Abstract
This paper begins to explore the determinants of the topological properties of the international-trade network (ITN). We fit bilateral-trade flows using a standard gravity equation to build a “residual” ITN where trade-link weights are depurated from geographical distance, size, border effects, trade agreements, and so on. We then compare the topological properties of the original and residual ITNs. We find that the residual ITN displays, unlike the original one, marked signatures of a complex system, and is characterized by a very different topological architecture. Whereas the original ITN is geographically clustered and organized around a few large-sized hubs, the residual ITN displays many small-sized but trade-oriented countries that, independently of their geographical position, either play the role of local hubs or attract large and rich countries in relatively complex trade-interaction patterns.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Abeysinghe T, Forbes K (2005) Trade linkages and output-multiplier effects: a structural var approach with a focus on asia. Rev Int Econ 13: 356–375
Albert R, Barabási A-L (2002) Statistical mechanics of complex networks. Rev Mod Phys 74: 47–97
Anderson JE (1979) A theoretical foundation for the gravity equation. Am Econ Rev 69: 106–116
Anderson JE, van Wincoop E (2003) Gravity with gravitas: a solution to the border puzzle. Am Econ Rev 93: 170–192
Artis M, Galvão A-B, Marcellino M (2003) The transmission mechanism in a changing world. Economics working papers ECO2003/18. European University Institute
Baier SL, Bergstrand JH (2007) Do free trade agreements actually increase members’ international trade?. J Int Econ 71: 72–95
Baldwin R, Taglioni D (2006) Gravity for dummies and dummies for gravity equations. NBER working papers 12516. National Bureau of Economic Research
Barrat A, Barthélemy M, Pastor-Satorras R, Vespignani A (2004) The architecture of complex weighted networks. Proc Natl Acad Sci 101: 3747–3752
Barthélemy M, Barrat A, Pastor-Satorras R, Vespignani A (2005) Characterization and modeling of complex weighted networks. Physica A 346: 34–43
Bergstrand JH (1985) The gravity equation in international trade: some microeconomic foundations and empirical evidence. Rev Econ Stat 67: 474–481
Bhattacharya K, Mukherjee G, Manna S (2007) The international trade network. In: Chatterjee A, Chakrabarti B (eds) Econophysics of markets and business networks. Springer, Milan
Bhattacharya K, Mukherjee G, Sarämaki J, Kaski K, Manna S (2008) The international trade network: weighted network analysis and modeling. J Stat Mech Theory Exp A 2: P02002
Bhavnani R, Coe DT, Subramanian A, Tamirisa NT (2002) The missing globalization puzzle. IMF working papers 02/171. International Monetary Fund
Burger M, Oort Fv, Linders G (2009) On the specification of the gravity model of trade: zeros, excess zeros and zero-inflated estimation. Research Paper ERS-2009-003-ORG Revision. Erasmus Research Institute of Management (ERIM)
Cormen TH, Leiserson CE, Rivest RL, Stein C (2001) Introduction to algorithms. MIT Press and McGraw-Hill, Cambridge and New York
Deardorff A (1998) Determinants of bilateral trade: does gravity work in a neoclassical world? In: The regionalization of the world economy. NBER Chapters. National Bureau of Economic Research, pp 7–32
DeMontis A, Barthélemy M, Chessa A, Vespignani A (2005) The structure and evolution of inter-urban traffic: a weighted network analysis. Environ Plan B Plan Design 34: 905–924
Dorogovtsev S, Mendes J (2003) Evolution of networks: from biological nets to the internet and WWW. Oxford University Press, Oxford
Eichengreen B, Irwin DA (1996) The role of history in bilateral trade flows. NBER Working Papers 5565. National Bureau of Economic Research
Fagiolo G (2007) Clustering in complex directed networks. Phys Rev E 76: 026107
Fagiolo G, Schiavo S, Reyes J (2008) On the topological properties of the world trade web: a weighted network analysis. Physica A 387: 3868–3873
Fagiolo G, Schiavo S, Reyes J (2009a) The ecolution of the world trade web: a weighted-network approach. J Evol Econ (forthcoming)
Fagiolo G, Schiavo S, Reyes J (2009b) World-trade web: Topological properties, dynamics, and evolution. Physical Review E 79: 036115
Feenstra RC, Markusen JR, Rose AK (2001) Using the gravity equation to differentiate among alternative theories of trade. Can J Econ 34: 430–447
Fisher E, Vega-Redondo F (2006) The linchpins of a modern economy. Working paper. Cal Poly
Forbes K (2002) Are trade linkages important determinants of country vulnerability to crises?. In: Sebastian E, Jeffrey F (eds) Preventing currency crises in emerging markets. University of Chicago Press, Chicago
Frankel J (1997) Regional trading blocs in the world economic system. Institute for International Economics, Washington DC
Fratianni M (2009) The gravity model in international trade. In: Rugman AM (eds) The Oxford handbook of international business. Oxford University Press, Oxford
Garlaschelli D, Di Matteo T, Aste T, Caldarelli G, Loffredo M (2007) Interplay between topology and dynamics in the world trade web. Eur Phys J B 57: 1434–6028
