Network analysis reveals trade interconnectedness significantly influences terms of trade and income across countries, suggesting novel insights for economic evaluation.
I use network analysis to compute a measure of trade interconnectedness based on the theory of buyer-seller network models. I employ the computed index to re-examine the role of trade interconnectedness on jurisdictions' terms of trade and income using a cross-country time series Panel VAR. I find a significant positive relationship between trade interconnectedness, terms of trade and income, consistent with the buyer-seller model literature. Compared to other reduced form estimations, the results indicate a greater impact of trade on income, even when controlling for institutional factors. Lastly, the overlap between the interconnectedness and regular estimations indicate that the computed interconnectednes index is a reliable alternative to traditional trade metrics, offering higher-frequency updates and more timely dissemination of information.
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Diego Santana Fombona (2024) studied this question.
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