Network Analysis of Free Trade Agreements Homophily and Transitivity

Accompanying the unprecedented outburst of Free Trade Agreements (FTAs), scholarly interests in the new wave of regionalism have been flourishing. Yet, notwithstanding its contribution, extant literature has paid little attention to an important aspect of FTA formation: the choice of FTA partners and the underlying structure of the FTA network. While theoretical conjectures about likely FTA partners are abundant, systematic empirical analysis is scant. We attempt to fill this gap by utilizing the concept of "transitivity" and "homophily" in social network analysis. The notion of transitivity refers that "a friend of a friend is a friend" among triads of actors, while homophily is the tendency to form social ties to the similarity in actors' attributes. Of the various nodal attributes, three are singled out as the most important: political institutions, regionalism, and economic attributes. Using the Exponential Family Random Graph (ERG) model, we show that economic attributes produce mixed results in predicting FTA partners, whereas homophily in region explains FTA tie formation. In line with previous works, we also find strong association between democracy and FTA formation. Our empirical models suggest transitivity in FTA networks referring that an FTA partner of an FTA partner is likely to be an FTA partner.