the binary ITN with a GM. We find that the GM successfully replicates the weighted-network structure of the ITN, only if one fixes its binary architecture equal to the observed one. Conversely, the GM 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.

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