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Hub and Spoke Trade Agreements under Oligopoly with Asymmetric Costs

  • Yildiz, Halis Murat

Using an oligopoly model of trade with asymmetric costs, we study the individual and world welfare implications of a hub and spoke trade agreement where the hub country is more efficient than spoke countries. Under a hub and spoke trade regime, the hub country can benefit at the expense of the spokes relative to free trade. Furthermore, if the hub is sufficiently efficient compared to the spokes, such a regime can yield higher global welfare than free trade. Preferential treatment of the efficient hub country in its export markets improves world welfare because it helps allocate a larger share of the world's output to a low cost location.

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File URL: http://mpra.ub.uni-muenchen.de/36501/1/MPRA_paper_36501.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36501.

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Date of creation: 07 Feb 2012
Date of revision: 07 Feb 2012
Handle: RePEc:pra:mprapa:36501
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