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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
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    Citations

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    Cited by:

    1. Mariya Teteryatnikova, 2016. "R&D in trade Networks: The Role of Asymmetry," Vienna Economics Papers 1601, University of Vienna, Department of Economics.
    2. 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.

    More about this item

    Keywords

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

    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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