After about a quarter century of countries having pursued deep regional integration through negotiating on deep regional trade agreements (RTAs), we observed a number of historical events that symbolize the curbing of the trend of globalization in 2016. On June 24, 2016, the people of the United Kingdom voted to leave the European Union (EU) in a referendum. On November 8, 2016, Mr. Donald Trump, who proposed the “America First” policy and a number of protectionist policies, such as the withdrawal from the Trans-Pacific Partnership Agreement and the construction of a substantial wall on the United States–Mexico border, during his presidential campaign, won the US presidential election.

Since then, it seems that the world has been taking “a momentary pause” (Baier et al. 2019), at least until 2020, in the trend toward deep integration. For example, after the Brexit referendum in 2016, the United Kingdom struggled for more than three years to decide whether and when it would actually leave the EU. Finally, it withdrew from the EU on January 31, 2020. On the other hand, the Trump administration of the United States implemented various unprecedented protectionist policies. It increased tariffs on imports from China, which was retaliated by China and resulted in a trade war. As pledged in Mr. Trump’s election campaign, the United States withdrew from the Trans-Pacific Partnership Agreement on January 23, 2017, and suspended negotiations with the EU for the Transatlantic Trade and Investment Partnership Agreement. Moreover, the Trump administration re-negotiated over the NAFTA with Canada and Mexico and signed a new agreement called the United States–Mexico–Canada Agreement, which entered into force on July 1, 2020. With regard to trade negotiations, the Trump administration emphasized bilateralism rather than multilateralism or pluralism.

In 2020, due to the spread of COVID-19, major countries closed national borders and implemented lockdown policies to limit the movement of people both across and within countries. Shortages of masks and other medical materials made it difficult to maintain free trade in those goods. Moreover, there has been a surge in protectionism for trade in COVID-19 vaccines. Like all other countries, the countries producing the vaccines want to vaccinate their people against COVID-19 as quickly as possible. For example, then US President Donald Trump signed an executive order to use US-made vaccines to meet their domestic demand first in December 2020. The European Commission announced in January 2021 that the EU was to introduce tighter rules over the exports of COVID-19 vaccines to non-EU countries. In March 2021, those tighter export measures were extended to June 2021.

In contrast to the waves of protectionism due to COVID-19, moves toward deep integration were partially regained in 2020. For example, the Regional Comprehensive Economic Partnership (RCEP), which has been negotiated by 10 Association of South-East Asian Nations (ASEAN) countries and six Asia-Pacific countries (Australia, China, India, Japan, New Zealand, and South Korea) since 2012, was signed by 15 countries excluding India on November 15, 2020. It is expected that RCEP will enter into force by the end of 2021. Moreover, in a foreign policy speech in February 2021, US President Joe Biden stated that the United States would work with the international community to tackle global challenges, such as the COVID-19 pandemic and climate change, and to advance freedom and dignity for people in the world. In spite of this US departure from unilateralism, the so-called “economic decoupling” between the United States and China may be accelerated.

So, the world economy seems to be currently in the mixed situation of slowly regaining the momentum of globalization and protectionism/nationalism. The main topics in this book, namely, deep integration, global firms, and technology spillovers, will continue to be important issues in economic research. In this chapter, we summarize the findings from the analyses in the book and discuss the issues for future research.

This final chapter of the book is organized as follows. In Sect. 8.1, we summarize the main findings in this book. In Sect. 8.2, we discuss policy implications that are obtained from our findings. Finally, the issues for future research are discussed in Sect. 8.3.

8.1 Summary of the Main Findings

In this section, we summarize the main findings of the research outlined in Chaps. 2–7.

8.1.1 The Trend of Deep Regional Integration in the Asia-Pacific Region

In Chap. 2, we investigated the trend of deep regional integration in the Asia-Pacific region from the perspective of the depth and breadth of regional integration. The depth measure consists of four fields: import tariffs; non-tariff barriers (NTBs); behind the border policies (BBPs); and other policies (OPs). Each of those fields includes a number of policy areas. For example, the BBPs field includes five policy areas: state trading enterprises; state aid; public procurement; anti-corruption; and competition policy. On the other hand, the breadth measure consists of five fields: services; technology; investment/capital; labor; and non-economic policies (NEPs), each of which includes a number of policy areas. For example, the field of technology includes six policy areas: trade-related aspects of intellectual property rights (TRIPS); intellectual property right (IPR); innovation policies; economic policy dialogue; information society; and research and technology.

