Regional Trade Agreements and the Pattern of Trade: A Networks Approach

Abstract This paper uses a complex network approach for the analysis trade effects from regional trade agreements on world trade flows. We use bilateral trade data to compute the network community structure for every year between 1970 and 2000. We compare this to null community structures that emerge from various models based on regional and geographical classifications, the implementation of RTA 's and gravity models of trade. Our results show that RTA formation appears to have a cyclical pattern on the world trade network community structure. We document periods where bilateral trade flows and the structure of the world trade network are consistent with those predicted by formation of RTA s. These cycles occur in 1980–86 and 1990–96. At the same time, we document periods in which the pattern in the world trade network is not explained by RTA formation. Two periods, 1986–90 and 1997–2000, show a pattern of bilateral trade flows that moves away from the prediction that results from assuming RTA formation as the driving force in the determination of the world trade network structure. Factors contributing to the latter parts of the cycle during our sample period include formation of regional trade networks in East Asia that account for a significant portion of world trade but are not formalised by RTA s in force.