Maximum Entropy for the International Division of Labor.

Abstract

As a result of the international division of labor, the trade value distribution on different products substantiated by international trade flows can be regarded as one country's strategy for competition. According to the empirical data of trade flows, countries may spend a large fraction of export values on ubiquitous and competitive products. Meanwhile, countries may also diversify their exports share on different types of products to reduce the risk. In this paper, we report that the export share distribution curves can be derived by maximizing the entropy of shares on different products under the product's complexity constraint once the international market structure (the country-product bipartite network) is given. Therefore, a maximum entropy model provides a good fit to empirical data. The empirical data is consistent with maximum entropy subject to a constraint on the expected value of the product complexity for each country. One country's strategy is mainly determined by the types of products this country can export. In addition, our model is able to fit the empirical export share distribution curves of nearly every country very well by tuning only one parameter.