We found that the depth and breadth of RTAs signed by ASEAN countries, China, and Japan are quite heterogeneous. Specifically, the heterogeneity is significant in the fields of the NTBs and the BBPs in the depth measure and in the fields of investment/capital and labor in the breadth measure. Although RTAs signed by ASEAN countries include more NTB policy areas in the 2000s, an improvement in the inclusion of the BBP policy areas is small. Moreover, RTAs signed by China indicate a large improvement in the inclusion of both NTBs and BBPs in the 2000s, but the coverage of the legally enforceable BBP index is still low even in 2010–2015, compared with RTAs signed by Japan, the United States, and European countries. By contrast, RTAs signed by Japan in 2010–2015 show almost the same level of the coverage of the NTB and BBP policy areas as those by the United States and European countries. As for the breadth measure, on the other hand, the coverage of the investment/capital policy areas is much narrower for RTAs signed by China than those signed by ASEAN countries and Japan even in 2010–2015. Moreover, the coverage of the labor policy areas is almost the same among ASEAN countries, China, and Japan in 2000–2009, whereas the coverage becomes much wider for RTAs signed by Japan than those signed by ASEAN countries and China in 2010–2015.

8.1.2 Firm Performance and the Choice of Globalization Mode

In Chaps. 3 and 4, we examined how a firm’s choice of globalization mode, such as export, foreign outsourcing (FO), and foreign direct investment (FDI), is associated with firm performance. We use various measures of firm performance, which include labor productivity (LP), total factor productivity (TFP), Tobin’s q, and the ratio of patent stock to tangible fixed capital. The last measure is a proxy of the ratio of intangible to tangible assets. With regard to the measure of globalization activities, we employ the ratio of the size of a firm’s globalization activity to the size of its domestic sales. The size of its activity is measured by the value of exports, sales of foreign affiliates, and costs of FO. This measure can capture the relative importance of a particular type of globalization activity (i.e., export, FDI, or FO) for a firm in relation to the size of its domestic activity. In addition, we construct indexes to measure the relative choice of globalization modes, such as the ratio of export sales to foreign affiliate sales and the ratio of outsourcing costs to foreign affiliate sales.

Our main findings in Chap. 3 are as follows. First, we found that an increase in LP or Tobin’s q enhances the size of export or FDI relative to its domestic sales, whereas it does not necessarily induce a firm to expand its FO relative to its domestic sales. These results imply that exporters and multinational enterprises (MNEs) are likely to be more productive and have higher Tobin’s q than non-globalized firms, but firms that engage in FO are not necessarily superior in LP or Tobin’s q to non-globalized firms. It seemed that our result does not clearly indicate a difference between LP and Tobin’s q in terms of the effects on firms’ globalization. Second, we found important differences between LP and Tobin’s q on a firm’s relative choice among modes of globalization. Specifically, an increase in LP tends to motivate a firm to choose more FDI and less exporting, but does not affect the choice between FDI and FO. By contrast, an increase in Tobin’s q tends to motivate a firm to choose more FDI and less FO, but does not affect the choice between exporting and FDI. Third, we also found that Tobin’s q and intangible asset intensity work in a different way when one tries to capture the importance of the knowledge capital in the choice of globalization mode. Headquarters companies with relatively higher intangible assets tend to favor FDI over exporting and outsourcing. In other words, a difference in the intangible asset intensity is important to the choice between exporting and FDI as well as to the choice between FDI and FO. In this way, we revealed the differences among various measures of firm performance in the effects of globalization activity.

