Economic Analysis of Free Trade Agreements: Spaghetti Bowl Effect and a Paradox of Hub and Spoke Network

Haruo Horaguchi

Journal of Economic Integration, 2007, vol. 22, 664-683

Abstract:

This paper shows a new exposition of the Trade Diversion Effect when Free Trade Agreements are created. Hub and spoke type of trade networks cause systemic overproduction, and member countries exit from the markets, whereas perfectly connected networks create sustainable markets in any number of markets. Since there are two basic patterns for creating FTAs, bilateral and multilateral, a network pattern is derived from these negotiation patterns. The hub country may be aggressive in pursuing Free Trade Agreements with various countries, but accumulation of bilateral negotiations may cause Trade Diversion Effect in the regional economies.

Keywords: Free Trade Agreements; Network Theory; Graph Theory; Trade Diversion Effect; Spaghetti Bowl Effect (search for similar items in EconPapers)
JEL-codes: F13 F17 L13 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0411

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