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Issue 5(1), October 2010 -- Paper Abstracts

Girard  (p. 9-22)

Cooper (p. 23-32)

Kunz-Osborne (p. 33-41)

Coulmas-Law (p.42-46)

Stasio (p. 47-56)

Albert-Valette-Florence (p.57-63)

Zhang-Rauch (p. 64-70)

Alam-Yasin (p. 71-78)

Mattare-Monahan-Shah (p. 79-94)

Nonis-Hudson-Hunt (p. 95-106)

JOURNAL OF APPLIED BUSINESS AND ECONOMICS

Poor Predictive Power and the Unrealism of International Trade Models:

Proposing a More Realistic (Behavioral Economics Based) Model

Author(s): Hamid Hosseini

Citation: Hamid Hosseini, (2013) "Poor Predictive Power and the Unrealism of International Trade Models: Proposing a More Realistic (Behavioral Economics Based) Model," Journal of Applied Business and Economics, Vol. 15, Iss. 2, pp. 72-80

Article Type: Research paper

Publisher: North American Business Press

Abstract:

Beginning with David Ricardo, if not Adam Smith, economists have developed numerous models to

explain, and predicts, trade among nations. As I will demonstrate, these models have had poor predictive

powers. It is possible to argue that neither gravity model, nor different versions of the comparative

advantage doctrine, or even the more recent model developed by Paul Krugman, could explain

international trade during the great recession that began in August 2007. For example, these models

could not explain why between the first quarter of 2008 and the first quarter of 2009 global GDP fell by

4.5% while world exports declined as much as 17%. The scale and speed of that trade collapse poses a

challenge to various international trade models. As I will demonstrate, this problem very much stems

from lack of realism on the part of the assumptions of those models, the inadequacy and incompleteness

of the causes of specialization in those models, or the neglect of trade finance in all those models. In this

paper, attempt is made to develop a more realistic model that would overcome the shortcomings of the

above international trade models. Prior to the development of my proposed model, I will review all of the

above models and discuss the causes of specialization in them.