Accepted Manuscript

Understanding the competitive advantage of TPP-related nations from an

econophysics perspective: Influence caused by China and the United
States

Lizhi Xing, Jun Guan, Xianlei Dong, Shan Wu

PII: S0378-4371(18)30216-4
DOI: https://doi.org/10.1016/j.physa.2018.02.126
Reference: PHYSA 19246

To appear in: Physica A

Received date : 13 July 2017

Revised date : 7 December 2017

Please cite this article as: L. Xing, J. Guan, X. Dong, S. Wu, Understanding the competitive
advantage of TPP-related nations from an econophysics perspective: Influence caused by China
and the United States, Physica A (2018), https://doi.org/10.1016/j.physa.2018.02.126

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*Highlights (for review)

Highlights

Resource Allocation Process reflects the scarcity of resources of object nodes, even
there are weights on the edges connecting objects and participants;
Distinguishing the simultaneous roles of industry sectors on the GVC as upper-stream
and lower-stream ones based on bipartite graph theory contributes to analyzing the
competition relationship among industrial sectors;
National Competitive Advantage Index is introduced to reflect the national
competitive status on the basis of nodes’ out-strength in GIRCN model.
A TPP without both the United States and China will undermine the two countries’
competitiveness, and China’s impact on GVC will be truly weaken if a TPP agreement
led by the United States is reached and vice versa. Anyway, A TPP including both
these two countries would serve the mutual interests.
*Manuscript
Click here to view linked References

Understanding the Competitve Advantage of TPP-Related

Nations from an Econophysics Perspective: Influence
Caused by China and the United States

Lizhi Xing1*, Jun Guan1, Xianlei Dong2, Shan Wu1

1 School of Economics and Management, Beijing University of Technology, Beijing,

China
2 School of Management Science and Engineering, Shandong Normal University,
Ji’nan, Shandong, China

*
Corresponding Author
E-mail: itwasa@163.com

1
Abstract
Input-output table is very comprehensive and detailed in describing the national
economic systems, which contains supply and demand information among various
industrial sectors. The complex network, a theory and method for measuring the
structure of complex system, can depict the structural properties of social and
economic systems, and reveal the complicated relations between the inner hierarchies
and the external macroeconomic functions. A new analytical framework of relatively
competitive advantages of economies is established. It involves distinguishing
functions of industrial sectors on the global value chain with bipartite graph theory and
extracting inter-sector competitive relations through resource allocation process.
Furthermore, it introduces network-based quantitative indices to measure the
competitive advantage on the level of industrial sector and country respectively, taking
scarcity of industrial resources into consideration. Finally, it carries out scenario
simulation to analyze impacts on 13 TPP-related countries’ competitiveness under four
kinds of scenarios. Results show that a TPP without both the United States and China
will undermine the two countries’ competitiveness, and China’s impact on GVC will
be truly weaken if a TPP agreement led by the United States is reached and vice versa.
Anyway, A TPP including both these two countries would serve the mutual interests.
Keyword: global value chain; bipartite graph; resource allocation process;
inter-country input-output table; competitive advantage; the Trans-Pacific Partnership
Agreement

Introduction
This paper mainly focuses on how industrial sectors compete for their production
resources from the mutual providers and how they collaborate to facilitate the
production of their mutual consumers. Input-Output (IO) data was adopted to
establish industrial complex network models, in order to carry out detailed analyses
on the Global Value Chain (GVC) under the perspective of econophysics. Therefore,
relations between research fields relevant to this paper should be reviewed at first.
The industrial complex network is a kind of social network, in which product
sectors are intricately interrelated by the products and services they provide and/or
consume simultaneously. It represents these sectors as nodes and the various
economic relations among them as edges, which allows the analyses of specific
economic issues according to different backgrounds. Scholars have created various
complex network models to describe inter-organization competition and collaboration
analyzing diverse economic phenomena. But the early works are prone to use binary
approaches, i.e., they introduced of unweighted and undirected network models
similar to the simple physical ones, with less to be known or much to be neglected on
the mechanism of informational, material and capital flows between economic entities
manifested in their dependencies. However, the literature on industrial complex
networks are growing rapidly, and increasing number of scholars focus on
sophisticated topological structure of economic system based on weighted and
directed graph. In the meanwhile, relevant empirical researches incorporate more
economic issues, such as investment stocks [1], inter-bank connection [2], innovation
[3], ownership [4], systemic risk [5], information flow [6], environmental capacity [7],
etc.
From an empirical perspective, a handful of studies have characterized the
structure of IO networks to better understand the topology of inter-industry
dependencies and their repercussions on the industrial economics. With the

2
development of IO databases, related researches are based on not only independent
national systems but also multi-regional even global systems, and most of them adopt
Inter-Country Input-Output (ICIO) table as the data source. Related studies are as
follows.
Zhu, et al. proposed that industry-level GVCs are indeed not chain-like but are
better characterized by the tree topology, hence they computed the global value trees
(GVTs) for all the industries available in the WIOD [ 8 ]. In consideration of
inter-country trade, Cerina and Zhu, et al. argued production systems are increasingly
connected on a global scale. By viewing the world input-output system as an
interdependent network where the nodes are the individual industries in different
economies and the edges are the monetary goods flows between industries, they
analyzed respectively the global, regional, and local network properties of the so-called
world input-output network (WION) and document its evolution over time [9]. In other
words, international trades have been increasingly organized in the form of GVCs
where different stages of production are located in different countries. Thus, on one
hand, Zhu, et al. introduced a network-based measure of node similarity to compare
the GVCs between any pair of countries, considering all the direct and indirect
relations between country-sector pairs [ 10 ]. On the other hand, Cerina, et al.
constructed a three-country model with national and multinational (multi-plant) firms,
in which oligopolistic firms in each country export their goods to other countries, and
investigated the effects of trade liberalization between two countries on the third
country [11]. Amador and Cabral adopted data on the bilateral foreign value added in
exports from the WIOD for the period 1995-2011 and, in each period, the GVC is
represented as a directed network of nodes (countries) and edges (value added flows).
They found that GVCs are very centralized and asymmetric networks, with a few large
economies acting as hubs, which exposes them to the propagation of idiosyncratic
shocks [12]. On this basis, Amador, et al. represented GVC as weighted networks of
foreign value added in exports, which allows for the identification of the specific roles
of countries and for the quantification of their relative importance over time [13].
Martha, et al. investigated how economic shocks propagate and amplify through the IO
network connecting industrial sectors in developed economies [14]. Ando measured
the importance of industrial sectors under the impact of U.S. gross output in the global
IO model [ 15 ]. Tsekeris described a structural input-output analysis of the
inter-sectoral linkages and main activity clusters of the Greek economy, and he
employed suitable network metrics to measure the centrality and influence of each
sector-agent on the other ones, and the possibilities for clustering of related (groups of)
activities [16]. Grazzini and Spelta set up the cost effect index to testify the robustness
of global IO network and the interdependency of intermediate inputs in production
[17]. Amador and Cabral applied visualization tools and measures of network analysis
on value-added trade flows in order to understand the nature and dynamics of GVC
[18]. Xing, et al. introduced the conception of brokerage roles in SNA to redefine
sector’s function while linkage exists between its upstream providers and downstream
consumers, referred to as “Trade Brokerage Property”, as well as to quantify the ratio
of each types of the roles [ 19 ]. Xing also quantified the degree of
competition/collaboration on the global value chain under the perspective of
econophysics. Global Industrial Strongest Relevant Network models were established
by extracting the strongest and most immediate industrial relevance in the global
economic system with inter-country input-output tables and then transformed into
Global Industrial Resource Competition Network/Global Industrial Production
Collaboration Network models embodying the competitive/collaborative relations
based on bibliographic coupling/co-citation approach [20,21]. He, et al. constructed the
IO networks among the regional industries of Beijing-Tianjin-Hebei in China, and then

