Patterns of world trade: an application of network complexity analysis

Abstract

This thesis is a contribution to network complexity analysis, which has shown a high degree of explanatory power in visualising the process of economic diversification, both across countries and over time. The thesis comprises a stage-setting introduction, a primer on the network complexity analysis and measures of economic complexity, three core chapters and a concluding chapter that summarises the key findings and makes suggestions for further research.

The first core chapter (Chapter 3) aims to place network complexity analysis, which has been criticised as a purely data driven analytical tool, within a theoretical economic context. By building a bridge between the mainstream theories of comparative advantage and the new analytical tool, the chapter demonstrates that the predictions of the theory of comparative advantage are borne out in the network analysis.

The next two chapters are novel empirical applications of network complexity analysis, using a structural construct called the product space. Chapter 4 deals with the impact of trade liberalisation on export performance, covering 96 liberalisation episodes in 129 countries over 1962–2012. The first stage of the analysis involves constructing measures of product emergence. These are then used in econometric analysis to examine the average within-country impact of trade liberalisation on product emergence and diffusion. The findings indicate that trade liberalisation is associated with an increase in the rate of product emergence and a moderate reorientation toward products that are more dissimilar to those in the pre-reform export composition.

Chapter 5 explores the implications of global production sharing on network complexity analysis. The approach taken is based on a systematic separation of production-sharing based trade (PSB trade) from the standard (reported) trade data. PSB trade is further disaggregated into parts and components and final assembly. It is found that failure to distinguish between PSB trade and standard horizontal trade tends to upwardly bias the complexity rankings of exports of some developing countries. This is because some developing countries are engaged in assembling and testing some parts and components while others engage in final assembly. It is also found that parts and components are clustered in a densely connected core of the product space alongside relevant final products and have a higher level of average within-group proximity relative to final products, indicating higher average co-export potential. In the case of the machinery and transport equipment sector, parts and component exports tend to emerge prior to the export of final products, suggesting that global production sharing could act as a mechanism in the diffusion process from the periphery to the core of the product space. Show more