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

Author

Listed:
  • George Deltas

    () (University of Illinois at Urbana-Champaign)

  • Klaus Desmet

    () (Universidad Carlos III)

  • Giovanni Facchini

    () (Erasmus University Rotterdam)

Abstract

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.

Suggested Citation

  • George Deltas & Klaus Desmet & Giovanni Facchini, 2012. "Hub-and-spoke free trade areas: Theory and evidence from Israel," Working Papers 2012-01, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  • Handle: RePEc:imd:wpaper:wp2012-01
    Note: This paper is included in the IMDEA Social Sciences Working Paper Series through the Bank of Spain Excellence Programme
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    Cited by:

    1. Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2015. "Can Trade Agreements Curtail Trade Creation and Prevent Trade Diversion?," Review of International Economics, Wiley Blackwell, vol. 23(2), pages 221-238, May.
    2. Jinsoo Park, 2015. "Korea’s linkage strategy between FTA hub policy and middle power leadership in regional economic integration," Asia Europe Journal, Springer, vol. 13(4), pages 379-394, December.

    More about this item

    Keywords

    free trade areas; hub-and-spoke; Israel; trade flows;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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