3
analyzed the rules of embodied resources consumption in the area’s industries,
identified the core community structures, and studied the characteristics of industrial
homogeneity through regional comparisons [22].
Due to its richness in mathematical properties, Markov chains have naturally
theoretical connections with Leontief input-output models. However, so far there are
only a few investigations on evolving world economic networks with Markov chain
formalism. In the early studies, Blöchl, et al. adopted Structural Analysis Database
(STAN) of Organization for Economic Co-operation and Development (OECD) to
establish 37 countries’ IO networks and derived two indicators for a weighted and
directed network with self-loops, which are, random walk centrality to reveal the most
immediately affected nodes by a shock based on Freeman’s closeness centrality, and
counting betweenness to identify the most accumulatively affected nodes based on
Newman’ random walk betweenness [23]. Recently, Moosavi assessed different
aspects of the evolving world economic network via different known properties of the
Markov chains such as mixing time, Kemeny constant, steady state probabilities and
perturbation analysis of the transition matrices [24]. To establish a link between
Markov chain-based research framework and macroeconomic issues, Xing, et al.
analyzed the spreading effect of industrial sectors with biased random walk centrality,
aiming at measuring their information superiority and intermediate interests [25]. Then,
they quantified the global industrial impact of countries on the GVC using ICIO data
from WIOD [26].
In sum, considerable work has been done analyzing economic globalization.
Compared to firm surveys and fine industrial classification of trade, IO tables enjoy
more feasibility in measuring both standard and vertical trades. With the availability
and utilization of global IO databases, especially ICIO tables, it is possible to
construct quantitative indicators to assess what degree of impact a particular sector in
a country has made on the GVC, because it better captures the international source
and use of intermediate goods than any previous databases. As a result, studies on the
GVC have turned to take advantage of ICIO databases, which are indeed useful to
analyze the interdependency of countries all over the world. However, basic ICIO
databases are unable to separate imported intermediate and final goods in bilateral
trade flows, and more importantly, they overlook that heterogeneity generally exits in
economic endowment, geographical location, development stage, industrial structure
etc. at the domestic regional level.

Methodology
Bipartite Graph
Bipartite graph, or bigraph, divides the node set of a simple graph G as two
nonempty sets V1 and V2 with no intersection in between. Letting the two nodes
relevant to each edge in G belonging to V1 and V2 respectively, it can be noted as
G  V1 ,V2 , E  , in which V1 and V2 are the bisections of G with E as the set of
edges. For bipartite graph G , if V1  m and V2  n , and there exists an edge
between two nodes, when and only when one of the nodes belongs to V1 and the
other belongs to V2 , the graph can be referred to as the complete bipartite graph of
nodes m and n , noted as K m , n . Bipartite graph has a wide application in complex
network analysis, including cooperation and competition networks (mainly dealt with
through affiliation networks), for either cooperation or competition is the common
existence in social networks consisting of people of units of people. Networks of

4
scientists (authors and papers), patents declaration (patents and holders), commodity
(goods and consumers), public transportation (routes and stops) etc. can all be clarified
as affiliation networks to be digested as bipartite graphs in the manner of two-mode
networks. Two kinds of nodes exist in this kind of networks, one is that of participants
and the other of objects.
For the cooperation or competition, focusing on the interaction among nodes of
the same kind, is the practical target in building two-mode networks. It is more than
common to project the networks onto one kind of the nodes (often those of participants)
reaching a one-mode network. Through this projection, edges have been granted the
property to reflect the relations of cooperation or competition on the same object by
two participants. This one-mode network obtained is called the complete subgraph of
the object, as shown in Fig 1.

Fig 1. A Two-Mode Network and Its Projection

In Fig 1, the squares in the up are the objects, while the lower circles are the
participants, and the edges in black belong to the two-mode networks, while those in
red to the one-mode networks contributing to complete subgraphs, as each of the edges
is gained through projection of two edges in the two-mode networks.
Most commonly, the one-mode network obtained through projection has edges of
no weights. Yet recent researches on two-mode networks find that these weights could
be gained through the definition of co-occurrences, which is the counting of fellowship
of two participants in the same object, say the number of papers of two scientists as
co-authors. Newman made extension of the process on scientist network [27], and
Padrón believed that this modeling process could bring distinctive simulation on the
potential competitive relations [28].
Resource Allocation Process
For the sake of minimizing the information loss in the process of projection of
two-mode networks, the Resource Allocation Process (RAP) was adopted in this
paper as the algorithm of projection [29]. The fundamental assumption of RAP is that
the resources of participants are limited, and not only does this scarcity limit the extent
to which participants can contribute to the same objects, but also it makes influence on
the amount of resources participants gain from objects in turns. There is another
suppressed premise that participants give objects the meaning of existence, otherwise
the latter perform practically no function, e.g., papers without authors, patents without
holders, goods without consumers, stops without routes, etc.
Let V1 in G  V1 ,V2 , E  as the node set of participants, represented as P , and
V2 as that of the objects, represented as O , then a bipartite graph G   P, O, E  is

5
reached, in which, E is the set of edges, while nodes in sets P and O are
 p1, p2 , , pn  and o1 , o2 , , om  respectively. The initial resource allocated to the i
th participant is f ( pi )  0 .
First of all, all the resources of P flow in the direction of O , and the resource
allocation of the l th node in O is
n
ail f ( pi )
f (ol )   (1)
i 1 k ( pi )

where, k ( pi ) is the degree of pi , ail is a n  m matrix:

1 pi ol  E
aij   (2)
0 otherwise
The resource allocation process of P  O is shown in Fig 2.

Fig 2. The Resources Owned by Participants are Equally Distributed to Objects

Notes: We chose o1 and relevant participants for explanation as the example. For
simplicity, we assume all of participants here own an equal amount of resources, i.e.,
f ( pi )  1 . As we can see, p1 only connects to o1 , so k  p1   1 , a11  1 , a12  0 , a13  0 .
The same thing happens in p2 and p3 . However, p4 connects to both o1 and o2 ,
so k  p4   2 , a41  1 , a42  1 , a43  0 . Thus, f (o1 )=1+1+1+1 2= 7 2 . In the same way,
we can calculate and gain that f (o2 )=3 and f (o3 )= 5 2 .
With all the resources flown back to set P , the final distribution to node pi is

m ail f  ol  m
ail n a jl f  p j 
f   pi      (3)
l 1 k  ol  l 1 k  ol  j 1 k  p j 

The RAP of O  P is shown in Fig 3.

Fig 3. The Resources Owned by Objects are Equally Distributed to Participants

Notes: When an object equally returns its accumulated resources to relevant
participants, the denominator is just the number of participants it owns. Thus, the new
amount of resources of participants is equal to the sum of resources allocated from all
6
of objects, e.g., f   p1  = f (o1 ) k  o1   7 8 and
f   p4  = f (o1 ) k  o1   f (o2 ) k  o2   7 8  3 5  59 40 .