In Chap. 4, we further investigated the effects of Tobin’s q on a firm’s choice of globalization mode. We distinguished between total FDI and horizontal FDI (HFDI) through taking advantage of the feature of our dataset that allows us to observe detailed information on sales of foreign affiliates of Japanese MNEs. We measure total FDI by total sales of foreign affiliates and HFDI by sales of foreign affiliates excluding exports to Japan. Then, employing a number of different estimation techniques, we confirmed that Tobin’s q is negatively and significantly correlated with the ratio of FO to the total FDI. This strongly supports the prediction by Chen et al. (2012) that a higher Tobin’s q is associated with a higher FDI engagement relative to FO by MNEs. In contrast, little evidence was found on a definite relationship between Tobin’s q and the ratio of exports to HFDI. It implies that the imperfect contractibility of knowledge capital and a higher technology transfer cost actually matter for knowledge-capital intensive firms to choose between exports and FDI, because these factors weaken the positive relationship between Tobin’s q and the ratio of FDI to exports.

We also confirmed that the relationship between Tobin’s q and the firm’s choice of globalization mode fairly differs from that of TFP. We found that TFP is negatively and significantly correlated with the ratio of exports to HFDI, whereas no significant relationship existed between TFP and the ratio of FO to the total FDI. The former result is consistent with the theoretical prediction of Helpman et al. (2004), but the latter result differs from the prediction of Antràs and Helpman (2004).

8.1.3 The Impact of Trade/FDI on Technology Spillovers

We explored the impact of international trade and FDI on international technology spillovers in Chaps. 5 and 6. To measure international technology spillovers we used patent citation data throughout this book. Patent citations are references to existing patents included in patent documents. The advantage of using patent citations as a proxy of technology spillovers is that it is a direct measure of knowledge flows (Hall et al. 2001).

In Chap. 5, we focused on the relationship between the bilateral trade structure and technology spillovers. We first conducted a theoretical analysis using a two-country model of monopolistic competition with quality differentiation, in which inter- and intra-industry trade patterns endogenously arise. Our model predicted that the bilateral trade pattern is horizontal intra-industry trade (HIIT) when the two countries have access to a similar level of technology, while it is vertical intra-industry trade (VIIT) when there is a technological difference between them. If the technological difference is sufficiently large, then the bilateral trade pattern becomes one-way (or inter-industry) trade. As for the relationship between trade patterns and international technology spillovers, our model predicted that technology spillovers are highest when the bilateral trade pattern is HIIT, followed by VIIT and one-way trade. We tested these theoretical predictions using European and Japanese patent data and found that the predictions are supported by empirical results. Specifically, an increase in the share of intra-industry trade in the bilateral trade has a positive effect on the number of patent citations between the two countries. HIIT has a larger effect on spillovers than VIIT. On the other hand, the effects of one-way trade on the number of citations are much weaker than those of IIT.

In Chap. 6, we examined how the structure of MNEs’ activity in terms of horizontal and vertical FDI affects technology spillovers between MNEs and firms in their host economies using firm-level data on Japanese MNEs and patent citation data. We constructed new measures of FDI by exploiting information on sales and purchases of foreign affiliates of MNEs. Pure vertical (horizontal) FDI was defined as FDI with a high share of transactions (i.e., both purchases of inputs and sales of outputs) with the source country (in the local market). Partially vertical and horizontal FDI was also defined. We then estimated the effects of these types of FDI on technology spillovers captured by patent citations and found that pure vertical FDI plays a dominant role in technology spillovers in both directions between Japanese MNEs and their high-income host countries. More specifically, when technologically advanced economies host Japanese MNEs, an increase in the degree of pure vertical FDI has significantly positive effects on technology spillovers in both directions between the MNEs and their host countries. Moreover, partially vertical FDI (i.e., FDI with a higher share of purchase of intermediate inputs in the local market and a higher share of sales of outputs to the home country) also has positive and significant effects on technology spillovers from the high-income host countries to the MNEs. By contrast, we found no evidence of a positive impact of pure horizontal FDI on technology spillovers between the MNEs and their host countries.

Although a number of previous studies have identified international trade and FDI as important channels of international technology spillovers, the analyses in Chaps. 5 and 6 suggest that the degree of technology spillovers depends substantially on the subdivided patterns or structure of bilateral trade or FDI.

