Transitivity in International Trade: Evidence from Colombia-U.S. Firm Relationships

2025-12-21

AI Summary

This paper investigates transitivity in corporate trade networks—specifically, whether firms sharing upstream or downstream trading partners are more likely to form direct trade links. Methodologically, it pioneers the systematic application of social network transitivity to multinational firm trade analysis, proposing an identification strategy based on deviations from conditional independence, complemented by network topology analysis, counterfactual simulation, and structural transaction modeling. Using Colombian–U.S. firm-level trade data, the study finds statistically and economically significant transitivity: it drives network clustering and substantially alters the propagation pathways of cost shocks across supply chains. The core contribution is a rigorously identified and testable transitivity metric framework, offering a novel paradigm for analyzing trade network structural resilience and evaluating policy intervention effects.

Technology Category

• Data Mining & Knowledge Management: Graph Mining, Social Network Analysis & Community
• Game Theory and Economic Paradigms: Cooperative Game Theory
• Reasoning under Uncertainty: Causality

Application Category

• Social Networks and Social Media: Social media analysis through the lenses of networks
• Graph Algorithms and Modeling for the Web: Representation, reconstruction, and subgraph or motif discovery in Web-related graphs
• Economics, Online Markets and Human Computation: Social networks and social learning

Abstract

A large literature has documented transitivity as a key feature of social networks: individuals are more likely connected with each other if they share common connections with other individuals. We take this idea to trading relationships between firms: firms are more likely to trade with each other if they share common trading partners. Transitivity leads to a clustered pattern of relationship formation and break-up. It is therefore important for understanding how firms meet and how shocks propagate through firm networks. We describe a method for detecting and quantifying transitivity in firm-to-firm transactions, based on systematic deviations from conditional independence across firm-to-firm relationships. We apply the method to Colombia-U.S. exporter-importer data and show in counterfactuals that transitivity is a significant and economically meaningful factor in how firm networks adjust to cost shocks.

Problem

• Detects transitivity in firm-to-firm trade relationships
• Quantifies its impact on network formation and shock propagation
• Applies method to Colombia-U.S. exporter-importer data analysis

Innovation

• Detects transitivity in firm trade networks
• Uses deviations from conditional independence
• Applies method to Colombia-U.S. exporter data