Does centrality within trade agreements network matter to economic complexity? The conditioning effects of network structure

Abstract

This paper investigates how a country's centrality within an ego-centred trade agreements network impacts its economic complexity, emphasizing the conditioning effects of network structure. We propose that enhancing a country's centrality yields both a “breadth effect” and a “depth effect” on its production capabilities by facilitating the transnational diffusion of knowledge. This diffusion positively impacts the country's economic complexity. Furthermore, we contend that a country's centrality within a “non-natural” trade agreements network—comprising countries with diverse production capabilities—has a stronger influence on its economic complexity. Additionally, we argue that developed countries predominantly serve as major sources for transnational knowledge diffusion, thereby enhancing the impact of a country's centrality within the “developed” trade agreements network on its economic complexity. Our empirical analysis, based on panel data for 78 countries over the 2000–2019 period, supports these hypotheses. The findings are validated through robustness tests, including an examination of potential endogeneity issues. This paper contributes to the literature on policy-related determinants of economic complexity by highlighting the pivotal role of strategic positioning within the trade agreements network.