BUS613: Advanced International Business

This study has provided quantitative evidence that BTAs in most cases result in a stronger TI between the involved partners during the first years after the respective agreement came into force. This finding further strengthens the corresponding conclusions from previous studies on direct trade flows in the gravity model. However, our analysis goes beyond these investigations by accounting for indirect effects that are mediated by cross-sectoral input-output linkages as well. A positive BTA impact index can potentially indicate that one main objective in the negotiation process for the respective country has been the interest in obtaining easier access to the partner's domestic market. The origins of such a positive index can then be twofold: On the one hand, with decreasing trade barriers new market opportunities are unlocked and result in an above average increase in trade volume between the agreement partners. On the other hand, a positive BTA impact index is also achieved if existing trade relations are substituted in favor of the agreement partner and at the expense of a third party. To quantify and identify the respective effects of trade generation vs. trade diversification, further comprehensive investigations on the trade relationships of each individual country are required, which however go beyond the scope of the present work. However, we have also identified BTAs with a non-positive BTA impact index. In these cases, the hypothesis that a BTA negatively affects such third parties is less likely. In turn, countries with a negative BTA impact index may have either pursued different strategic objectives than to simply boost the bilateral trade with the partners, or just did not achieve their original goals in the context of the BTA's implementation.

We have demonstrated that most western economies, as well as Japan and South Korea have increased the TI to their BTA partners for their export linkages to a larger extent than for their import linkages. This could indicate that these economies mainly focus in the negotiations on developing new sales markets for their respective domestic economies. On the other hand, countries in southern Africa, Uruguay, and the Philippines have increased the TI to their partners in import linkages to a larger extent than in their export linkages, suggesting a primary focus on fostering their own economic development on the long run by increasing the flow of goods and knowledge into the respective country.

China is the only member of the G20 exhibiting a negative BTA impact index regarding the TI for the export linkages to its partners. This observation would be compatible with the hypothesis that China pursues a different objective in its trade agreement negotiations than most other countries. The lack of a persistent increase in the TI of China to its partners can be explained by two predominant facts: On the one hand, China had already enjoyed easy access to the more open markets of its partners, such as in the case of Hong Kong, before the corresponding BTAs were implemented. On the other hand, China has continuously increased both the number of trading partners and its international trade volume since the 1990s. In the course of these developments, the BTAs of China did not trigger a dis-proportionally large and persistent increase in bilateral trade with its agreement partners as compared to China's other trade activities. In contrast, as China has gradually become economically more important for its partners, its motivation for negotiating BTAs might have explicitly included the strategic goal to increase its economic and political influence among its trading partners.

The BTA impact profile of the US is distinctively different from that of China. The consistently positive BTA impact indices for the US' export linkages to their partners emphasize a possible focus on the stimulation of their own exports during the negotiations. Although the importance of import linkages from the agreement partners has also increased for the US, a persistent positive trend could only be observed for Australia, Central America, and Jordan. However, these increases in trade volume are less important for the US' partners as compared to their market expansions toward any third countries. The fact that both input and output TI of most partners to the US have reached significantly lower levels after the implementations of their respective BTAs indicates that even with increasing bilateral trade volumes, the economies of the partners have become less dependent on the US as a trade partner. One possible reason for this observation could simply be a higher attractivity of other national markets for the affected trade partners in serving as alternative partners, e.g., due to generally lower labor costs in such third countries. Since corresponding strategic decisions are usually based on company-specific individual considerations, national political measures can only provide general economic boundary conditions, but will hardly be able to fully resolve the challenge of international economic competition.

The methodology employed in this study can be utilized for follow-up studies on specific BTAs or particular sectoral impacts of such agreements. For example, for a specific agreement of interest, the method unveils if any third countries have been potentially discriminated against as a result of that agreement. More detailed case studies are rendered possible for input-output data with a higher sectoral detail. Moreover, we emphasize that our approach can be further adapted and extended to also allow for an assessment of the impact on TI among the partners of multilateral trade agreements, such as the North American Free Trade Agreement or the European Union. Furthermore, impact analyses may also clarify the relationship of the measures proposed in this work with other economic factors. Importantly the interrelationship with GDP growth is of great interest. Investigating the behavior of our measures within the framework of recently developed state-of-the-art network theoretical growth models certainly provides a promising avenue for further research. Note that the methods presented in this work do not allow making forecasts about future BTA implementations or terminations, as would be particularly relevant in the context of ongoing discussions on drastically changed national economic and trade policies in various countries. Besides the already mentioned reconsiderations of the current US government, the possible impact of the planned withdrawal of the United Kingdom from the European Union (known as the Brexit) on the British national economy as well as the inner-European trade networks would be of great interest. However, as long as it is based on empirical data instead of comparable economic model outputs, with the framework used in this work such impact studies can only be performed retrospectively, thus exceeding our current scope. However, corresponding investigations would provide an interesting subject of future work.