Obviously, we found that f   pi   f  p j  after RAP. This discrepancy stems from

the nature of the resources themselves. That is, if objects could transfer resources
without attenuation or loss, there will be no competition among relevant participants,
e.g., papers and readers. But, if they couldn’t, scarcity of resources will bring
participants exclusive competition, e.g., banks and moneylenders. Thus, we tried to
find this kind of competitive relations among participants within Eq (3), which could
be rewritten as:

f   pi    wijP f  p j 
n
(4)
j 1

where, wijP is the relation strength produced in the two resource allocation processes
between pi and p j , and describes other participants’ occupation on resources how to
affect pi .
The wijP in Eq (4) could be written as:

1 m ail a jl
wijP 
k  pj 
 k o 
l 1
(5)
l

Thus, the adjacency matrix W  wij nn can be constructed for this complete
P P

object subgraph through RAP approach, as shown in Fig 4.

Fig 4. Competition Relations Reflected by RAP

In conclusion, the core of RAP approach is to have resources distributed to each
participant and object in the network, with wijP represents the proportion of resources
distributed to the participant j through the object from the participant i . Say each
participant equally distribute its resources to the objects it will take a part in, and then
each object will redistribute resources it received back to its participants equally
through the edges of the bipartite graph.
RAP approach shares the following three properties:
(1) The adjacency matrix W P of the complete object subgraph is asymmetric, and
w k  p j   wPji k  pi  .
P
ij

7
 (2) As two participants take parts in the same object for multiple times, their
relation strength goes from intimacy to saturation rapidly.
(3) The relation strength between two participants is decided by not only the
number of times they jointly take parts in the same object but also the number of
participants at the same time of the very object.
Further extension of RAP approach can also be made to the condition of weighted
edges in bipartite graphs, when resources are no longer distributed equally, with the
weight representing the degree of membership of participant’s node to the object’s.
The formula is:

1 m wil w jl
wijP 
s pj 
 s o 
l 1
(6)
l

is the weight of participant node p j , s  p j  = w jl , and s  ol  is the

m
where, s pj 
l 1
n
weight of object node ol , s  ol  = wil . wil and w jl are the weights on edges
i 1

connecting pi and p j with ol respectively.

Thus, RAP approach reflects the scarcity of resources of object nodes, and at the
same time the limitation of resources taken by participant nodes from object nodes,
enabling the complete object subgraph obtained through projection giving clear
indication on the competitive relations between participants.

Data Resource
Beyond all question, IO table as a quantitative technique of economic analysis
presents the dependencies between different branches of national or regional
economies in details. This paper adopts ICIO data to present the operating mechanism
of a global economic system, thus it is necessary to review the superiority and
availability of IO data.
Advantage of IO Table
The IO model is a technique that quantifies interdependency in interconnected
economic systems. Wassily Leontief first introduced the IO model in 1951 [ 30], for
which he received the Nobel Prize in Economics in 1973. It can be used to study the
effect of consumption shocks on interdependent economic system [31]. IO analysis is
the study of quantitative relations between the output levels of the various sectors of
an economy, a practical tool for national accounting and planning. Neoclassical
economics focusses on the pure theory of the price mechanism, equilibrating supply
and demand in free market economies [32].
IO table’s property of being in the form of check board enables it to reflect the
movements of products or services within the whole economic system from both
production consumption and distributive utilization, which are the formation and
distribution of values respectively. The dual identities of each sector as the producer
and consumer at the same time, demand it not only to produce and distribute inputs
for the other sectors but also to consume inputs from other sectors to accomplish its
own fabrication. This is indeed the inner identity proposed by Karl Marx.
The sectors in IO table could be regarded as nodes while inter-sector value stream
contributes to weighted and directed edges in the construction of network model. In
consideration of both availability and authority, IO table is the priority-first data
8
 format to establish mathematics model, e.g., it can show flows of final and
intermediate goods and services defined according to industry outputs. In addition, it
is provided as a matrix, which can be directly or with minor modification adopted as
complex network’s adjacency matrix, establishing weighted and directed networks.

Avaliable ICIO Database

With the advent of ICIO databases, analyzing the GVC becomes theoretically and
empirically possible, because they provide globally consistent bilateral trade flows and
allow comparison of production networks in different regions. Let us consider a world
economy with M countries  s, r  1, 2,..., M  and N sectors  i, j  1, 2,..., N  , as
shown in Table 1.
Table 1. Layout of ICIO Table
Intermediate Use Final Demand
Output
Input Country Country Total
RoW
A B Country Country Output
RoW
A B
1, ..., N 1, ..., N 1, ..., N

Country
1, ..., N Z
AA
Z
AB
Z
AR
Y
AA
Y
AB
Y
AR
X
A
Intermediate Inputs

Country
1, ..., N Z
BA
Z
BB
Z
BR
Y
BA
Y
BB
Y
BR
X
B

RoW 1, ..., N Z
RA
Z
RB
Z
RR
Y
RA
Y
RB
Y
RR
X
R

Value-Added VA
A
VA
B
VA
R

Total Input X
A
X
B
X
R

In ICIO table, Z sr is an N  N matrix of intermediate input flows that are

produced in country s and used in country r , Y sr is an N 1 vector giving final
produced in country s and consumed in country r , X s is also an N 1 vector
giving gross outputs in country s , and VA s denotes a N 1 vector of direct value
added in country s [33]. To depict the transmission of value stream on the GVC, we
took the region of inter-country inter-industry use and supply as modeling data source,
i.e., the Z sr matrix, in which row vectors record the allocation of output and column
vectors the composition of demand.
There are seven main ICIO databases available presently: World Input-Output
Database (WIOD), OECD-WTO Database on Trade in Value-Added (TiVA), Eora
Multi-Region Input-Output Table Database (MRIO), Global Trade Analysis Program
(GTAP), Asian International Input-Output Table (AIIOT), Asian Development Bank
Multi-Regional Input-Output Tables (ADB-MRIO) and Externality Data and
Input-Output Tools for Policy Analysis (EXIOPOL). However, only three of them
cover both continuous period and wide-range as shown in Table 2.
Table 2. The Basic Information of Each ICIO Database (The Latest Version)

Database Time Span Number of Country Number of Industrial Sector

9
 WIOD 2000-2014 44 56

TiVA 1995-2011 64 34

MRIO 1990-2013 189 26

In the part of empirical analysis of this paper, we took the Trans-Pacific

Partnership Agreement (TPP) as research object, so the ICIO database was chosen
as the data source for it covers all the international trade between relevant nations as
detailed as possible. Whereas, WIOD and TiVA are unsuitable, because the former
only covers six TPP countries and the latter is in absence of statistics on China and
Mexico. Finally, MRIO was chosen as the underlying database, which provides
time-series data of 189 independent countries/regions from 1990 to 2013, covering all
the thirteen TPP countries (detailed names and abbreviations of countries and sectors
in MRIO are in S1 File).

