An Investigation of Interregional Trade Network Structures

Abstract

We provide empirical evidence on the network structure of trade flows between European regions and discuss the theoretical underpinning of such a structure. First, we analyze EU regional trade data using Social Network Analysis. We describe the topology of this network and compute local and global centrality measures. Finally, we consider the distribution of higher order statistics, through the analysis of local clustering and main triadic structures in the triad census of interregional trade flows. In the theoretical part, we explore the relationship between trade costs and trade links. As shown by Behrens (2004, 2005a, 2005b) in a two-region linear new economic geography (NEG) model, trade costs and the local market size determine, even with finite trade costs, unconditional autarky and unilateral trade, that is, a one-directional flow from one region to the other. Following these contributions and guided by the empirical evidence, we clarify the relationship between market competition, trade costs and the patterns of trade in a three-region NEG model. We identify a larger set of trade network configurations other the three elementary ones that occur at the dyadic level between two regions (no trade, one-way trade, reciprocated two-way trade), and relate the model with the triad census.

Emerging Trade Patterns in a 3-Region Linear NEG Model: Three Examples

“…Given the large number of possible trade structures, we only considered three examples, representing three frequently realized patterns in the EU trade network (see Basile et al (2016)) and we provided three respective models.…”

“…We represent a small trade network, formed by three regions, aiming to: (i) highlight how distance and trade costs may determine the existence of a trade link and its direction; (ii) examine the long-term consequences of trade integration on the emergence/disappearance of trade links and on the distribution of economic activities across space; (iii) explore how the spatial distribution of economic activities and the presence/absence of trade links are interrelated. Given the large number of possible trade structures, we only consider three examples, representing three frequently realized trade patterns in the EU trade network (see Basile et al (2016)): three regions in autarky; two regions engaging in trade with each other, with a third region in autarky; a hub and spoke economy but with a different structure from that suggested by Ago et al (2006).…”

Looking Ahead: Part I

“…There are 64 possible types of triad that without specific differentiations (related for example to regional sizes or geographical distances) can be grouped into 16 isomorphism classes. In Basile et al 2016, by using a specific cut off threshold, we calculated for the European trade network the frequencies of these classes and drew interesting insights on the interregional EU trade network. Moreover, we put forward a three-region linear NEG model which is more general compared to those existing in the literature.…”

“…In recent efforts, we applied Social Network Analysis to investigate the statistical properties of the network of trade flows between European regions at the NUTS 2 level and put forward first attempts to provide theoretical underpinnings of such a structure (see Basile et al 2016Basile et al , 2017. In Basile et al (2016), we used a new set of data on regional trade flows and exploited their binary structure and their relative weights to visualize the European regional trade network.…”

“…In Basile et al (2016), we used a new set of data on regional trade flows and exploited their binary structure and their relative weights to visualize the European regional trade network. Given the limits of the data (partially inferred from other data aggregated at the national and international levels), to reduce the density of the network we used a meaningful threshold cutting off negligible links.…”