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Effects of Hub-and-Spoke Free Trade Agreements on Trade: Panel Data Analysis

Author

Listed:
  • Alba, Joseph

    (Nanyang Technological University)

  • Hur, Jung

    (National University of Singapore)

  • Park, Donghyun

    (Asian Development Bank)

Abstract

Overlapping free trade agreements (FTAs) have given rise to hub-and-spoke FTAs that may promote trade by giving an export advantage to the FTA hub country. We empirically investigate the effect of hub-and-spoke FTAs on trade using panel data consisting of 99 countries and covering the period 1960–1999. Our empirical analysis of the panel data yields three notable findings. First, FTAs have a significant and positive impact on trade. Second, hub-and spoke FTAs increase trade above and beyond FTAs, and thus reinforce the trade-boosting effects of FTAs. Third, our results imply an annual growth rate of 4.9% in bilateral trade and hence a doubling of trade after 14½ years between FTA partners. Our results indicate that the hub-and-spoke nature of FTAs has a positive effect on trade, in addition to the direct, trade-liberalizing effect of FTAs. Therefore, in a world of overlapping FTAs, a more accurate empirical analysis of the relationship between FTAs and trade calls for taking into account the hub-and-spoke characteristic of FTAs.

Suggested Citation

  • Alba, Joseph & Hur, Jung & Park, Donghyun, 2008. "Effects of Hub-and-Spoke Free Trade Agreements on Trade: Panel Data Analysis," ADB Economics Working Paper Series 127, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0127
    as

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    References listed on IDEAS

    as
    1. Carsten Kowalczyk & Ronald J. Wonnacott, 1992. "Hubs and Spokes, and Free Trade in the Americas," NBER Working Papers 4198, National Bureau of Economic Research, Inc.
    2. Soo Yuen Chong & Jung Hur, 2008. "Small Hubs, Large Spokes and Overlapping Free Trade Agreements," The World Economy, Wiley Blackwell, vol. 31(12), pages 1625-1665, December.
    3. Kowalczyk, C. & Wannacott, R.J., 1992. "Hubs and Spokes, and Free Trade in the Americas," University of Western Ontario, Departmental Research Report Series 9209, University of Western Ontario, Department of Economics.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    bilateral trade; free trade agreements; hub-and-spoke; panel data; trade-boosting effects;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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