On the enlargement of interconnected communications networks in the world economy

This note develops a multi-country model of trade that captures the role of country-specific communications network interconnectivity, which enhances trade in intermediate business services. The effect of an enlargement of the network, which implies an increase in the number of countries connected through networks, is examined. It is shown that, from the viewpoint of the connected countries, an enlargement of the interconnected networks has two conflicting effects: gains due to increased specialization and losses from a deterioration in the terms of trade.