Introduction

A new technique of analysis of trade values reveals the asymmetric structure of relationships among countries. The structure of world trade is characterised by bilateral absence of relations (82%) and dominance (40% in non-absent relationships), weak dominance (of two types: 24% and 22% respectively), whereas symmetric integration is just the 6% of non-absent relationships (the 5.th case in ranking) with 21 relationships.

US and Germany are both at the heart of the hierarchical system, strongly connected with most country in the world as they are.

The place of each country is evaluated not on the base of its shares in world exports and imports but, instead, of country's "strength balance" with its partners.

The applied network analysis allows for a graph representation of world trade structures as well as for further quantitative indicators.

All data are freely available in this MS Excel file, so you can better follow the present discussion and make further experiments.

The basic idea

In political foreign relationships, major trade partners are particularly important countries. The bounded-rational ministries tend to care more about them and keep preferential lines of contact. The national industries strive to match their requirements and meet them constantly.

To be a major trade partner of a country means to have an open potential for influencing and being influenced.

Needless to say, there are many other elements to take into consideration (foreign direct investment, language similarity, historical linkages, legal and military pacts, political distance in government orientation,...) but a concise expression of the reality of the "balance of strength" between two nations can be grasped from trade data purposefully interpreted.

In particular, two basic roles can turn out to be particularly relevant.

First, if a certain country B is a major market of for the exports of a country A, the economic conditions of B (recession, recovery,...devaluation / revaluation of the currency,...) will significantly affect the exports of A, thus - if they do not constitute a too small amount - its GDP, finally the conditions of its labour market (unemployment) and the market of goods (consumption, investment,...).

If, for instance, the country B decides to protect its domestic market through tariff (and non tariff) barriers, it is likely that country A will heavily suffer and will try to negotiate.

Second, if a certain country B is a top component in the imports of country A, this means that A "needs" the B supply and it is sensitive to possible disruption in its intensity. It will be heavily affected by to large fluctuations of the relative exchange rate. A revaluation of B currency would imply a rising cost of B products, which represent a large share in A import, hurting all the people needing those goods, if they cannot fastly and easily substitute this supply with those coming from other countries.

These relations are not necessarily symmetric: to be a major exporter for B does not mean automatically that B is a major receiver of our exports. B could be so little in terms of GDP and of total imports that its share on our total exports could well be too small.

For instance, Indonesia needs USA since they are both one of its major export market and one of its major import source. But the reverse is not true: Indonesia is not among the major partners of US. Thus, prima facie, US can influence Indonesia politics - or can be tempted to do it - much more than the reverse.

On the opposite, France (F) and Germany (G) are symmetrically linked in a perfect integration: F represents a major export market for G as well as G represents a major export market for F; F is a major provider for G as well as G represents a major import source for F. They need each other.

In all, the entire spectrum of relationships from integration to dominance is as wide as 16 different patterns, in detailed described below.

The basic idea of this paper is to take the major import and export partners for a large number of nations, to build the matrix of these relationships, to allocate the emerging patterns of diadic relationships between any two countries into 16 possible types.

The synthetic outputs are four:

1. the ranking of occurrences of the 16 patterns on a global scale;

2. two maps of world trade network;

3. an overall "Strength Index" for each country;

4. three "Importance Indexes" for each country.

The analytical output is the identification of the role of each country in the world trade network.

The results offer hints for policies aimed at economic integration and/or at strengthening the role of a country up to local and global dominance.

The steps of the analysis

The present analysis proceeds across 8 steps, visualized in the following chart and shortly described below:

The main steps are the following:

1. Identifying 16 patterns of diadic relationships, which represents an exhaustive list of all possible patterns;

2.1 Choosing countries included in the analysis;
2.2 Identifying major import and export parners of each country in a given reference year;
2.3. Building two world-wide "Partner matrices", one for imports and the other for exports;

3. Obtaining the "Pattern matrix", which allocates for each couple of countries their relations to one of the 16 patterns;

4. Counting the frequency of patterns for each country;
5. Evidencing the distribution of patterns in the world;

6. Computing Overall "Strength Index" for each country through a numerical conversion of patterns into "strength scores";

7. Computing further "Importance Indexes";

8. Drawing maps of world trade hierarchies.

In the present version, we have taken 64 major countries and for each, the top 5 countries from which its imports come and the top 5 to which it exports. The reference year is 1998. More details can be found in the Appendix 1.