8.1.4 Deep Regional Integration and Technology Spillovers

Finally, we analyzed the impact of regional integrations on international technology spillovers in Chap. 7. The focus of our analysis was on the impacts of the depth and breadth of RTAs and the heterogeneous effects of individual RTAs on international technology spillovers measured by cross-country patent citations. With regard to the depth of RTAs, we used the indexes in the areas of tariffs, NTBs, BBPs, and OPs. On the other hand, as for the breadth of RTAs, we constructed indexes for services, technology, investment/capital, labor, and NEPs areas. Moreover. we analyzed the heterogeneous effects of individual RTAs. As major sources of international technology spillovers, we focused on RTAs signed by the United States and European countries, such as the North American Free Trade Agreement (NAFTA), the European Community (EC)/European Union (EU), RTAs with the United States, and FTAs with the EC/EU.

Then, in addition to the positive effect of the RTA dummy, we found that deep RTAs with a higher coverage ratio of policy areas in the depth fields such as tariffs, NTBs, and BBPs, and those with a higher coverage ratio of policy areas in the breadth fields such as services, technology, investment/capital, labor, and NEPs, at the legally enforceable level have positive effects on international technology spillovers. The additional effects of including the depth or breadth policy areas may be small or even negligible. This may be because the estimated average effect of the RTA dummy partly captures the impact of the depth policy areas on technology spillovers as recent RTAs become deep. Moreover, with regard to the breadth fields, the same level of the breadth index may have both positive and negative effects on technology spillovers, as some specific policy areas in the breadth fields strengthen rather than relax regulations. Finally, we found that the impact of NAFTA on bilateral technology spillovers is particularly strong, whereas the impacts of the EU and the EU enlargement on technology spillovers are weak or not positive. However, the RTAs with the United States and the FTAs with the EU both positively affect technology spillovers.

8.2 Policy Implications

We can obtain a number of important policy implications from our findings in Chaps. 2–7. In this section, we discuss two areas of policy implications: policies to support the globalization activities of firms; and policies to facilitate international technology spillovers.

8.2.1 Policies to Support the Globalization Activities of Firms

First important policy implications are obtained from the analysis of the effects of firm performance on the choice of a firm’s globalization mode. Although existing empirical studies have primarily focused on the relationship between a firm’s productivity and its choice of globalization mode, our findings illuminate the potential importance of Tobin’s q on firms’ globalization activities. In particular, we found that a difference in Tobin’s q affects the choice of a firm between FDI and FO, whereas that a difference in productivity is relatively less important to the firm’s choice between those two activities.

Firms with lower Tobin’s q are relatively more active in FO than in FDI. Generally, policies to facilitate FO will benefit the domestic economy, because FO contributes to improving the competitiveness of outsourcers through reducing their production costs. Since relatively lower values of Tobin’s q imply that the firms do not efficiently utilize their capital, deregulation and expansion of supportive services to small and medium enterprises may be helpful. For example, providing information on regulations, business customs, and the law in foreign countries and helping to find a potential outsourcing partner may also enhance gains from FO through reducing the fixed costs of outsourcing.

On the other hand, firms with lower Tobin’s q may be reluctant to enhance FDI because they have difficulties in financing costs of investment, as indicated by the low value of Tobin’s q. Thus, policies to create a financing mechanism for FDI will help those firms facilitate outward FDI.

In both cases, Tobin’s q of individual firms provides useful information for policy makers of the firms’ home country about what kind of policy is required to support their globalization activities. Since the ratio of intangible to tangible assets gives similar information, it can be used as an alternative indicator of Tobin’s q. Therefore, in addition to the indexes of productivities, such as LP and TFP, policy makers should pay much attention to data on Tobin’s q and the ratio of intangible to tangible assets when they consider policies to support the globalization activities of firms.

8.2.2 Policies to Facilitate International Technology Spillovers

We next discuss policy implications for facilitating international technologyspillovers. As previous studies have shown, international trade and FDI are both important channels of international technology spillovers (Keller, 2004). However, our empirical findings suggest that the patterns of trade and the structure of FDI matter for the flows of knowledge across countries. Therefore, to facilitate international technology spillovers, it is not enough to merely increase the volume of bilateral trade or the level of inward or outward FDI relative to GDP. Policy makers should also pay much attention to the patterns of bilateral trade and the structure of MNEs’ activities.

