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

George Deltas, Klaus Desmet, Giovanni Facchini

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)942-977
Number of pages36
JournalCanadian Journal of Economics
Volume45
Issue number3
DOIs
StatePublished - Aug 1 2012

ASJC Scopus subject areas

  • Economics and Econometrics

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