Hub-and-spoke free trade areas: Theory and evidence from Israel
AbstractWe study how the sequential formation of free trade areas affects trade flows between member countries. In a three-country, three-good model of comparative advantage if two countries have an FTA, and both sign a similar agreement with the third, trade between the two decreases. However, if only one of them signs an additional FTA, a hub- and-spoke pattern arises, and trade between the initial members increases. Israel's experience lends strong support to our model: trade between Israel and the EU, subject to an FTA since 1975, increased by an additional 29% after the introduction of the US-Israel FTA in 1985.
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Bibliographic InfoPaper provided by Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2012-01.
Date of creation: 05 Jan 2012
Date of revision:
Publication status: Forthcoming in Canadian Journal of Economics
Note: This paper is included in the IMDEA Social Sciences Working Paper Series through the Bank of Spain Excellence Programme
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free trade areas; hub-and-spoke; Israel; trade flows;
Other versions of this item:
- George Deltas & Klaus Desmet & Giovanni Facchini, 2012. "Hub-and-spoke free trade areas: theory and evidence from Israel," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 942-977, August.
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
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- Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2014. "Can Trade Agreements Curtail Trade Creation and Prevent Trade Diversion," Discussion Papers Series 500, School of Economics, University of Queensland, Australia.
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