Tell me who your friends are: an endogenous model of international trade network formation and effect on domestic political outcomes

What is the relationship between networks and unit-level outcomes, such as the international trade network among states and domestic rule of law or repression? Do these effects hold after accounting for actors' strategic selection of network ties? I explore these questions by building a multi-player game, in which players make two simultaneous decisions: (1) whether to form trade links and with who, and (2) whether to increase their trade benefits by improving their type, associated with the level of domestic economic risk factors. The model predicts an endogenous relationship between the number of direct trade partners and the probability of playing High Type: High Type states have more direct trade partners, and the number of trade partners has a positive effect on the probability of choosing High Type. A state's type is also affected by indirect trade connections--counter-intuitively, indirect trade has a negative effect on the probability of choosing High Type.

In Chapters 3 and 4, I test the general predictions of the theoretical model, by applying them to two distinct areas of international research. In Chapter 3, I conceptualize a state's type as the level of domestic rule of law enforcement. States with strong rule of law enforcement are regarded as High Type states, because they guarantee lower cost of operations within their borders, by enforcing property rights and contractual law. Weak rule of law states, on the other hand, can be thought of as Low Type states, as business operations within such states are constantly threatened by a risk of expropriations, inefficiencies associated with corruption within the judicial system, and other manifestations of poor business practices.

In Chapter 4, I recast the theoretical model by showing how a state's type can be conceptualized as a state's domestic respect for human rights. Highlighting the economic costs of repression, such as higher economic risk, negative publicity, and decreased quality of human capital, I argue that these costs are suffered by both the domestic economic elites and their international business partners. These business elites can, however, alleviate their losses resulting from such costs by either pressuring their government to embrace stronger human rights protections or, when this option is unavailable, by setting up channels for indirect economic transactions through states with more favorable political environments.

To test each Chapter's empirical predictions, model the simultaneity between network formation and effect, using a statistical estimator developed by Ripley, Snijders, and Preciado (2012). This statistical estimator, referred to as a continuous Markov Chain exponential random graph model (MC ERGM), allows for a close mimicking of the theoretical model by simultaneously modeling two dependent variables: network formation and its effect on actors' behavior. The results of the statistical tests provide some support the theoretical predictions.