A Forgotten Effects Approach to the Analysis of Complex Economic Systems: Identifying Indirect Effects on Trade Networks

Abstract

The purpose of this paper is to identify the emergence of indirect trade flows prompted by the export interaction of the world’s economies. Using data on exports from the United Nations Conference on Trade and Development (UNCTAD) for the period 2016–2021, we construct an international trade network which is analyzed through the “forgotten effects theory” that identifies tuples of countries with an origin, intermediary countries, and a destination. This approach intends to spotlight something beyond the analysis of the direct trade network by the identification of second and third-order paths. The analysis using both network analyses, as well as the forgotten effect approaches, which show that the international trade network presents a hub-and-spoke behavior in contrast to most extant research finding a core-periphery structure. The structure is then comprised of three almost separated trade networks and a hub country that bridges commerce between those networks. The contribution of this article is to move the analysis forward from other works that utilize trade networks, including those of econometric nature—such as the ones based on gravity models—by incorporating indirect relationships between countries, which could provide distinctive and novel insights into the study of economic networks.