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

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  • George Deltas
  • Klaus Desmet
  • Giovanni Facchini

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," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 942-977, August.
    • Handle: RePEc:cje:issued:v:45:y:2012:i:3:p:942-977
    DOI: 10.1111/j.1540-5982.2012.01722.x
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    8. 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.

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    JEL classification:

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

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