CASA Working Paper 178

A dynamic global trade model with four sectors: food, natural resources, manufactured goods and labour.

An important and long-standing research task is the building of a model of international trade flows, anchored in a model of national economies. A demonstration model is presented which aims to exhibit the principal phenomena of the real system. Existing trade models, such as the Heckscher-Ohlin model, make certain kinds of simplifying assumptions, such as equal production functions and wages across all countries.

We seek to make the model more realistic by making simplifying assumptions in a different way. Entropy-maximising spatial interaction submodels and Lotka-Volterra-type dynamics are deployed in a model that contains four representative sectors: food, natural resources, manufactured goods and labour. The model uses price as a mechanism to determine production levels.

In this way, we incorporate country-specific dynamics of labour, consumption and individual income, while distinguishing between resource-rich/poor and GDP-rich/poor countries. The model is built with further disaggregation in mind, and possible extensions are discussed along with some experimental results.

Authors: Hannah Fry & Alan Wilson

Publication Date: 16th January 2012

RPS ID:

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