Review of World Economics

, Volume 142, Issue 1, pp 33–66 | Cite as

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

  • Gouranga Gopal Das
  • Soamiely Andriamananjara


Using a comparative-static general equilibrium model in the context of the Western Hemisphere, this paper compares the economic effects of a “hub-and-spokes” 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 the developed spoke United States to other regions.


Hub and spokes Free Trade Areas technology transfer absorption governance adjacency welfare preference dilution 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Anderson, J. E., and D. Marcouiller (2002). Insecurity and the Patterns of Trade: An Empirical Investigation. Review of Economics and Statistics 84 (2): 342–352.Google Scholar
  2. 2.
    Armington, P. A. (1969). A Theory of Demand for Products Distinguished by Place of Production. IMF Staff Papers 16 (July): 159–178.Google Scholar
  3. 3.
    Arora, V., and A. Vamvakidis (2004). How Much Do Trading Partners Matter for Economic Growth? IMF Working Paper 04/26. Washington, D.C.Google Scholar
  4. 4.
    Baldwin, R. E. (1993). Measurable Dynamic Gains from Trade. Journal of Political Economy 100 (1): 162–174.Google Scholar
  5. 5.
    Bayoumi, T., D. T. Coe, and E. Helpman (1999). R&D Spillovers and Global Growth. Journal of International Economics 47 (2): 399–428.Google Scholar
  6. 6.
    Bergstrand, J. H. (1985). The Gravity Equation in International Trade: Some Microeocnomic Foundations and Empirical Evidence. Review of Economics and Statistics 67 (3): 474–481.Google Scholar
  7. 7.
    Blyde, J. S. (2004). Trade and Technology Diffusion in Latin America. International Trade Journal 18 (3): 177–197.Google Scholar
  8. 8.
    Coe, D., and E. Helpman (1995). International R&D Spillovers. European Economic Review 39 (5): 859–887.Google Scholar
  9. 9.
    Coe, D. T., E. Helpman, and A. W. Hoffmaister (1997). North-South R&D Spillovers. Economic Journal 107 (January): 134–149.Google Scholar
  10. 10.
    Cohen, W. M., and D. A. Levinthal (1989). Innovation and Learning: The Two Faces of R&D. Economic Journal 99 (September): 569–596.Google Scholar
  11. 11.
    Cohen, W. M., and D. A. Levinthal (1990). Absorptive Capacity: A New Perspective on Learning and Innovation. Administrative Science Quarterly 35 (1): 128–152.Google Scholar
  12. 12.
    Connolly, M. P. (1997). Technology, Trade and Growth: Some Empirical Findings. Research Paper 9727. Federal Reserve Bank, New York.Google Scholar
  13. 13.
    Das, G. G. (2000). Embodied Technology Transfer via International Trade: A Quantitative Exploration in a Computable General Equilibrium Framework. Unpublished PhD thesis submitted to the Centre of Policy Studies/IMPACT Project and Department of Economics, Monash University, Melbourne.Google Scholar
  14. 14.
    Das, G. G. (2002). Trade, Technology and Human Capital: Stylized Facts and Quantitative Evidence. World Economy 25 (2): 257–281.Google Scholar
  15. 15.
    Deardorff, A. V. (1997). Determinants of Bilateral Trade: Does Gravity Work in a Classical World. In Jeffrey Frankel (ed.), Regionalization of the World Economy. Chicago: Chicago University Press.Google Scholar
  16. 16.
    Deardorff, A. V. (2001). Local Comparative Advantage: Trade Costs and the Pattern of Trade. Unpublished manuscript.Google Scholar
  17. 17.
    De Ferranti, D., D. Lederman, G. Perry, and R. Suescú’n (2003a). Trade for Development in Latin America and the Caribbean. Trade Note, September 10, 2003, World Bank, Washington, D.C.Google Scholar
  18. 18.
    De Ferranti, D., G. E. Perry, I. S. Gill, J. L. Guasch, W. F. Maloney, C. S. Paramo, and N. Schady (2003b). Closing the Gap in Education and Technology. Washington, D.C.: World Bank.Google Scholar
  19. 19.
    Dietzenbacher, E. (2000). Spillover of Innovation Effects. Journal of Policy Modeling 22 (1): 27–42.Google Scholar
  20. 20.
    Dimaranan, B., and R. A. A. Mc Dougall (eds.) (2003). Global Trade, Assistance, and Protection: The GTAP 5 Database. Purdue University: Center for Global Trade Analysis.Google Scholar
  21. 21.
    Eaton, J., and S. Kortum (1996). Trade in Ideas: Patenting and Productivity in the OECD. Journal of International Economics 40 (3–4): 251–278.Google Scholar
  22. 22.
