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

George Deltas (), Klaus Desmet and Giovanni Facchini

No 2012-01, Working Papers from Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales

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.

Keywords: free trade areas; hub-and-spoke; Israel; trade flows (search for similar items in EconPapers)
JEL-codes: F11 F13 (search for similar items in EconPapers)
Date: 2012-01-05
New Economics Papers: this item is included in nep-int
Note: This paper is included in the IMDEA Social Sciences Working Paper Series through the Bank of Spain Excellence Programme
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Citations: View citations in EconPapers (11)

Forthcoming in Canadian Journal of Economics

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