International trade network: fractal properties and globalization puzzle

TL;DR

This paper demonstrates that the fractal nature of the international trade system explains the increasing importance of distance in trade models, resolving the globalization puzzle.

Contribution

It reveals that the distance coefficient in the gravity model reflects the fractal dimension of the trade network, providing a new interpretation of the globalization puzzle.

Findings

Fractal dimension matches the gravity model's distance coefficient.

Two independent methods confirm the fractal nature of trade networks.

Reinterprets the role of distance in trade models.

Abstract

Globalization is one of the central concepts of our age. The common perception of the process is that, due to declining communication and transport costs, distance becomes less and less important. However, the distance coefficient in the gravity model of trade, which grows in time, indicates that the role of distance increases rather than decreases. This, in essence, captures the notion of the globalization puzzle. Here, we show that the fractality of the international trade system (ITS) provides a simple solution for the puzzle. We argue, that the distance coefficient corresponds to the fractal dimension of ITS. We provide two independent methods, box counting method and spatial choice model, which confirm this statement. Our results allow us to conclude that the previous approaches to solving the puzzle misinterpreted the meaning of the distance coefficient in the gravity model of trade.