Hub-and-spoke free trade areas: Theory and evidence from Israel
We 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.
|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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