Modeling
There include two steps in the proposed modeling process. The first step is to
setup the intermediate input matrix to portray the topological structure of the global
economic system with ICIO table. The second step is to mine the direct and indirect
competitive relations among industrial sectors of economic entities based on bipartite
graph theory and RAP approach.
Framework
ICIO table is good at presenting the complicated interdependent relation among
various industrial sectors from a global prospective, with a clear embodiment of the
amount of resources one sector may gain from its upper-stream sectors on the GVC.
Therefore, researches on ICIO table mainly take the advantage of depicting the
topological structure of the economic system through the measurements on
intermediate products as an indication of input and output relation, so as to bring lights
on analysis on the rules of value flows and industrial structural features. Making
observation from the prospective of bipartite graphs on the rows of ICIO table
indicating the supply from upper to lower-stream industrial sectors and columns
indicating on the demand from lower to upper ones worldwide, it is obvious that ICIO
table is proficient in showing the competitive relations among different industrial
sectors on the GVC. Yet no competition status could be reflected through direct
structural measurement on the ICIO network, with adequate matrix transformations to
be introduced for this goal.
If there exists more than one supplier or consumer for one single industrial sector,
competition shows up, for the scarcity of resources provides limitation to any flow of
intermediate form upper to lower stream sectors. Traditional IO theory uses direct
consumption and complete consumption coefficients to present this scarcity, with
influence and reaction coefficients presenting the relations between one industrial
sector and its environment. Yet it still bears the shortcoming that its focuses are
restricted to the linear technical-economic relations among different industrial sectors
and between the gross output and final usage, neglecting the scarcity of production
resources as constraints on competitive relations. Thus, this paper devotes to set up
modeling analysis with bipartite graph theory on the ICIO data, aiming at restoring the
competitive relations between lower stream industrial sectors under the perspective of
econophysics. The modeling framework of this paper is shown in Fig 5.

10
 Fig 5. Modeling Framework
Notes: The flows in bipartite graphs are in the direction from the participant nodes to
the object nodes in common, but the IO/ICIO networks experience the complete
contradiction of flowing from the upper stream sectors to the lower ones at the mercy
of showing how intermediate goods transfer along the GVC, as shown in Fig 5 (c). In
addition, we indicated different relations by colors, e.g., orange for domestic industrial
input-output trade, purple for domestic industrial self-consumption, green for
international inter-industry trade, blue for international intra-industry trade and red for
worldwide competition among industrial sectors.
Industrial sectors’ economic relations can be vividly depicted in the form of
complex networks based on IO/ICIO data, as shown in Fig 5 (a) and (b). The sector’s
self-consumption on its own intermediate output is usually indicated by self-loop. If
we want to dig more information from IO/ICIO data, such as competition status, it is
necessary to reexamine IO/ICIO networks from another angle.
Therefore, we need to change one-mode network into two-mode network, in order
to separate the inner identity of each sector and prepare for the projection. In Fig 5 (c),
the same sector distributes on the two side of dotted line, which means it belongs to
both upper stream and lower stream. In other words, the upper stream sector in the
IO/ICIO table could be referred to as the object nodes in the bipartite graph, while the
lower one as the participant nodes. Now, self-loop becomes a common edge between
two identities of this sector.
Then, we adopted RAP mentioned above to extract competitive relations hidden
in the IO/ICIO relations, as shown in Fig 5(d). If any industrial sector enjoys with any
other sector more than one upper stream industrial sector as production resources
provider, there exist edges in the complete object subgraph depicting the competitive
relations.

11
GIVCN-MRIO Model
In order to establish an industrial complex network, a sector within a region is to
be considered as a node, and the inter-industry IO relation as a tie, whose weight
represents the amount of sale and purchase between producers and consumers. Thus, a
graph G  V , E,W  containing n nodes is created, representing sectors within a
nation or region, denoted as a node set V . Pairs of nodes are linked by ties reflecting
their interdependencies, constituting an asymmetric tie set E . However, in valued
graphs, a set E can be replaced by weight set W , which can be extracted from the
region of inter-country inter-industry use and supply in MRIO.
The model built here is named as Global Industrial Value Chain Network
(GIVCN), since its purpose is to reflect how economic shocks propagated and
amplified along GVC, as well as to what extent the industrial impact is to be created on
the inter-country level. Adjacency matrices of 24 GIVCN-MRIO models can be
completely downloaded from the website Eora①. For the reason of visualization, the
partly topological structure of GIVCN-MRIO-2013 is shown in Fig 6 after deleting
weak industrial relevance based on revised Floyd algorithm (so as the other network
models in this paper), which only contains 12 TPP-related countries including
Australia (AUS), Brunei (BRN), Canada (CAN), Chile (CHL), Japan (JPN), Malaysia
(MYS), Mexico (MEX), New Zealand (NZL), Peru (PER), Singapore (SGP), the Unite
States (USA) and Viet Nam (VNM), plus China (CHN). Among them, Brunei,
Malaysia, Singapore and Viet Nam belong to the Association of Southeast Asian
Nations (ASEAN), and Canada, Mexico and the United States belong to the North
American Free Trade Agreement (NAFTA).

Fig 6. GIVCN-MRIO-2013 Model

Notes: Label of nodes consists of two parts, which are abbreviation of the economic
entity and serial number of the industrial sector. Nodes of the same color indicate that
they are different industrial sectors belonging to the same economic entity. In details,
ASEAN members labeled green nodes, as well as NAFTA blue, China red, Japan
yellow and the others orange. To embody the inner identity of sectors, the shape of all
nodes in GIVCN models is set to “circle in square”.
GIVCN-MRIO model has the following three properties:

①
http://www.worldmrio.com/

12
 (1) GIVCN-MRIO model is a directed and weight network, in which the nodes
play the roles of upper and lower stream industrial sectors simultaneously on the GVC.
The ties between paired nodes and weights on them represent the IO relation between
industrial sectors in the form of directions and quantities of the value flows
(2) The density of nodes in subsets is obviously higher than that of nodes of
different subsets in GIVCN-MRIO model. This indicates that industrial sectors of the
same country or region enjoy denser IO relation than those of different countries or
regions, proving that majority of commerce on the GVC happens in different economic
entities.
(3) There is abundant existence of self-loop with nodes in GIVCN-MRIO model,
and even with very large weights on the edges, stating clearly that the consumption of
its own products as intermediate for production is more than common for many
industrial sectors.
GIVCNBG-MRIO Model
With its data structure enclosing the competitive relations among industrial
sectors, GIVCN-MRIO model reveals the mechanism of creation, distribution, transfer
and value-addition of value on the GVC. The classical IO analysis adopts the direct
consumption and complete consumption coefficients matrices to show the direct and
indirect technical-economic relations among industrial sectors, before using influence
and reaction coefficients to measure the pulling effect and demand intensity of one
sector on the other. Nevertheless, no existing researches have brought researches on
the competitive relations to the level of industries, for there lies the difficulty of
distinguishing the dual function of any industry in outputting or consuming the
intermediates. Therefore, a two-mode network is here to be introduced to open the lid
of the hidden competitive relations, either direct or indirect, in GIVCN-MRIO model,
with the following assumptions:
(1) All the upper-stream industrial sectors contribute to the set of object nodes O ,
the lower-stream industrial sectors constitute to the set of nodes of participant nodes
P , for the industrial sectors in IO tables show up in the status of both upper and lower
stream simultaneously. Actually, one sector will appear twice in different identities.
(2) Edges are directed from the upper-stream industrial sectors to the
lower-stream ones, making known to the flowing directions of the intermediates.
Edges between the two categories of nodes form the edges set E . Self-loop of each
node reflects the industrial sector’s consumption of part of its own output as input,
which is also incorporated in set E .
(3) Similar assumptions are laid to the sets of weights. The set of weights between
the upper and lower industrial sectors are W . Among N  1 other competitors and
itself as consumer, the lower-stream industrial sector i obtains the amount of wli
intermediates from its upper-stream industrial sector l , and l  i indicates the upper
and lower stream industrial sectors are practically the same one.)
Based on the above assumptions, the GIVCN-MRIO model is turned form a
simple graph G  V , E,W  to a bipartite graph G  O, P, E,W  , which is named
GIVCNBG-MRIO model (BG stands for the form of bipartite graph), as shown in Fig
7.

