Two Approaches to Modelling Trade

As mentioned in Chap. 1, our two case studies have some similarities as we will see, but they differ in scale. The SPICs case calls for an outward looking perspective and the scale is extensive; whereas Uganda is inward looking and demands a micro-scale of analysis. For the outward looking perspective of the South Pacific Islands we adopt network theory and a spatial interaction approach (Jackson 2008; Wilson 2008) through which we examine how trade is influenced by cumulative network interactions. The twofold interpretation of the cumulative network concept involves (1) representing the shipping network system; in this sense, elements are aggregated in categories whose combinations help to describe the complete network system; and (2) accounting for the vertical and horizontal interactions within the system. The inward looking perspective of Uganda uses agent based modelling (ABM) (Epstein 2006). ABMs are a class of model applied widely in agriculture economics (Happe et al. 2006; Berger 2001; Balmann 1997, 1999). The advantages of this methodology are that it allows us to employ data from different sources and different groups of heterogeneous agents who interact; exchange of information ensues and the adaptive behaviour responses to accommodate changes in the environment are taken into the model. Both of our selected modelling approaches, network theory and spatial interaction on the one hand, and agent based modelling on the other, can handle positive and negative feedback. Given that trade theory warns us of the importance of information asymmetry as an established factor that can hinder trade and limit growth, we also introduce a new concept based on information exchange. This new concept is operationalised through the multiplier attachment factor. In the next sections we set out the details of our two approaches.