Assessing the Association Between Trade and Regional Trade Agreements: A Network Approach

Abstract

Over the years, the global economy has become increasingly integrated due to globalisation, resulting in an increase in international trade flows and a complex network of trade links. The establishment of regional trade agreements (RTAs) has created an intricate network of connections and overlapping agreements among multiple members. The study traces the evolution of trade and RTA networks using tools of network analysis for the periods 1995-2021. We find that the importance of countries in the trade network has changed, with developing countries replacing the previously dominant players. China, in particular, has emerged as a key player during this period. We find that connectivity in the trade network is not strongly associated with the RTA network. We also identify three major communities within the trade network, with the United States, Germany, and Japan (later China) as the core countries in these communities. Furthermore, we compare the community structures of the trade network and the RTA network using Normalised Mutual Information. Our analysis suggests that the community structure of trade has limited overlap with the community structure of RTAs. Furthermore, correlations based on the quadratic assignment procedure indicate a weak association, if any, between the two networks over the years.