13
 Fig 7. GIVCNBG-MRIO-2013 Model
Notes: Nodes in the shapes of square reflect the set of object nodes O composed of
upper-stream industrial sectors, and those in shapes of circle for the set of object nodes
P of the lower-steam ones. In addition, Edges only exist between nodes of different
categories in GIVCNBG-MRIO model.
Although the number of nodes doubled in GIVCNBG-MRIO model, the nature of
economic relations reflected by network architecture is the same with GIVCN-MRIO
model. Based on the transformation of network, we, however, can distinguish the dual
function of industrial sectors and carry out further data mining about
inter-country/inter-sector competition.
GIRCN-MRIO Model
With the global economic system under explanation by GIVCNBG-MRIO model,
the lower-stream industrial sectors consume the limited output by the upper-stream
ones, proving the scarcity of production resources. When several lower-stream
industrial sectors enjoy the same upper-stream one as feeder of production resources,
the scarcity is interpreted into competition relations among the lower-stream industrial
sectors. Under the help of projection algorithm RAP, the competitive relations implied
in GIVCN-MRIO model can be shown by its complete object subgraph, and the
formula of projection is as follow:

1 N wli wlj

wij   w j
P 
l 1 wl
i j
(7)

 0 i j

where, wl is the gross output of upper-steam industrial sector l , and it is numerically

equal to the output weight of industrial sector l in GIVCNBG-MRIO model, say
N
wl  S OUT  l    wli , i, l  1, 2, , N . wijP is the competitive strength of the industrial
i 1

sector i against j , both of lower-stream status, when they both belong to the
lower-stream industrial sectors competing intermediates from a common upper-stream
industrial sector for production resources, contributing to the edge weights set
W P  wijP  , i, j 1, 2, , N . The eijP connecting node vi to v j in the complete
object subgraph depicts how sector i obtaining intermediate from its upper-stream
P
sectors has influenced the benefit of sector j , with the weight of edge wij indicating

14
the degree of the influence. Those on the diagonal line of matrix W P are set to be zero,
for it is the competitive relations among various industrial sectors to be analyzed in
this paper.
Till now, the projection of the complete object subgraph G P   P, E P ,W P 
analyzing the direct and indirect competitive relations among industrial sectors of the
global economic system has been constructed, and it is referred to as the Global
Industrial Resource Competition Network (GIRCN) hereafter. GIRCN-MRIO is a
sort of weighted and directed one-mode network without any self-loop of any node.
Fig 8 shows the topological structure of GIRCN-MRIO-2013.

Fig 8. GIRCN-MRIO-2013 Model

Notes: According to RAP approach, edges should be bidirectional in GIRCN model.
For the sake of visualization, however, we had to simplify this network graph by
setting up a threshold, which leads to the existence of one-way edges.
It is obvious that there exist obvious agglomerations in GIRCN-MRIO model,
which means competitions mainly happen within the same nation or regional FTAs,
e.g. NAFTA members denoted by blue nodes.

Measurement
The inter-sector competition status has been embodied in GIRCN-MRIO models,
so it is necessary to choose some network-based indices to measure it in the next.
Out-strength as a simple yet important tool is introduced here to quantify industrial
sectors’ competitive advantage on the GVC, based on which we further carried out
econometric, static timing and simulation analyses.
Competitive Advantage Index
The edge weight set W P of GIRCN-MRIO indicates the direct and indirect
competitive relations among industrial sectors. It is to be noticed that this competitive
P
relation is directed, e.g., wij is the competitive strength of industrial sector i against
j , while wPji is that of the opposite. So, it is defined in this paper that the summation
of the competitive strengths of an industrial sector to be its Competitive Advantage
Index (CAI). Judged from the prospective of complex networks, CAI is the
out-strengths S OUT of nodes in GIRCN-MRIO, to be calculated as follow:

15
 N
CAI  i   S OUT  i    wijP (8)
j 1

The concept of node strength covers not only the information of degree of the
node, but also the information of weights of its connecting edges, proving itself to be
the integration of local information on the network. CAI quoted in this paper serve as
benchmarks of sectors’ competitiveness on the GVC, taking consideration of both the
scale and intensity of competition (all statistics on CAI is in S2 File).

Fig 9. Cumulative Distribution of Out-Strength of GIRCN-MRIO-2013

The distribution of out-strength for all sectors in GIRCN-MRIO-2013 model is
shown in Fig 9. It is heavy-tailed and follows the significant power-law distribution on
log-log axes, i.e., the number of nodes with overwhelming CAI is very small. This
phenomenon means relatively competitive advantages of industrial sectors vary
tremendously.
Based on CAI, National Competitive Advantage Index (NCAI) is here
introduced as follow:

NCAI  t    CAI i 
i  t 
(9)

where, t is the set of countries in the MRIO of Eora, and  is the set of serial
numbers of all industrial sectors in one economic entity of GIRCN-MRIO. Taking
China as an example,  CHN  = 1015,1016, ,1040  .
The economic globalization has witnessed that comparative advantage in classical
economic theory is not able to fully explain the success and failure of industrial sectors
of economic entities in the global environment, and the scholars begins to digest the
source and formation of competitive advantage from the prospective of value chain
[34]. CAI proposed in this paper intends to show the competitive statues of industrial
sectors on the GVC in the view of econophysics, through evaluation of the strengths
among the lower-stream industrial sectors in their competition for the limited supply of
intermediates from the upper-stream industrial sectors. In this way, NCAI can be index
of economic entity’s competitive strength on the GVC.
Correlation with Macroeconomic Index
In this part, we discussed the relationships between a country’s NCAI and its
GDP. In other words, we explored that how the network-based index affects a

16
country’s macroeconomic performance (please go to the S3 File for the detail data).
Since there is little GDP data for the countries of British Virgin Islands, North Korea,
French Polynesia, Netherlands Antilles, New Caledonia, Somalia, South Sudan,
Taiwan and Former USSR, we deleted these 9 countries in the following modeling
process. We took the GDP data of the rest of 180 countries as dependent variable and
their NCAIs as independent variables. The distribution of GDP of the 180 countries is
shown in Table 3. It can be clearly seen that majority of them have relatively low GDP,
with less than 50 billion accounted for 67%.
Table 3. Distribution of Average GDP from 1990 to 2013 (Billion, Current US$)
GDP Range 0-10 10-50 50-100 100-300 300-
Number of Countries 74 45 13 25 23
Ratio 41% 25% 7.2% 13.9% 12.8%
Next, we studied the relationships between the NCAI and GDP. First, a mixture
regression model is built, with results shown in Table 4.
Table 4. The Results of Mixture Regression Model
Variables Coef. Std. Err t P 0.95 Confidence Interval
NCAI 42.014 0.366 114.920 0.000 [41.297, 42.731]
Intercept Term -781.560 11.783 -66.330 0.000 [-804.660, -758.460]
R2（adjusted） 0.754 Root MSE 510.14
By contrast, three sorts of estimators were carried out here as shown in Table 5,
while a Hausman test indicates that fixed effects estimator is better than random
effects estimator.
Table 5. Three Different Estimators from OLS, Fixed Effect Model and Random
Effect Model
Model REG FE RE
NCAI 42.014*** 47.295*** 44.568***
Std. Err. (0.366) (1.428) (1.008)
Intercept Term -781.56*** -909.618*** -843.489***
Std. Err. (11.783) (34.981) (38.523)
R2 (overall) 0.754 0.754 0.754
R2 (within) - 0.210 0.210
R2 (between) - 0.830 0.830
* p<0.05, ** p<0.01, *** p<0.001
Overall, there is significant positive correlation between NCAI and GDP, i.e., the
larger NCAI we figured out based on GIVCN-MRIO model is, the higher the
corresponding country’s GDP goes. However, R2 (within) in the results is relatively
low, which means the changing trend of certain country’s NCAI and GDP is accordant
with relatively lower significance, even there exists negative correlation in some cases
such as shown in Table 6. We believe this phenomenon is due to the irrational
industrial structure of economies, especially small countries, including Aruba,
Bahamas, Barbados, Bermuda, Bolivia, Lesotho, Liberia, Liechtenstein, Maldives,
Sierra Leone, Tajikistan and Togo. Maybe some of them could gain relatively higher
competitiveness on the GVC through minority of industrial sectors, but the pattern of
imbalanced development will undermine their economic performance finally.

