To Trade or Not to Trade: Analyzing How Perturbations Travel in Sparsely Connected Networks

In global economics, nations are often faced with the opportunity to open or close new avenues of trade or to join new markets. These actions can be beneficial or harmful for a nation because entering a market exposes that nation to the perturbations caused by others in the market. However, joining a new market offers the benefit of lower prices and increased security against domestic perturbations because shocks are spread across all trading partners. This risk/benefit tradeoff is relatively straightforward for one market, but the effects are more complicated when multiple markets are introduced. We use an agent-based model to analyze how the connection pattern of markets affects perturbations that travel across networks. We find that shocks are not easily transmitted across networks unless the perturbed resource is directly traded and we discuss the tradeoffs associated with opening new international market connections.