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Journal of Economic Integration 2007 September;22(3) :664-683.
Economic Analysis of Free Trade Agreements: Spaghetti Bowl Effect and a Paradox of Hub and Spoke Network

Haruo Horaguchi  (Horaguchi H.)

Hosei Business School of Innovation Management
Copyright ©2007 Journal of Economic Integration

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.

JEL classification: F13, F17, L13

Keywords: Free Trade Agreements | Network Theory | Graph Theory | Trade Diversion Effect | Spaghetti Bowl Effect
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