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

George Deltas (), Klaus Desmet and Giovanni Facchini

Canadian Journal of Economics, 2012, vol. 45, issue 3, 942-977

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.

JEL-codes: F11 F13 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (11)

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