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

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  • Horaguchi , Haruo H.

    ()
    (Hosei Business School of Innovation Management)

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    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.

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    Bibliographic Info

    Article provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.

    Volume (Year): 22 (2007)
    Issue (Month): ()
    Pages: 664-683

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    Handle: RePEc:ris:integr:0411

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    Web page: http://econo.sejong.ac.kr/
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    Related research

    Keywords: Free Trade Agreements; Network Theory; Graph Theory; Trade Diversion Effect; Spaghetti Bowl Effect;

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    Cited by:
    1. Haruo Horaguchi, 2008. "Economics of Reciprocal Networks: Collaboration in Knowledge and Emergence of Industrial Clusters," Computational Economics, Society for Computational Economics, vol. 31(4), pages 307-339, May.

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