Tools for reconstructing the bilateral trade network: a critical assessment

Tiziano Distefano, Marta Tuninetti, Francesco Laio and Luca Ridolfi

Economic Systems Research, 2020, vol. 32, issue 3, 378-394

Abstract: This study critically assesses the performances of the Gravity Model (GM) and of the RAS algorithm for the bilateral flow intensity estimations and link prediction. The main novelty is the application of these methodologies to reconstruct the network topology with a minimum amount of information. Moreover, we implement a multi-layer analysis to provide a comprehensive and robust framework, by testing several food commodities, over the period 1986–2013. The main outcomes suggest that the RAS algorithm outperforms the Gravity Model in the estimations of the bilateral trade flows, importantly guaranteeing the balance constraints (i.e. global import equals global export), while GM generates lower relative errors, but it underestimates total global flows. Both RAS and GM can be applied to accurately recover the network architecture. The implications of our study encompass a wide range of applications: systemic-risk assessment, creation of new databases, and scenario analyses to support policy decisions.

Date: 2020
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DOI: 10.1080/09535314.2019.1703173

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