BUS613: Advanced International Business

Data and Network Construction

The present analysis builds upon the EORA multi-regional input-output (MRIO) database, which provides multi-regional input-output tables that depict both national and international intermediate trade flows between 26 industrial sectors of 189 countries. Furthermore, the monetary values of goods that flow into each country's final demand are included. Notably, among the existing MRIO databases, EORA has the broadest (near-global) coverage of national economies and industrial sectors, while other similar data sets may exhibit greater level of detail but cover much fewer countries, rendering them less appropriate for the purpose of the present study. Specifically, as compared with national input-output tables, MRIO tables generally have a rather coarse sectoral detail level but cover many countries, which is essential for studying the impacts of BTAs on the interconnectedness of global trade.

In EORA, input-output tables are available on a yearly resolution. One trade flow in an input-output matrix depicts the sum of the monetary values of all goods and services that have been exchanged between two industrial sectors as intermediate or as final demand in the respective year. The monetary values are provided in nominal US $. The EORA database has been compiled by combining various data sources, including data of national trade statistics, Eurostat, the OECD and the UN Comtrade database. Our analysis covers the years between 1990 and 2013 as this data was available at the time of performing the analyses presented in this manuscript.

Here, we interpret the input-output tables from the EORA data set as a weighted and directed complex network, which is identified with a time-dependent representation of the ITN for each year. In this network, each node represents an industrial sector of one country that is connected via trade links with a weight proportional to the exchanged trade volume. Moreover, the final demand of each country is included as an absorbing node.

The Regional Trade Agreement Information System of the World Trade Organization (WTO) provides details on negotiated regional trade agreements. It contains information on all agreements that have been either notified to the WTO or for which an early announcement has been made from 1948 to today. If a trade agreement is negotiated between exactly two parties, it is referred to as a BTA. Otherwise, a trade agreement with more parties involved is called a multilateral trade agreement. We also speak of a BTA if one contracting party (or both parties) consists of a regional trade bloc itself, e.g., if the European Union negotiates an agreement with Mexico. There exist several types of trade agreements: In a custom union the involved partners agree to pursue only common trade policies with external countries that do not belong to the union. In contrast, free trade agreements allow each partner to pursue their individual trade conditions with any third country. BTAs are often negotiated in the form of free trade agreements, as custom unions include in general more than two partners. The BTAs of the EU with Turkey and Andorra constitute the only exceptions from this among the set of BTAs studied in this work.

For this study, we analyze the impacts of all 107 BTAs with a date of entry into force between 1995 and 2008. To analyze the TI between the two partners in such cases, we first aggregate all trade flows within the respective trade bloc while maintaining the homogeneous sectoral structure. Then, the TI is calculated as described below, while the corresponding set of nodes C∙ consists of the 26 industry sectors of the entire trade bloc plus its final demand sector. We attribute the obtained TI to all countries contained in the regional trade bloc.