Urn model for products' shares in international trade

TL;DR

This paper analyzes the evolution of product shares in international trade over four decades, revealing a scaling law that describes capital flow dynamics and proposing a stochastic model that predicts capital condensation and product unpredictability.

Contribution

It introduces a novel stochastic model based on observed scaling laws to explain and predict the distribution and dynamics of product shares in global trade.

Findings

The model reproduces the empirical share distribution accurately.

It predicts a pseudo-condensation of capital onto few products.

Certain products are inherently unpredictable, linked to their nature.

Abstract

International trade fluxes evolve as countries revise their portfolios of trade products towards economic development. Accordingly products' shares in international trade vary with time, reflecting the transfer of capital between distinct industrial sectors. Here we analyze the share of hundreds of product categories in world trade for four decades and find a scaling law obeyed by the annual variation of product share, which informs us of how capital flows and interacts over the product space. A model of stochastic transfer of capital between products based on the observed scaling relation is proposed and shown to reproduce exactly the empirical share distribution. The model allows analytic solutions as well as numerical simulations, which predict a pseudo-condensation of capital onto few product categories and when it will occur. At the individual level, our model finds certain products unpredictable, the excess or deficient growth of which with respect to the model prediction is shown to be correlated with the nature of goods.