Throughout this paper, we shall call "world" this set of 64 countries. For a larger number of countries see this other paper of ours.

The exhaustive list of 16 patterns of trade relations

The "Dependence" word can be used to indicate a situation in which a country needs the other, while the other can ignore it. "Dominance" is when we can ignore a country that needs us. "Integration" is when we need each other. "Absence" is when we can ignore each other.

But these "strength balances" apply separatedly to exports and imports.

Accordingly, the relationship between two countries can turn out to be of as much as 16 different patterns. How is it possible? Well, trade relations - between a first country A and a second country B - can be characterized by four conditions, each of which can be "true" or "false":

1. "For B, A is a major export destination"

2. "For B, A is a major import source"

3. "For A, B is a major export destination"

4. "For A, B is a major import source".

These propositions are logically independent, since each one can be true or false independently from the values of the others.

For each proposition, we build a binary variable that will take the value of 1 if the proposition is true and zero in the opposite case.

The "binary description" of a two-countries pattern can be obtained simply by nearing the four binary variables in the same order as we presented them. For instance the binary description 1100 means that, for B, A is both a major export destination and a major import source while, for A, B isn't important. We shall call this relationship the "dominance" of A over B.

In naming these patterns, we care about the situation of A against B, so e.g. we call "dependence" the situation in which A is completely weaker than B.

In short, these are the exhaustive list of the 16 patterns:

"Integration" - as a word appearing in more than one pattern - means that there is reciprocity. "Interconnection" means that there are three 1s, i.e. there is a strong relation between the two countries. "Mono" means that the same flow of goods and servicies is important for both.

We gave a red colour to four "clear-cut" situations, described with one word only, without adjectives.

Partner matrix

Partner matrix expresses - for each country - which are its main 5 trade partners (by rows), thus it allows to describe for each country (in column) the list of the countries for which it is a major partner (that can be empty and of any length).

In this vein, we build the "export partner matrix" as in this snapshot form:

A figure of 1 means that, for the country in row, the country in column is a major export target. For instance, you see that Chile does not primarily export to Algeria, but rather to Argentina.

The full matrix is here, included in the MS Excel file that you can use to follow and extend the entire analysis.

The "import partner" matrix is formally identical to the export partner matrix: a figure of 1 means that for the country in row, the country in column is a major import provider.

Through both partner matrices, you can trace the trade flows that are more relevant for the involved countries, maybe using the instruments of social network analysis and graph theory.

Pattern matrix

Through a simple algorithm, we can obtain, mixing information from both import and export, the "Pattern matrix", comprehending the pattern of relationships involving each couple of countries. For instance, you can see that Argentina and Brazil are characterized by the "integration" pattern (1111 in our previous "binary description").

Here you see a partial snapshot of the "pattern matrix", collecting all the diadic relationships between any couple of countries. The full matrix is a square of 64x64 (rows x columns).

Browse this matrix in the Excel file and you'll discover a lot about the relationships between countries! Which countries are dominated by yours? With which countries do you have a "Source dependence" pattern?

The position of one specific country can be grasped looking at the intricated structures it belongs, and carefully interpret it, together with a more in-depth analysis of the concentration of its trade flows.

The overall results: the ranking of patterns and two maps of the world

Now we get our main result: the distribution of frequency of the 16 patterns of diadic relationship and their ranking in the world [1].

This table is a huge concentration of information, as you can understand recalling the entire procedure. At the same time, it gives very clear-cut results.

The absence of relationships dominates the world economy, apart from all rhetoric of "globalization", with 1646 occurrences (82% of the total). Most countries live far away from each other, possibly maintaining kind diplomatic relationships but activating just minor trade exchange flows [2].

Dominance is the most widespread (non-absent) relationship. A few countries are crucial for others that they do not need. The dominant countries can exert significant external pressure on dominated ones. And data demonstrate that this is the most common situation in non-unrelated countries.

Almost all the countries in the world are involved in one (or more) Dominance and/or Dependence relationships, as you can see in this graph [3]:

Map of world dominance relations