Tom Wood - PNNL DOE-NA-242 Multilateral Team Meeting

1. Work in ProgressNA-242 Globalization StudyNetwork Analysis Concepts for Technology Diffusion Through Trade Tom Wood - PNNL DOE-NA-242 Multilateral Team Meeting

2. Globalization Project

3. The Issues • Which countries represent high risks for secondary transfers (transshipment, re-export, reverse engineering, etc.) of sensitive technology? • How is this dependent on [1] country of origin, [2] ultimate destination, [3] nature of technology? • What is globalization doing to the technology transfer network? • What sort of control regime can effectively address this problem?

4. Premise • Network models best represent the relevant features of diffusion of nuclear and other sensitive technology • Large number of actors • Immense number of transactions • Well-defined but mutable “structure” in network • Barriers, partitions, and clusters • Scalable – applicable to entities at individual, firm, industry, and country scales • Can represent transmission of hardware, specs, information, etc.

5. Latent Distance MeasuresBackground and Relevance • Conceptof “latent” (unobservable but estimable) distances and spaces is emerging in social network analysis literature (Hoff, Raferty, and Handcock 2001) • Published approaches (that I have seen) assume a “normed” space – i.e. with a metric measure of distance. • Extension of this concept to non-metric spaces captures the essence of our technology diffusion problem. • We are using this as a descriptive (not an inferential) framework for now.

6. Network Identification for Trade Flows Problem – iteration 1 Select Data Fit or Select Relational Model Calculate Distances Transactions Screen for Relevance Solve Shortest Path Problem UN-OCED DOTS Code to HTS or other system Structure and Parse Network Sectoral transaction Set Constraints Sensitive Technology Lists Critical Examination

7. Figure 1. Scheme for Preliminary Calculations

8. Gravity Models and Economic Distances Gravity Models are the standard for predicting bi-lateral trade flows. The general form is: Tij = [ (Ai * Aj )]/ dij or dij = [ (Ai * Aj)/Tij]1/ Where A is some measure of activity (“economic mass”) and d is distance. The term gravity model is from the analogy to Newton’s formula for gravitational force. Typically, these models are fit to minimize error in an estimate of Tij. We take T and A as given to calculate dij. In this context, dij represents more than physical distance – ie “effective” or “implicit” or “latent” economic distance.

9. Figure 4. Internal SCL Economic Distances

10. Figure 5. NSG to SCL Distances – Sorted by NSG

11. Direct ED < Indirect ED Indirect ED <= Direct ED Figure 6. Direct vs. Indirect Distances

12. Histogram – Number of Intermediate Countries in Shortest Paths from NSG to SCL case 138.b14

13. “Joining Tree” for World Economy – Based on ED relationships

14. Shortest Paths for Four Selected NSG to SCL Pairs

15. Sensitivity of Shortest Paths to Model Parameters

16. Shortest Path AnalysisSome Preliminary Observations • In all cases, the set of intermediate countries on the shortest path set is compact, and moderately to highly skewed. Typically, a dozen countries account for about 70% of the total instances. • In most cases, the set of intermediate countries is highly disjoint from both the NSG and the SCL. • In many cases, scale effects appear to give implausible shortest paths. Very small countries with a high degree of economic dependence (e.g. islands) have very short distances both among themselves and to more developed counties (particularly their former colonial masters).

18. Next Steps • Build the data set for the “Sensitive Technology sector” based on LANL coding of lists to HTS. • Which lists do we wish to use? (all, all nuclear, etc.) • Parse country list to exclude very small and or backward countries – • Unless of special interest – let me know • Characterize the R&D intensity and concentration of this sector • (Pick the economic model on which to base the distance measures) • Calculate measures, solve and analyze shortest paths • MLT workshop to explore policy implications • .

19. Some Possible Policy Ideas • “Special Status” for selected countries posing high risk for re-transfer • Unilaterally • Multilaterally • “Export Substitution” – A policy of identification and incentivized transfer of technology which has a high substitutability in legitimate uses and low substitutability in weapons uses.

20. Selected Literature Morstein, Jennifer Hunt and Wayne D. Perry. 2000. Commercial Nuclear Trading Networks as Indicators of Nuclear Weapons Intentions. The Nonproliferation Review/Fall-Winter 2000, Monterey, California. Conley, Timothy G. and Ethan Ligon. Economic Distance and Cross-Country Spillovers. Unpublished Monograph, University of Chicago Department of Economics. 2001. Van Houtum, Henk. Borders, Distances, and Spaces – A typology of borders in terms of distances. Proceedings of European Regional Science Association. Dublin 1999. Boisso, dale and Michael Ferrantino. 1997 Economic Distance, Cultural Distance, and Openness in International Trade: Empirical Puzzles. Journal of Economic Integration. Sen, Ashish and Tony Smith. 2002. Gravity models of Spatial Interaction Behavior. Springer-Verlag. Berlin. [LCN 95035034] Haynes, Kingsly E. Gravity and Spatial Interaction Models. Sage Publications. 1984.[LCCN 84050799] Handcock, M.S. 2002. Degeneracy and Inference for Social Network Models. Working paper, Center for Statistics and the Social Sciences. University of Washington [csss.washington.edu] Priebe, Volker. 2001. Average Case Complexity of Shortest Path Problems. Dissertation. University of Saarlandes