More specifically, our findings indicate that IIT or VFDI is primarily associated with international technology spillovers. With regard to international trade, HIIT with technologically advanced countries may be effective in enhancing spillovers of technological knowledge. On the other hand, as for FDI, both pure VFDI and partially vertical FDI are positively associated with international technology spillovers. This is true for not only the host economies of FDI but also the source economies of FDI. Thus, information on the structure of outward FDI as well as that of inward FDI will provide useful information on what extent of technology spillovers can be expected.

Furthermore, our research suggests that there is a more active role for governments in facilitating international technology spillovers. That is, our empirical results imply that signing deep RTAs with higher coverage of the depth or breadth policy areas is quite effective in enhancing bilateral technology spillovers. A number of previous studies have suggested that the stringency of the IPR protection in host countries is important to technology spillovers. For example, Branstetter et al. (2006) and Wakasugi and Ito (2009) find that stronger protection of IPR in host countries has a positive effect on technology transfer from parent firms to their foreign affiliates. Nagaoka (2009) also finds a positive effect of stronger patent protection on expanding the scope of the recipients of technology transfer. In addition to the importance of IPR protection, our research suggests that including other policy areas of the depth and breadth fields in RTAs may play an important role in facilitating flows of technological knowledge among members of the RTAs.

In addition, we found that the impact of RTAs on bilateral technology spillovers is quite heterogeneous across RTAs. This finding is in line with previous studies on the heterogeneous effects of RTAs on trade in goods (see, e.g., Baier et al. 2019; Behar and Cirera-i Crivillé 2013; Cheong et al. 2015; Vicard 2011). In the case of technology spillovers, our analysis indicates that signing RTAs with technologically advanced countries, such as the United States, is effective in stimulating cross-border technology spillovers. RTAs with EU countries may also facilitate technology spillovers, but it may be true only for RTAs between EU and non-EU countries. More analyses will be required to identify the causes of the heterogeneous effects of RTAs on technology spillovers.

8.3 Direction for Future Research

In this final section, we discuss the issues for future research.

8.3.1 Political Trilemma of the World Economy

The first issue for future research is the potential incompatibility of deep integration with the sovereignty of nation states and democracy. This issue was originally raised by Rodrik (2000) as the “political trilemma of the world economy” as an analogy of the trilemma of international finance. As is well known, the trilemma of international finance tells us that countries cannot simultaneously maintain the following three policy goals: independent monetary policies; fixed exchange rates; and an open account to international flows of capital. Countries can pick at most any two of the three policy goals.

Rodrik (2011) slightly revises his argument in Rodrik (2000) and states that sovereign nation states, democratic politics, and deep international economic integration (or hyper-globalization) are mutually incompatible. Countries can choose at most two of these three options. This is the “political trilemma of the world economy.” This argument implies that deep RTAs may possibly be incompatible with national democracy. Only shallow RTAs can be compatible with the sovereignty of nations and democracy.

Rodrik’s (2011) argument on the political trilemma of the world economy may explain why many British people voted “Leave” at the Brexit referendum in 2016. According to Sampson (2017), the “Leave” vote was an assertion of national identity. He argues that Brexit is “a democratic response to the erosion of British sovereignty caused by EU membership” (Sampson 2017, p. 180).

Thus, it is a significant issue for deep regional integration whether the hypothesis of the political trilemma of the world economy proposed by Rodrik (2000, 2011) holds both theoretically and empirically. Aizenman and Ito (2020) empirically address this issue. They construct a set of indexes that measure the levels of globalization, national sovereignty, and democracy for 139 countries in the period 1975–2016. Using these indexes, they empirically test the hypothesis of the political trilemma of the world economy by examining whether the trilemma variables are linearly related. The indexes indicate that developed and developing countries have gone through different paths of development in pursuing these three policy goals. Specifically, they find that there is a linear negative relationship between globalization and national sovereignty for developed countries, while the democratization index stays constant during the sample period, suggesting that those countries have faced a dilemma rather than a trilemma. By contrast, all three variables are linearly correlated for developing countries, indicating that they are indeed in a trilemma relationship.