17
 Table 6 Regression Results for Individual Countries (Partly)
Countries Constant NCAI R2 Countries Constant NCAI R2
IND -1,984 60.34 0.965 AFG 48.88 -2.114 0.013
TZA 159.7 -7.012 0.950 BRN -13.95 1.124 0.013
SVK -360.9 25.92 0.944 LTU 44.03 -1.509 0.010
CHN -3,457 75.42 0.922 COG -6.53 0.662 0.009
RUS -4,330 96.39 0.919 TUN -9.10 2.077 0.009
KOR -3,437 92.29 0.909 SEN 25.14 -0.833 0.007
BRA -5,125 148 0.906 SMR 0.182 0.019 0.007
AZE -192 11.1 0.870 USA 5,075 29.33 0.007
CUB 469.2 -20.56 0.867 CYM 0.707 -0.029 0.005
MLT 36.77 -3.127 0.864 ARG 193.7 3.033 0.003
ZMB -209.3 11.14 0.849 WSM 0.566 -0.014 0.003
AUS -6,215 132.1 0.833 GRC 83.46 4.373 0.002
BFA 36.94 -1.913 0.831 BIH 12.99 -0.243 0.001
SUD 16.07 2.047 0.828 BEN 5.671 -0.078 0.000
TJK 35.02 -1.869 0.826 HUN 97.46 -0.885 0.000
2
Notes: The top 15 of regression results in descending order of R are listed in the left
part of Table 6, and the bottom 15 are in the right part.
The results in Table 6 show that, all the countries can be divided into 4 classes
based on the correlations between GDP and NCAI, that is with strong positive
correlation, strong negative correlation and weak correlation. Countries with strong
positive NCAI-GDP correlation, such as India, Slovakia, China, Russia, Korea, Brazil,
Azerbaijan, Zambia, Australia and South Sudan, are supposed to be the beneficiaries
that result from economic globalization, which means global competition bring them
more market opportunities rather than status deprivation. On the contrary, it is not
beneficial for countries with strong negative correlation, such as Tanzania, Cuba,
Malta, Burkina Faso and Tajikistan, to engage in global competition due to various
inferiorities. Weak correlation literally indicates there is no obvious relation between
an economy’s NCAI and GDP, i.e., we are not sure how globalization influences these
economies’ status and performance on the GVC. Therefore, these countries (for
instance, the United States) are facing big trade-offs: whether globalization or
anti-globalization. For the limitation of this paper, we will extend and discuss this
phenomenon in our future works by analyzing the relations between CAI and
value-added on the level of industrial sector.
Furthermore, we investigated whether the correlation results vary significantly in
different periods. For comparable mixture regression, 24 years were divided into 3
time intervals, 1990-1997, 1998-2005 and 2006-2013, and the fitting results are
shown in Table 7.
Table 7. The Fitting Results in Different Periods
Fitting Range 1990-1997 1998-2005 2006-2013
NCAI 29.176*** 39.489*** 55.860***
Std. Err. (0.357) (0.517) (0.707)
Cons -551.308*** -760.639*** -999.306***
Std. Err. (11.343) (16.660) (23.122)
R2 (adjusted) 0.822 0.802 0.813
* p<0.05, ** p<0.01, *** p<0.001

18
 All the coefficients are significant at 0.001 confidence level, and the models
exhibits a good fit with large R2 (0.822, 0.802 and 0.813). More importantly, we
found that the NCAI’s influence on GDP is growing over time. In other words,
national economic strength reflected by NCAI is increasingly up to its status on the
GVC, and the global economic integration has greatly changed both internal and
external industrial structure of each country, and in turn the world economy situation.
In sum, we believe that, network-based NCAI can be adequately adopted to predict the
macroeconomic trends via econometric approach.
Variation Trends of TPP-Related Countries
MRIO database has provided necessary ICIO data covering 24 years. Statistics on
NCAI of each TPP-related country was accomplished based on GIRCN-MRIO models,
reaching a time sequential trend as shown in Fig 10 (all statistics on NCAI is in S2
File).

Fig 10. Trends of NCAI of 13 TPP-related Countries from 1990 to 2013

According to the variation trends in Fig 12, four firm conclusions can be reached
as follow:
(1) It is obvious that the NCAIs of China and Singapore in the global economic
system are continuously improving, embodying strong competitive power and
tremendous potential.
(2) NCAI of the United States is consistently higher than those of the other
countries. With rising after descending, it experienced a turning point in 2009 marked
probably by the subprime mortgage crisis, which intrigued rapid tsunami to the rest of
the global economy. Therefore, the other NAFTA countries, both Canada and Mexico,
having intense trade relations with the United States, also experienced the similar
situation.

19
 (3) Only NACI of Japan has undergone continuous declination since 1995, due to
Japan’s economic crisis and consequent high-level trade deficit during that period.
Even today, this country has not gotten out of recession, and its competitiveness on the
GVC is still diminishing. For similar reasons, Viet Nam’s currency inflation led to its
brutal markets and worse macroeconomic performance.
(4) For most of relatively smaller economic entities, such as Brunei, Chile,
Malaysia, New Zealand and Peru, their NCAIs have been remaining steady in recent
years.
In sum, NCAI is here proven feasible in measuring relatively competitive
advantage on the level of nation under the perspective of econophysics, which differs
from the frameworks of both macroeconomics ad microeconomics.

