The Structure and Growth of International Trade

Abstract

The paper develops a model of proportionate growth to describe the dynamics of the network of international trade flows. We show that a large number of the empirical regularities characterizing international trade - such as the fraction of zero trade flows across pairs of countries, the positive relationship between intensive and extensive margins, the high concentration of trade with respect to both products and destinations, the core-periphery structure of exchanges - are well explained by this simple stochastic setup. This helps us to distinguish among economically relevant regularities and those simply resulting from the mechanical interactions among agents.

Furthermore, our model can be used to describe the process of 'self-discovery' that lie at the foundations of successful export-led growth and is thought to play a crucial role in the process of economic development. Our model correctly predicts that large export flows are rare events, as pointed out in the empirical literature: yet, countries characterized by large 'discovery' efforts are much more likely to draw a big hit' due to the (very skewed) shape of the distribution of bilateral export flows.

Keywords: international trade, weighted networks, proportionate growth, development, industrial policy

JEL Classification: F14, F17, F43, O25