Scale-Free Networks in International Trade

Abstract

The paper analyzes the network structure of international trade. Adapting a network approach developed in the physical sciences, we propose that international trade functions like a scale-free network. For each commodity group we calculate a characteristic parameter which reflects the structure of its trading network. We then insert this variable into an expanded gravity model to explore the effect of the network structure on the value of bilateral trade. The estimation suggests that, inter alia, globalization has reduced the value of trade per product group.