Simulation
Scenario simulation on TPP is here applied based on the network theory and
measurement of national competitive advantages discussed above.
Settings
The TPP is a trade agreement between Australia, Brunei, Canada, Chile, Japan,
Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam,
which contains measures to lower both non-tariff and tariff barriers to trade, and
establish an Investor-State Dispute Settlement (ISDS) mechanism. It can be treated as
a multilateral trading system in brief. Some think tanks believe that the final agreement
would, if ratified, will lead to net positive economic outcomes for all signatories. In
fact, many observers have argued that the trade deal would have served a geopolitical
purpose, namely to reduce the signatories' dependence on trade with China and bring
the signatories closer to the United States. Although currently it cannot be ratified due
to the United States withdrawal from the agreement in January 2017, the other 11 TPP
countries are willing to revive the deal without the United States participation, even
China maybe join and lead it someday.
Current trade agreements between participating countries, such as the NAFTA,
ASEAN Free Trade Agreement (AFTA), China-ASEAN Free Trade Agreement
(CAFTA), Japan-ASEAN Comprehensive Economic Partnership Agreement
(JACEPA), ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA),
Trans-Pacific Strategic Economic Partnership Agreement (TPSEPA), greatly
complicate the development trend of the TPP. The trade relations among all the
participants are shown in Table 8.
Table 8. FTAs among 13 Participants related to the TPP
Region ASEAN Northeast Asia Oceania North America South America

Country BRN MYS SGP VNM CHN JPN AUS NZL USA CAN MEX CHL PER

BRN ●

MYS ● ● ● ●
ASEAN AFTA
SGP ● ● ● ● ● ●

VNM ● ●

CHN ● ● ● ● ●
Northeast Asia
JPN ● ● ● ● ● ● ● ●

20
 AUS ● ● ● ● ● ● ●
Oceania
NZL ● ● ● ●

USA ● ● ● ●

North America CAN NAFTA ● ●

MEX ● ● ●

CHL ● ● ● ● ● ● ● ● ●
South America
PER ● ● ● ● ● ● ●

Data source: FTAs/RTAs database of World Trade Organization (WTO) and Asian
Development Bank (ADB)
Notes: Gray zone stands for the regional FTAs implemented, and ● for the bilateral
FTAs implemented.
As we mentioned above, Japan and other members of the TPP agreed to pursue
their trade deal without the United States due to Trump administration’s “America
First” policy. Thus, we assumed that 11 TPP countries are supposed to come to an
agreement on the new TPP sooner or later②, and then we may take more circumstances
into consideration. In this paper, we simulated four kinds of circumstances according
to whether the United States or China joins the TPP when other relevant countries
certainly come to an agreement, so as to figure out what will happen to the participants’
national competitive advantage via simulation analysis. In details, these scenarios were
named P11, P12-1, P12-2 and P13 as shown in Table 9.
Table 9. Four Kinds of Circumstances in Simulation Analysis
Country China
Action Join Not Join
The international trade will The international trade will
increase between China and its increase between the United
Not Quit non-FTA countries, the United States and non-NAFTA except
States and non-NAFTA, China, ASEAN and the others
The ASEAN and the others. (P13) except China. (P12-1)
United The international trade will
States increase between China and its The international trade will
non-FTA countries except the increase between ASEAN and
Quit
United States, ASEAN and the the others except the United
others except the United States. States and China. (P11)
(P12-2)
An important assumption is made here for these simulations as that: the emerging
FTAs within the TPP-related countries will simultaneously promote inter-country
imports and exports because of zero tariff, free flow of personnel and capital, etc. Thus,
adjustments are made to the gross value of nations’ export to the other in both
directions, i.e., increasing from 100% of the basis to 200%. In addition, for every 10%
of the fluctuation in GIVCN-MRIO-2013 model, calculations on NCAIs of all the
countries in GRICN-MRIO-2013 model are to be made, in order to monitor the

②
Recently, Toshimitsu Motegi, minister in charge of economic revitalization, and Vietnamese trade minister Tran
Tuan Anh, co-chairs of the ministerial meeting of 11-member countries of the TPP free trade pact, officially
announced the conclusion of a broad agreement on a new trade deal that excludes the United States on November
11, 2017.

21
changing tendency of the TPP-related ones under each scenario (detailed simulation
results are in S4 File).

Fig 11. Settings and Purposes of Simulation

Simulation designed in this paper is inspired by elasticity notion in
microeconomics, and we can observe the linear relation between inter-country
competition (NCAI) and international trade policy (International Trade Rate), which
has so long been complex non-linear relation. Besides, the following research will
focus on detailed international trade policy (for instance, on the level of specific
industrial sectors, or, by varying international trade rate), which maybe more satisfy
the needs of relevant policy formulation.
Scenario P11 : Neither the United States nor China is in
After seven years of negotiations, the TPP was widely expected to become the
third biggest regional trade agreement in the global economy after NAFTA and the
European Union. Nevertheless, for now, without the United States’ engagement in new
regional trade deals, in which way shall the Pacific economic arrangements develop? A
kind of voice is that the 11 remaining signatories will continue negotiating regional
economic arrangements without the United States. If this happened, new bilateral
FTAs pattern will form, which are going to spur new trade flows among nations.

22
 Fig 12. NCAI Variation Trends of TPP-related Nations in Scenario P11
From the simulation on relevant countries in GIRCN-MRIO-2013 model, it is
noted that neither the United States nor China could benefit from scenario P11, and
Canada would be the biggest winner, followed by Australia, Japan and Mexico at the
same level. Absence of the TPP is not a mortal blow to China due to its FTAs network
like hub and spokes effectively reduce the damage. Besides, the major trading partners
of China are the developed countries, and relevant trade in goods will suffer from
limited impacts from TPP. This is because China will incur around an extra 5% of
customs tariff for its commodity exports to developed countries like the United States
and Japan, even if it has no access to the TPP. The academic circle has already reached
to the agreement on this limited negative impact with quantitative analysis. A typical
example is the calculation result, based on CGE model, of a -0.14% influence on
China's GDP in case it is not admitted to the TPP. This is very close to the level of
simulation result when 11 TPP-related countries double their international trade.
Nevertheless, it is more likely that neither the United States nor China will
provide the necessary leadership and Asia-Pacific economic integration will take a
back seat for some years.
Scenario P12-1 : The United States is in but China not
As we all known, the TPP used to be a trade pact dominated by the United States,
which seeks to be the dominant power in writing rules for global trade and investment
in this century. Another goal is, via the implementation of the TPP, to create an
Asia-Pacific economic sphere that is also dominated by the United States, and to get
the United States deeply involved in the Asia-Pacific economic integration process.
For instance, the partnership, through setting high standards on comprehensive market
access and rules of origin, will significantly reduce trade barriers among TPP members,
and facilitate the United States trade and investment in the Asia-Pacific region. The
TPP might help to push the frontiers of liberalization. However, its scope is narrow,
including only a handful of countries and excluding China. In other words, people

23
believe that the a well-functional TPP should include China. However, is that likely to
happen?

Fig 13. NCAI Variation Trends of TPP-related Nations in Scenario P12-1

There is no doubt that the answer is negative, from either simulation result in Fig
13 or mainstream views of economists. The United States already has FTAs with
Australia, Canada, Chile, Mexico, Peru and Singapore, but the TPP agreement would
update these existing FTAs by extending market openings and making improvements
in the rules. However, it maybe brings a negative impact on some countries, such as
Peru and Singapore. Those countries not signing FTAs with the United States,
including Brunei, Japan, Malaysia, New Zealand and Vietnam, have a huge combined
GDP, even both Malaysia and Vietnam are likely to be significant markets in the future.
Therefore, it is not strange the United States would enhance the competitiveness on the
GVC in scenario P12-1, as well as most of its FTA-related trade partners (not good
choice for them actually) and Japan. However, this scenario also goes against the
interest of China.
Scenario P12-2 : China is in but the United States not
There are two kinds of voices about the TPP in the post-Obama era, one is that the
full-fledged agreement on the TPP is scarcely possible without the United States, and
another is that there is potential for China to join the TPP. As the country with the
world’s second largest economy, China’s absence from the TPP will bring no benefit
to the economic globalization. And even worsen, it could provoke China into playing
the regionalism game, such as re-energizing the Regional Comprehensive Economic
Partnership (RCEP) with ASEAN and other economies. Imagine if China were to
retaliate by negotiating a FTA that would exclude the United States. Down this path
lies the fragmentation and folly of the inter-war years [35]. If China might replace the
United States as the TPP anchor, what will then happen to the relatively competitive
advantages of TPP-related nations?

