Regional economic integration via detection of circular flow in international value-added network

Abstract

Global value chains are formed through value-added trade, and some regions promote economic integration by concluding regional trade agreements to promote these chains. However, it has not been established to quantitatively assess the scope and extent of economic integration involving various sectors in multiple countries. In this study, we used the World Input–Output Database to create a cross-border sector-wise network of trade in value-added (international value-added network) covering the period of 2000–2014 and evaluated them using network science methods. By applying Infomap to the international value-added network, we confirmed two regional communities: Europe and the Pacific Rim. We applied Helmholtz–Hodge decomposition to the value-added flows within the region into potential and circular flows, and clarified the annual evolution of the potential and circular relationships between countries and sectors. The circular flow component of the decomposition was used to define an economic integration index. Findings confirmed that the degree of economic integration in Europe declined sharply after the economic crisis in 2009 to a level lower than that in the Pacific Rim. The European economic integration index recovered in 2011 but again fell below that of the Pacific Rim in 2013. Moreover, sectoral economic integration indices suggest what Europe depends on Russia in natural resources makes the European economic integration index unstable. On the other hand, the indices of the Pacific Rim suggest the steady economic integration index of the Pacific Rim captures the stable global value chains from natural resources to construction and manufactures of motor vehicles and high-tech products.

International cooperation analysis of Asian political distance network constructed using event data

“…Furthermore, the years in which economic integration in the Asia-Pacific region was more advanced than in Europe were 2010 and 2013-2014 [16], the years after 2008, when the synchronization became more active. While economic integration was more than in Europe because of the decline in the extent of European economic integration after the crisis, the Asia-Pacific region was steadily increasing its economic integration.…”

“…Some studies also sought to quantitatively measure progress in regional economic integration. Sada and Ikeda analyzed international valueadded networks created from international input-output tables and showed that there has been more substantial economic integration in the Pacific Rim than in Europe since the 2008-2009 Global Financial Crisis [16,17]. This was the result of regionalism in East Asia and the Asia-Pacific region leading to economic integration, as well as the entry into force of the mega-RTAs.…”