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.
Highlights
Dating back to Adam Smith, the division of labor had been an important topic in economic literature [1,2,3,4,5] because the level of the division of labor determines a nation’s efficiency of wealth accumulation
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 is given
This paper uncovers general patterns in international division of labor from the empirical data and attempts to attribute the patterns to simple mathematics of maximum entropy principle (MEP)
Summary
Dating back to Adam Smith, the division of labor had been an important topic in economic literature [1,2,3,4,5] because the level of the division of labor determines a nation’s efficiency of wealth accumulation. As the process of globalization accelerates, the division of labor occurs over a much larger scale – the international trade market [6,7,8,9]. In this market, all countries face similar challenges [10,11,12,13]: they must invest their resources and technologies on the development of competitive products because they know “a Jack of all trades is a master of none”. There is a trade-off between these two extreme strategies
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