The study by Aizenman and Ito (2020) is the first important attempt in this field. More analyses on this topic by various approaches can be conducted. In particular, studies focused on the post-2016 period will be important because of the possible regime changes. Moreover, interdisciplinary research from both theoretical and empirical analyses will be required to uncover economic and non-economic impacts of deep regional integration and people’s responses to deep regional integration.

8.3.2 National Security and Non-trade Issues

The next issue for future research is national security and non-trade issues in relation to international trade.

The relationship between national security and trade policy became a controversial issue when the Trump Administration imposed tariffs on imports of steel and aluminum in 2018. On March 8, 2018, then-President Donald Trump issued two proclamations, imposing 25% ad valorem tariffs on steel products and 10% ad valorem tariffs on aluminum products, which took effect on March 23, 2018.Footnote 1 The imposition of these tariffs was based on the Section 232 investigation report by the U.S. Department of Commerce released on January 11, 2018 (U.S. Department of Commerce 2018). The report concluded that certain types of steel and aluminum products imported into the United States threaten to impair the national security of the country, as defined in Section 232 of the Trade Expansion Act of 1962 as amended, and recommended that the President take immediate action to adjust the level of these imports through quotas or tariffs.

Against the restrictions on steel and aluminum imports by the United States, disputes at the World Trade Organization (WTO) were initiated by a number of countries including China, India, the European Union, Norway, Russia, Switzerland, and Turkey. National security is a major issue in other recent WTO disputes as well, such as disputes between Russia and Ukraine, between Saudi Arabia and Qatar, and between Japan and Korea.Footnote 2

In the legal text of the WTO Agreements, the General Agreement on Tariffs and Trade (GATT 1947) includes a provision on security exceptions (Article XXI). Besides, the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) include a similar security exception.Footnote 3 However, no panel report in the GATT/WTO dispute settlement procedure invoking Article XXI has been adopted until 2019. In April 2019, the panel report on the case between Russia and Ukraine was adopted as the first panel report involving Article XXI.Footnote 4 In this dispute, Ukraine argued that Russia’s restrictions on the transit of Ukrainian goods through Russian territory violated various provisions of the GATT/WTO rules and Russia’s Accession Protocol to the WTO. However, the panel decided that Article XXI justified the Russian measures (Prazeres 2020).

Although the issue of trade restrictions for national security reasons has been much debated in international economic law literature (e.g., Lester and Zhu 2019; Pinchis-Paulsen 2020; Prazeres 2020), there are few economic studies on this issue. Taking into account the importance of this issue from the economic point of view, such economic research is worth conducting.

In addition to the issue of trade and national security, human rights and other non-trade issues have also been discussed in relation to international trade. In particular, as seen in Chap. 2, RTAs tend to include ever more provisions on non-trade issues, as RTAs get deeper. Whereas the coverage of such provisions (e.g., provisions on environmental law, health, and human rights) is still very low, it is argued that the role of RTAs in governing countries’ compliance with those non-trade issues is important. For example, Spilker and Böhmelt (2013) show that RTAs including “hard” human rights standards have a potential to reduce human rights violations substantially, while most human rights treaties are ineffective in ensuring countries’ compliance with human rights standards. Hafner-Burton (2005) shows a similar role of RTAs in countries’ compliance with human rights standards. Although a number of studies on the impact of RTAs on non-trade issues have been conducted in the fields of political science and international relations (e.g., Hafner-Burton 2005; Milewicz et al. 2018; Spilker and Böhmelt 2013), economic research on related issues will contribute to understanding the role of RTAs in addressing those issues.

8.3.3 Network Dynamics of Deep RTAs from the Perspective of Depth and Breadth in Relation to Technology Spillovers

The final issue for future research is network dynamics of deep RTAs and their implication for technology spillovers.

In Chaps. 2 and 7, we discussed the trend of RTAs and the effects of deep RTAs on the technology spillovers. With respect to the trend of RTAs or the surge of deep RTAs, a number of existing studies have focused more on the process of forming RTAs, because this process has been becoming increasingly dynamic and complicated (Bartesaghi et al. 2020; Sopranzetti 2018; Wonnacott 1996; Zhu et al. 2014).

