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Monday, October 25, 2010

Slight PhD Research Detour...

My PhD research has taken a slight detour over the last couple of days.  In order to do theory I need to work with data, and there is just not a lot of publicly available data on financial networks at the moment.  So I decided that for the time being I am going to do some empirical research on trade networks using data from the UN Comtrade database

The inspiration for my research comes from the the following paper on the evolution of international trading networks.  The paper basically postulates that international trade is best described as a specific type of evolutionary system that satisfies the following three requirements:
  1. The dynamics of the international trade system are "slow" to respond to environmental change
  2. That environmental change is present
  3. Information is exchanged between agents in the system
The authors have studied this type of evolutionary system in previous research and two of their papers on the details of their evolutionary theory can be found here and here.  Their theory makes three specific predictions about the evolution of international trade networks:
  1. Decreased modular/hierarchical structure in the world trade network increases the sensitivity of the network to recessionary shocks
  2. Decreased modular/hierarchical structure decreases the rate of recovery from shocks
  3. Recessions (negative shocks) should spontaneously increase the modular/hierarchical structure in the trade network
According to the authors, all three of these predictions are borne out in the data...I am going to attempt to replicate their results.  Their theory implies that the modular/hierarchical structure that forms in response to environmental shocks (recessions) increases the resistance to and rate of recovery from shocks (recessions).  Globalization reduces modular/hierarchical structure in the global trade network and thus should lead to increasingly large recessions and a decreased rate of recovery from these recessions.

I have already written Python scripts to download the UN trade data and combine it into a single text file for use in the analysis.  I will be building an on-line code repository in the near future where people can come and download my code so that they can attempt to replicate MY results...

I would be interested in comments from readers concerning what standard economic theory I could bring to bear on this problem...I suspect that there is quite a bit of support for this line of research in more mainstream economics, but I could be wrong...

1 comment:

  1. Two extremely relevant papers are:

    Vasco Carvalho, 'Aggregate Fluctuations and The Network Structure of Intersectoral Trade'

    Acemoglu et al, 'Cascades in Networks and Aggregate Volatility'

    The first paper looks especially relevant (I found it via a reference in the second paper).