Structure and Response in the World Trade Network

We examine how the structure of the world trade network has been shaped by globalization and recessions over the last 40 years. We show that by treating the world trade network as an evolving system, theory predicts the trade network is more sensitive to recessionary shocks and recovers more slowly from them now than it did 40 years ago, due to structural changes in the world trade network induced by globalization. We also show that recession-induced change to the world trade network leads to an increased hierarchical structure of the global trade network for a few years after the recession.

Figure 1

Dendrogram representation of trade networks for selected countries at 1969 (top figure) and 2007 (bottom figure). Trade modules are marked by different colors. The structure of trade networks has changed greatly from 1969 to 2007. We plot only selected countries, because the figure becomes crowded if all countries are plotted.

Figure 2

The CCC from 1969 to 2007. Data from 2008 are not yet available. Shaded rectangles marked the seven recessions. Left and right borders are positioned at the start and end of a recession, respectively, according to U.S. National Bureau of Economic Research. During sharp recessions, the CCC increases significantly, and during mild recessions, the CCC usually increases mildly. The upper right inset is the ratio of total world trade to world GDP. The lower left inset is the total world trade in units of U.S. dollar.

Figure 3

The trade share matrix $S_{ij}=M_{ij}/(\sum _{m=1}^N{M}_{im}+\sum _{n=1}^N{M}_{jn})$ after hierarchical clustering between countries in 2007. We can see clearly several modules: $\mathrm{\text{North American}}+\mathrm{\text{Asian}}+\mathrm{\text{Oceanic}}$ countries, $\mathrm{\text{European}}+\mathrm{\text{North African}}$ countries, Middle and South Africa, Middle East, South America, and Central America.

Figure 4

(a) The ratio of the total world excluding the USA GDP change (percentage) to the change of the USA GDP (percentage) in 5 recessions, $F$ in the $y$ axis. The GDP change in one recession is defined as the GDP decline from peak to trough. Quarterly GDP data are used to find the peak of recession. The quarterly GDP data for 2001 and 2008 recessions are from 21. The quarterly GDP data for earlier recessions are estimated from annual GDP data. (b) Impulse response analysis of spread of recession. In each year, initial values are set to historical trade and GDP data. A recession is assumed to begin in the USA and spread to the rest of the world. The world GDP change is plotted as a function of the CCC. The reduction in the world GDP is greater when the CCC value is low. Inset figure: The GDP recovery from recession can be well fit by the relation $Y(t)\sim Y(\infty )-a\exp (-\lambda t)$. Yearly recovery rates, $\lambda$, are shown versus the CCC. In accord with theory, the recovery rate is positively correlated with the CCC.