Agent-Based Modelling for International Trade

Abstract

The system of the world economy has recently become more efficient and integrated due to the globalization effect. This effect results in driving the progression of both the technology and the liberalization of trade and capital markets. The technological improvements reduce the costs of transportation and communication between the countries. On the other hand, liberalization of trade and capital markets reduces the forms of unfair foreign competition . The main objective of this study is to design an agent-based modeling that unravels the role of technological improvement in changing the international trade structure between the developed and developing countries. The study also tackles the effect of capital mobility on the structure of international trade. These two objectives are achieved through proposing different scenarios. Furthermore, the proposed agent-based modeling is based on two assumptions, the Samuelson's analysis of outsourcing between the developed and developing countries assumption and the capital mobility assumption. Traditionally, technological progress is considered the cornerstone of international trade flows. The general pattern of trade flows is from the developed country, to the developing country. Applying a set of ABM scenarios on the international trade schemes revealed a general pattern of trade flows from the developing country to the developed country. This was attributed to the gradual technological shocks introduced to the developing country’s industrial sector. Furthermore, the results showed that the developing countries possess the capability of turning into new economic powers in all fields shall they properly invest in technological progress. The Gulden`s model mainly assumed that the classical theories such as the comparative and the absolute theories were the appropriate framework for trade between developed and developing countries. This study adopted instead a modern framework that was based on the product life cycle and technological gap theories which are the current dominant theories of trade flows between developed country (U.S.) and developing country (China). The general objective of this research to formulate a model of the international trade system as a complex system. mutual beneficial trade between the developed and developing countries in the international trade system. The Gulden`s model is used to study the technological change in the form of gradual multi-shocks. In addition, results will be tested and validated with real trade data. Furthermore, the impact of technological progress on the distribution of labor inside each industry will be tested according to the Solow residual of the technological impact on the effective labor force (Blanchard, 2017). experiment by (0.3) as mentioned in the first proposed model. The main indicators which were simulated in this model were capital invested in industry Two and industry One production in U.S and China in addition to the utility for each nation. The results were taken as an average value at time step 2000 over 30 runs for each tested value of the capital-mobility concept.