In the hub-and-spoke system developed by Wonnacott (1975), a hub country (e.g., the United States) has two overlapping bilateral agreements with two spoke countries (e.g., Canada and Mexico), each of which has a bilateral relationship with the hub country. In such a system, the hub country may hold its dominant position by benefiting at the expense of its relatively poor neighbors (Wonnacott 1996). However, this definition of the “hub” has changed, because we observe some cases in which a group of countries (e.g., members of the EU) rather than a single hub country jointly negotiates an RTA with a third country in looking for a better hub position. As a result, the hub-and-spoke effects become multilayered, and the interaction becomes even more complicated (Sopranzetti 2018). On the other hand, a number of studies make challenges in detecting “communities” and “community cores” in international trade networks. The main purpose of these challenges is to understand the evolution of the network and to find rich dynamics over time both inter- and intra-communities (Bartesaghi et al. 2020; Zhu et al. 2014). Following these lines of the network analysis, we provide a description of the evolution of the network to show the global dynamics of RTA network and to reveal how communities appear, disappear, reemerge, and converge.

Figures 8.1 and 8.2 present dynamic changes of the communities of network for the depth and breadth indexes as to RTAs for the period 1990–2015, respectively. In order to analyze the characteristics of RTAs’ global dynamics, we use the definition of the depth and breadth of RTAs by Limão (2016) and just focus on WTO-extra (WTO–X) policy areas.Footnote 5 We obtain 158 nodes and 5,102 edges for the undirected network of the depth (Fig. 8.1) and 158 nodes and 4,974 edges for the undirected network of the breadth (Fig. 8.2). In order to detect the communities we employ Gephi, network analysis software, where the Louvain community detection algorithm is used to detect communities with the modularity optimization method.Footnote 6

As shown in Fig. 8.1a, only several limited communities are observed in 1990. Those limited communities are related to Caribbean Community and Common Market (CARICOM), EU enlargement, the Central American Common Market (CACM), and the Agreement on Trade and Commercial Relations between the governments of Australia and Papua New Guinea (PATCRA). In 1990, most countries, including the United States, were scattered individually in the network of the depth of RTAs. The number of communities increases and the network system of those communities becomes more complex through the 1990s and 2000s. In 2015 (Fig. 8.1d), by contrast, many countries get involved in one or more RTAs. The network density increased from 0.029 in 1990 to 0.398 in 2015. The Asia-Oceania community and the community of the Gulf countries are also observed in 2015. Furthermore, EU countries are still dominant and held the core position of the communities.

Figure 8.2 shows similar patterns in the network of the breadth. There are only several limited communities in 1990, and the network system evolves in the 1990s and 2000s. In 2015, the position of the communities for EU countries seems to be strengthened more in the network of the breadth index (Fig. 8.2d) than in the network of the depth index (Fig. 8.1d).

Fig. 8.1
figure 1

Source Authors’ creation from the Content of Deep Trade Agreement database

Dynamic changes of the communities of network for the depth indexes, 1990–2015. Note Figures are depicted using the WTO–X policy areas in the depth indexes. We detect communities in the network using the Louvain community detection algorithm by Gephi.

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The network analysis approach is useful not only for illustrating the process of network dynamics of RTAs but also for examining the effects of the evolution of the RTA networks. For example, Sopranzetti (2018) analyzes the effect of the hub-and-spoke nature of RTAs on bilateral trade. She considers the effects of the country’s position in the RTA networks on the bilateral trade of the hub country. Interestingly, she finds that an increase in the number of spoke countries has a negative effect on the trade of the hub country. On the other hand, if signing new RTAs makes a country more central or less constrained in the network, then these new agreements have a strongly positive impact on the country’s bilateral trade. Then, we may be able to gain some new insights from applying the network analysis approach to the analysis of the relationship between the evolution of the RTA networks and technology spillovers.

Fig. 8.2
figure 2

Source Authors’ creation from the Content of Deep Trade Agreement database

Dynamic changes of the communities of network for the breadth indexes, 1990–2015. Note Figures are depicted using the WTO–X policy areas in the breadth indexes. We detect communities in the network using the Louvain community detection algorithm by Gephi.

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