The double role of GDP in shaping the structure of the International Trade Network

TL;DR

This paper reviews how GDP influences both the existence and volume of trade links in the International Trade Network, proposing a unified model that uses GDP to replicate its structure and weights.

Contribution

It introduces a unified model that leverages GDP to simultaneously reproduce the topology and link weights of the ITN, bridging macroeconomic and network approaches.

Findings

GDP determines the existence of trade links.

GDP influences the volume of trade between countries.

A model using only GDP can replicate the ITN structure.

Abstract

The International Trade Network (ITN) is the network formed by trade relationships between world countries. The complex structure of the ITN impacts important economic processes such as globalization, competitiveness, and the propagation of instabilities. Modeling the structure of the ITN in terms of simple macroeconomic quantities is therefore of paramount importance. While traditional macroeconomics has mainly used the Gravity Model to characterize the magnitude of trade volumes, modern network theory has predominantly focused on modeling the topology of the ITN. Combining these two complementary approaches is still an open problem. Here we review these approaches and emphasize the double role played by GDP in empirically determining both the existence and the volume of trade linkages. Moreover, we discuss a unified model that exploits these patterns and uses only the GDP as the relevant macroeconomic factor for reproducing both the topology and the link weights of the ITN.