Simultaneous modeling of initial conditions and time heterogeneity in dynamic networks: An application to Foreign Direct Investments

• Published in: Network science (Cambridge University Press) Vol. 3; no. 1; pp. 58 - 77
• Main Authors: KOSKINEN, JOHAN, CAIMO, ALBERTO, LOMI, ALESSANDRO
• Format: Journal Article
• Language: English
• Published: New York, USA Cambridge University Press 01.03.2015
• Subjects: Bayesian analysis; Change agents; Electricity; Endogenous; Energy industry; Foreign investment; Gravity; International trade; continuous-time Markov chains; dynamic networks; gravity model; longitudinal exponential random graph model; exchange sampler; spatial processes; foreign direct investment network; Bayesian data augmentation; world trade network topology
• ISSN: 2050-1242; 2050-1250
• DOI: 10.1017/nws.2015.3

In dynamic networks, the presence of ties are subject both to endogenous network dependencies and spatial dependencies. Current statistical models for change over time are typically defined relative to some initial condition, thus skirting the issue of where the first network came from. Additionally, while these longitudinal network models may explain the dynamics of change in the network over time, they do not explain the change in those dynamics. We propose an extension to the longitudinal exponential random graph model that allows for simultaneous inference of the changes over time and the initial conditions, as well as relaxing assumptions of time-homogeneity. Estimation draws on recent Bayesian approaches for cross-sectional exponential random graph models and Bayesian hierarchical models. This is developed in the context of foreign direct investment relations in the global electricity industry in 1995–2003. International investment relations are known to be affected by factors related to: (i) the initial conditions determined by the geographical locations; (ii) time-dependent fluctuations in the global intensity of investment flows; and (iii) endogenous network dependencies. We rely on the well-known gravity model used in research on international trade to represent how spatial embedding and endogenous network dependencies jointly shape the dynamics of investment relations.