Garlaschelli D, Loffredo M (2004) Fitness-dependent topological properties of the world trade web. Phys Rev Lett 93: 188701
Garlaschelli D, Loffredo M (2005) Structure and evolution of the world trade network. Physica A 355: 138–144
Gleditsch K (2002) Expanded trade and GDP data. J Conflict Resolut 46: 712–724
Glick R, Rose AK (2001) Does a currency union affect trade? The time series evidence. NBER working papers 8396. National Bureau of Economic Research
Gower JC, Ross GJS (1969) Minimum spanning trees and single linkage cluster analysis. Appl Stat 18: 54–64
Hayfield T, Racine JS (2008) Nonparametric econometrics: the np package. J Stat Softw 27
Helliwell JF, Padmore T (1985) Empirical studies of macroeconomic interdependence. In: Jones R, Kenen P (eds) Hand book of international economies. Elsevier, Amsterdam, The Netherlands
Hurvich C, Simonoff J, Tsai C (1998) Smoothing parameter selection in nonparametric regression using an improved akaike information criterion. J Royal Stat Soc Series B 60: 271–293
Jackson MO, Demange G, Goyal S, Nouwel AVD (2003) A survey of models of network formation: stability and efficiency. In: In group formation in economics: networks, clubs and coalitions. Cambridge University Press, Cambridge
Kali R, Méndez F, Reyes J (2007) Trade structure and economic growth. J Int Trade Econ Dev 16: 245–269
Kali R, Reyes J (2007) The architecture of globalization: a network approach to international economic integration. J Int Bus Stud 38: 595–620
Krempel L, Pluemper T (2003) Exploring the dynamics of international trade by combining the comparative advantages of multivariate statistics and network visualizations. J Soc Struct 4: 1–22
Krugman P (1995) Growing world trade: causes and consequences. Brookings Pap Econ Act 26: 327–377
Leamer EE, Levinsohn J (1995) International trade theory: the evidence (chapter 26). In: Grossman GM, Rogoff K (eds) Handbook of international economics, vol 3 of handbook of international economics. Elsevier. pp 1339–1394
Li Q, Racine J (2004) Cross-validated local linear nonparametric regression. Statistica Sinica 14: 485–512
Li X, Jin YY, Chen G (2003) Complexity and synchronization of the world trade web. Physica A Stat Mech Appl 328: 287–296
Linders G-JM, de Groot HL (2006) Estimation of the gravity equation in the presence of zero flows. Tinbergen Institute discussion papers 06-072/3. Tinbergen Institute
Mantegna R (1999) Hierarchical structure in financial markets. Eur Phys J B 11: 193–197
Mitzenmacher M (2004) A brief history of generative models for power law and lognormal distributions. Internet Math 1: 226–251
Newman M (2005) A measure of betweenness centrality based on random walks. Soc Networks 27: 39–54
Overman HG, Redding S, Venables AJ (2003) The economic geography of trade, production, and income: a survey of empirics. In: Harrigan J, Choi K (eds) Handbook of international trade. Blackwell Publishers, Oxford, pp 353–387
Reichardt J, White D (2007) Role models for complex networks. Eur Phys J B 60: 217–224
Reyes J, Schiavo S, Fagiolo G (2008) Assessing the evolution of international economic integration using random-walk betweenness centrality: the cases of East Asia and Latin America. Adv Complex Syst 11: 685–702
Rose AK (2000) One money, one market: the effects of common currency on trade. Econ Policy 30: 9–45
Rose AK, Spiegel MM (2002) A gravity model of sovereign lending: trade, default and credit. Working papers in applied economic theory 2002–09. Federal Reserve Bank of San Francisco
Rosser JB (2008) Econophysics and economic complexity. Adv Complex Syst 11: 745–760
Santos Silva JMC, Tenreyro S (2006) The log of gravity. Rev Econ Stat 88: 641–658
Saramaki J, Kivelä M, Onnela J, Kaski K, Kertész J (2007) Generalizations of the clustering coefficient to weighted complex networks. Phys Rev E 75: 027105
Serrano A, Boguñá M (2003) Topology of the world trade web. Phys Rev E 68: 015101(R)
Serrano A, Boguñá M, Vespignani A (2007) Patterns of dominant flows in the world trade web. J Econ Interact Coord 2: 111–124
Stanley MHR, Buldyrev SV, Havlin S, Mantegna RN, Salinger MA, Eugene Stanley H (1995) Zipf plots and the size distribution of firms. Econ Lett 49: 453–457
StataCorp: (2007) Stata statistical software: release 10. StataCorp LP, College Station
Sutton J (1997) Gibrat’s legacy. J Econ Lit 35: 40–59
Tzekina I, Danthi K, Rockmore D (2008) Evolution of community structure in the world trade web. Eur Phys J B Condens Matter 63: 541–545
Vuong QH (1989) Likelihood ratio tests for model selection and non-nested hypotheses. Econometrica 57: 307–333
Watts D, Strogatz S (1998) Collective dynamics of ‘small-world’ networks. Nature 393: 440–442
Wooldridge JM (2001) Econometric analysis of cross section and panel data. The MIT Press, Boston
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Fagiolo, G. The international-trade network: gravity equations and topological properties. J Econ Interact Coord 5, 1–25 (2010). https://doi.org/10.1007/s11403-010-0061-y
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11403-010-0061-y
Keywords
- International trade network
- Gravity equation
- Weighted network analysis
- Topological properties
- Econophysics