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The evolving structure of global trade

11 November 2010

The evolving structure of global trade

To a significant extent, the cells, tissues, organs, and so forth that make up a living organism act independently as they perform their related tasks. According to spin-glass models of evolution, modular structures analogous to those in biological systems generically arise for systems in changing environments. Moreover, such structures help ensure that a system is better able to cope with changes to come. Now Michael Deem of Rice University and his student Jiankui He have applied those conclusions to global trade. To do so, they came up with a parameter—the cophenetic correlation coefficient—that quantifies the modularity of the global trade network. As the figure shows, the system becomes more modular (the CCC increases) in response to environmental change—in this case, global recession. (The red bars indicate more severe recessions; the green bars, less severe. Data for the 2008 recession were not available.) But the overall trend during the past 40 years has been a mostly steady decline in the CCC as insular trade blocs—the modules—dissolved in favor of freer trade. According to evolution theory, and in contrast to much current economic thinking, the decreasing modularity implies that the global trade network is becoming less resistant to recessionary shocks such as a 1% dip in the US gross domestic product. And indeed, looking back at US recessions that have occurred during the past 30 years, Deem and He find that the most recent ones have had the greatest and longest lasting global impact. (J. He, M. W. Deem, Phys. Rev. Lett. 105, 198701, 2010.)—Steven K. Blau

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