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

authors

  • DELTAS, GEORGE
  • DESMET, KLAUS
  • FACCHINI, GIOVANNI

publication date

  • August 2012

start page

  • 942

end page

  • 977

issue

  • 3

volume

  • 45

International Standard Serial Number (ISSN)

  • 0008-4085

Electronic International Standard Serial Number (EISSN)

  • 1540-5982

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