Coulomb-like Model for International Trade Flow and Derivation of Distribution Function for Trade Flow Strength

TL;DR

This paper introduces a Coulomb-like model for international trade flows, where trade strength depends on GDP and a variable dielectric constant influenced by geopolitical factors, providing a new perspective on trade dynamics.

Contribution

It proposes a novel Coulomb force-based formulation for trade flows and derives a distribution function that aligns well with empirical data.

Findings

The model captures trade flow variations over time.

The derived distribution fits World Bank data effectively.

Trade strength distribution reflects geopolitical influences.

Abstract

To describe international trade flows, we propose the coulomb force formulation, in which the magnitude of the charge represents gross domestic product (GDP) and the distance between countries is the bilateral distance, the product of spatial distance and "dielectric constant," rather than the spatial distance as used in the gravitation model, allowing it to be time dependent. The "dielectric constant" is influenced by factors such as warfare, transportation disruptions, trade agreements, social, geography, politics, culture, and others. The GDP and distance power parameters were estimated using data from high-GDP countries' export-import transactions. We also developed a trade strength distribution equation that fits World Bank data reasonably well over a decade.