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Economic Analysis of Free Trade Agreements: Spaghetti Bowl Effect and a Paradox of Hub and Spoke Network

Author

Listed:
  • Horaguchi , Haruo H.

    (Hosei Business School of Innovation Management)

Abstract

This paper shows a new exposition of the Trade Diversion Effect when Free Trade Agreements are created. Hub and spoke type of trade networks cause systemic overproduction, and member countries exit from the markets, whereas perfectly connected networks create sustainable markets in any number of markets. Since there are two basic patterns for creating FTAs, bilateral and multilateral, a network pattern is derived from these negotiation patterns. The hub country may be aggressive in pursuing Free Trade Agreements with various countries, but accumulation of bilateral negotiations may cause Trade Diversion Effect in the regional economies.

Suggested Citation

  • Horaguchi , Haruo H., 2007. "Economic Analysis of Free Trade Agreements: Spaghetti Bowl Effect and a Paradox of Hub and Spoke Network," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 22, pages 664-683.
    • Handle: RePEc:ris:integr:0411
    as

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    Citations

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    Cited by:

    1. Michael I. Magcamit & Alexander C. Tan, 2016. "East and South China Seas Maritime Dispute Resolution and Escalation: Two Sides of the Same Coin?," Journal of Asian Security and International Affairs, , vol. 3(2), pages 113-134, August.
    2. Ana Shohibul Manshur Al Ahmad, 2014. "ASEAN-India and ASEAN-Korea FTA: Global Trade Analysis Project," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 6(1), pages 56-67, April.
    3. Teteryatnikova, Mariya, 2018. "R&D in trade networks: The role of asymmetry," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 307-350.
    4. Haruo Horaguchi, 2008. "Economics of Reciprocal Networks: Collaboration in Knowledge and Emergence of Industrial Clusters," Computational Economics, Springer;Society for Computational Economics, vol. 31(4), pages 307-339, May.
    5. Teteryatnikova, Mariya, 2018. "R&D in trade networks: The role of asymmetry," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 307-350.
    6. Haruo H. Horaguchi & Toichiro Susumago, 2022. "Global R&D Location Strategy of Multinational Enterprises: an Agent-Based Simulation Modeling Approach," Journal of Industry, Competition and Trade, Springer, vol. 22(3), pages 457-479, December.

    More about this item

    Keywords

    Free Trade Agreements; Network Theory; Graph Theory; Trade Diversion Effect; Spaghetti Bowl Effect;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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