Hub-and-Spokes Free-Trade-Agreements in the Presence of Technology Spillovers: An Application to the Western Hemisphere

Abstract

Using a comparative-static general equilibrium model and in the context of the western hemisphere, this paper compares the economic effects of a hub-and-spokes (HAS) type of bilateral trade configuration (with Chile being the hub) with those of a more comprehensive regional FTA (namely, the FTAA). The model is augmented to account for the possibility of technology spillovers and its effective assimilation among participating economies. In particular, absorptive capacity, governance factor, proximity and socio-institutional congruence conjointly determine an economy's capacity to capture the technology that is transmitted from developed spoke US to other regions.

Keywords: Hub and Spokes, Free Trade Areas, Technology transfer, Absorption

JEL Classification: D58, F16, O4