Theoretical Foundation for the Pareto Distribution of International Trade Strength and Introduction of an Equation for International Trade Forecasting

A theoretical foundation for predicting the distribution of trade strength and the rate of change of trade strength was developed. These two quantities were found to satisfy the Pareto distribution function. The equations were confirmed using data from the World Integrated Trade Solution and the World Bank by comparing the Akaike information criterion and Bayesian information criterion to five types of distribution functions (exponential, lognormal, gamma, Pareto, and Weibull). Furthermore, the fitted Pareto power parameter is quite similar to the theoretical prediction. The developed distribution function is expected to be useful in forecasting international trade in countries and global economics, enabling the implementation of optimal policies.