24
 Fig 14. NCAI Variation Trends of TPP-related Nations in Scenario P12-2
It is obvious that China will profit a lot while the United States (as well as Japan)
will suffer from scenario P12-2. The United States’ withdrawing from TPP has created
an economic and security vacuum, so it is only natural that China will seize the
opportunity to step in and assert its own agenda. However, even though Scenario
P12-2 wouldn’t happen, China is poised to intensify negotiations for the RCEP, a
China-led alternative to the TPP that includes 16 countries (seven of which are also
TPP negotiating parties). Although the RCEP is under negotiation, it is doomed to
focus on cutting tariffs on trade in goods. As a non-party, the United States will be
denied the benefit of these tariff cuts. Moreover, the RCEP may green-light emerging
forms of protectionism in areas including, but not limited to, digital trade,
cybersecurity, state-owned enterprises, competition law, i.e., all of which would have
been tackled by the TPP. If so, this would set a bad precedent that makes it more
difficult for the United States companies and workers to compete globally, eroding the
United States economic competitiveness and dampening long-run growth.
Scenario P13 : Both United States and China are in
According to Peterson Institute calculations, a TPP that included the current
members negotiating plus China would increase national income by 4.7 percent over a
decade for China, 1.6 percent over 10 years for the United States, and even 4.4 percent
over the same period for Japan. ...A TPP that takes China into account, and gets China
on a path to a deeper Asian integration, would serve both the United States foreign
policy and economic true interests [36]. Therefore, if China and the United States came
to an agreement about the TPP, it will probably lead to a win-to-win result for both at
least.

25
 Fig 15. NCAI Variation Trends of TPP-related Nations in Scenario P13
As assumed above, a TPP including the United States and China is good for both
of them according to simulation results in scenario P13, i.e., the TPP aims more than
strengthening US competitive advantages than blocking China. By setting up various
trading policies and regulations, the United States strives to reinforce its own
advantages and not to strike and destroy China's economy. The recent the United
States employment downturn is a significant signal of being affected by the weakening
of the global economy. Only through Sino-US cooperation can a win-win situation be
reached, and even a long-term Sino-US free trade area cannot be graded as impossible.
In addition, Japan certainly doesn’t want this to occur but a TPP without China.

Conclusions
How to reproduce the topological structure of the global economic system from
the perspective of system science and excavate its operation law has been a major
problem that puzzles the academia for a long time. With the research framework based
on econophysics, this paper analyzes the IO relation of intermediates among
TPP-related countries in 1990-2013 with ICIO data from Eora, and extract the
competitive relations among them via RAP approach. Further introduction of CAI and
NCAI is to reveal the competition status of industry sectors and economies on the
GVC. Contributions of the paper are as follows:
(1) Construction of GIVCN-MRIO model based on ICIO data from Eora to
reproduce the topological structure of global economic system.
ICIO table is good at presenting the complicated interdependent relation among
various industrial sectors from a global prospective, with a clear embodiment of the
amount of resources one sector may gain from its upper-stream sectors on the GVC.
Therefore, researches on ICIO table mainly take the advantage of depicting the
topological structure of the economic system through the measurements on
intermediate products as an indication of input and output relation, so as to bring lights
on analysis on the rules of value flows and industrial structural features.

26
 The adoption of ICIO data as resources in this paper is not only for its ability of
reshowing flows of intermediate products, final products and services, but also for
possible comparison on the same basis. The proposed infrastructure of GIVCN-MRIO
model from the perspective of econophysics can focus on the topological structure of
GVC on top of partial analysis on international trades. GIVCN-MRIO model has the
following three properties: firstly, it is a directed and weight network; secondly, the
density of nodes in subsets is obviously higher than that of nodes of different subsets;
thirdly, there is abundant existence of self-loop with nodes. Based on GIVCN-MRIO
model, further mining of network structural properties in this way can reveal the
functional properties of countries and their industry sectors, enhancing accuracy of
analysis on the GVC.
(2) Extraction of competitive relations on scarce resources on the GVC
among economic entities and their industry sectors based on Resource Allocation
Process.
With its data structure enclosing the competitive relations among industrial
sectors, GIVCN-MRIO model reveals the mechanism of creation, distribution, transfer
and value-addition of value on the GVC. The classical IO analysis adopts the direct
consumption and complete consumption coefficients matrices to show the direct and
indirect technical-economic relations among industrial sectors, before using influence
and reaction coefficients to measure the pulling effect and demand intensity of one
sector on the other. Nevertheless, no existing researches have brought researches on
the competitive relations to the level of industries, for there lies the difficulty of
distinguishing the dual function of any industry in outputting or consuming the
intermediates.
Having consideration of the scarcity of industrial resources, this paper uses
bipartite graphs to embody the competitive relations hidden in the IO/ICIO table for
the first time, distinguishing the simultaneous roles of industry sectors on the GVC as
upper-stream and lower-stream ones, by constructing GIVCNBG-MRIO model based
on GIVCN-MRIO model via RAP approach. Although the number of nodes doubled in
GIVCNBG-MRIO model, the nature of economic relations reflected by network
architecture is the same with GIVCN-MRIO model.
In sum, GIRCN-MRIO model depicts competitions among countries all over the
world and their industry sectors. The directions of its edges show the differences of
competitive relations, with the out-strengths revealing their competitive advantages on
the GVC.
(3) Simulation of competitive advantages of TPP-related countries based on
the network structural measurement.
Simulation designed in this paper is inspired by elasticity notion in
microeconomics, and we can observe the linear relation between inter-country
competition (NCAI) and international trade policy (International Trade Rate), which
has so long been complex non-linear relation.
We assumed that 11 TPP countries are supposed to come to an agreement on the
new TPP sooner or later, and then we may take more circumstances into consideration.
In this paper, we simulated four kinds of circumstances according to whether the
United States or China joins the TPP when other relevant countries certainly come to
an agreement, so as to figure out what will happen to the participants’ national
competitive advantage via simulation analysis.
An important assumption is made here for these simulations as that: the emerging
FTAs within the TPP-related countries will simultaneously promote inter-country

27
imports and exports because of zero tariff, free flow of personnel and capital, etc. Thus,
adjustments are made to the gross value of nations’ export to the other in both
directions, i.e., increasing from 100% of the basis to 200%. In addition, for every 10%
of the fluctuation in GIVCN-MRIO-2013 model, calculations on NCAIs of all the
countries in GRICN-MRIO-2013 model are to be made, in order to monitor the
changing tendency of the TPP-related ones under each scenario.
As results, a TPP without both the United States and China will undermine the
two countries’ competitiveness, and if it arrived at an agreement leaded by the United
States, this situation will truly weaken China’s impact on the GVC and vice versa.
Anyway, A TPP that takes China into account, and gets China on a path to a deeper
Asian integration, would serve both foreign policy and economic true interests of the
United States.

Acknowledgments
The authors acknowledge support from Beijing Municipal Social Science
Foundation (Grant No. 17ZGC010).

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