Compositional analysis of trade flows structure

Abstract

Statistical analysis of trade flows structure can significantly help to reveal or to confirm important macroeconomic phenomena. Because of relative character of these multivariate observations, application of standard multivariate methods directly to raw data can lead to meaningless results, affected by trade sizes of different countries. As a way out, it is proposed to employ the logratio methodology that is able to capture interesting features through logratios between compositional parts. Particularly, the perturbation operation together with clr coefficients for coordinate representation of compositions seem to be easy to handle and to interpret for the purpose. Popular exploratory tools, principal component analysis and PARAFAC modeling of threeway data, resulting from a long-term study of the export/import structure, are applied in the compositional context for data from OECD and WIOD databases. The results show that the logratio methodology enables to reveal interesting features of world trade flows and thus provides a preferable alternative to existing exploratory tools.