Munich Personal RePEc Archive

Hub and Spoke Trade Agreements under Oligopoly with Asymmetric Costs

Yildiz, Halis Murat (2012): Hub and Spoke Trade Agreements under Oligopoly with Asymmetric Costs. Forthcoming in: Journal of International Trade and Economic Development

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Abstract

Using an oligopoly model of trade with asymmetric costs, we study the individual and world welfare implications of a hub and spoke trade agreement where the hub country is more efficient than spoke countries. Under a hub and spoke trade regime, the hub country can benefit at the expense of the spokes relative to free trade. Furthermore, if the hub is sufficiently efficient compared to the spokes, such a regime can yield higher global welfare than free trade. Preferential treatment of the efficient hub country in its export markets improves world welfare because it helps allocate a larger share of the world's output to a low cost location.

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