    Eaton, J., and S. Kortum (2001). Trade in Capital Goods. European Economic Review 45 (7): 1195–1235.Google Scholar
  23. 23.
    Eaton, J., and S. Kortum (2002). Technology, Geography, and Trade. Econometrica 70 (5): 1741–1779.Google Scholar
  24. 24.
    Falvey, R., N. Foster, and D. Greenaway (2004). Imports, Exports, Knowledge Spillovers and Growth. Economics Letters 85 (2): 209–213.Google Scholar
  25. 25.
    Frankel, J. A. (1997). Regional Trading Blocs in the World Economic System. Washington, D.C.: Institute for International Economics.Google Scholar
  26. 26.
    Groot, H. L. F. de., G.-J. Linders, P. Rietvelda, and U. Subramanian (2004). The Institutional Determinants of Bilateral Trade Patterns. Kyklos 57 (1): 103–124.Google Scholar
  27. 27.
    Hanson, G. (1994). Localization Economies, Vertical Organization, and Trade. NBER Working Paper 4744. Cambridge, Mass.Google Scholar
  28. 28.
    Harrison, W. J., and K. R. Pearson (1996). Computing Solutions for Large General Equilibrium Models Using GEMPACK. Computational Economics 9 (2): 83–127.Google Scholar
  29. 29.
    Hertel, T. W. (ed.) (1997). Global Trade Analysis: Modeling and Applications. Cambridge, Mass.: Cambridge University Press.Google Scholar
  30. 30.
    Itakura, K., and T. W. Hertel (2003). A Note on Changes since GTAP Book Model (Version 2.2a/GTAP 94). Center for Global Trade Analysis, Purdue University.Google Scholar
  31. 31.
    Kaufmann, D. (2004). Governance Redux: The Empirical Challenge. Global Competitiveness Report 2003–2004: 137–164.Google Scholar
  32. 32.
    Kaufmann, D., A. Kraay, and M. Mastruzzi (2003). Governance Matters III: Governance Indicators for 1996–2002. World Bank Policy Research Working Paper 3106. Dataset at: Scholar
  33. 33.
    Keller, W. (1997). Trade and the Transmission of Technology. NBER Working Paper 6113. Cambridge, Mass.Google Scholar
  34. 34.
    Keller, W. (1998). Are International R&D Spillovers Trade Related? Analyzing Spillovers among Randomly Matched Trade Partners. European Economic Review 42 (8): 1469–1481.Google Scholar
  35. 35.
    Keller, W. (1999). How Trade Patterns and Technology Flows Affect Productivity Growth. NBER Working Paper 6990. Cambridge, Mass.Google Scholar
  36. 36.
    Keller, W. (2000). Do Trade Patterns and Technology Flows Affect Productivity Growth? World Bank Economic Review 14 (1): 17–47.Google Scholar
  37. 37.
    Keller, W. (2001). The Geography and Channels of Diffusion at the World’s Technology Frontier. NBER Working Paper 8150. Cambridge, Mass.Google Scholar
  38. 38.
    Keller, W. (2004). International Technology Diffusion. Journal of Economic Literature 42 (3): 752–782.Google Scholar
  39. 39.
    Krugman, P. (1991). Geography and Trade. Cambridge, Mass.: MIT Press.Google Scholar
  40. 40.
    Krugman, P. (1995). Development, Geography and Economic Theory. Cambridge, Mass.: MIT Press.Google Scholar
  41. 41.
    Krugman, P., and A. Venables (1995). Globalization and Inequality of Nations. NBER Working Paper 5098. Cambridge, Mass.Google Scholar
  42. 42.
    Lederman, D., and W. Maloney (2003). Innovation in Mexico: NAFTA is Not Enough. Mimeo, World Bank.Google Scholar
  43. 43.
    Linnemann, H. (1966). An Econometric Study of International Trade Flows. Amsterdam: North-Holland.Google Scholar
  44. 44.
    McDougall, R. (2003). Release Notes for GTAP.Tab 6.2. GTAP. Center for Global Trade Analysis, Purdue University.Google Scholar
  45. 45.
    Meijl, H. van, and F. W. van Tongeren (1998). Trade, Technology Spillovers, and Food Production in China. Weltwirtschaftliches Archiv/Review of World Economics 134 (3): 443–449.Google Scholar
  46. 46.
    Navaretti, G. B., and D. G. Tarr (2000). International Knowledge Flows and Economic Performance: A Review of the Evidence. World Bank Economic Review 14 (1): 1–15.Google Scholar
  47. 47.
    Nelson, R. R. (1990). On Technological Capabilities and their Acquisition. In R. E. Evenson and G. Ranis (eds.), Science and Technology: Lessons for Development Policy. Boulder: Westview Press.Google Scholar
  48. 48.
    Rauch, J. E. (2001). Business and Social Networks in International Trade. Journal of Economic Literature 39 (4): 1177–1203.Google Scholar
  49. 49.
    Schiff, M., and Y. Wang (2004). Education, Governance and Trade-Related Technology Diffusion in Latin America. IZA Discussion Paper 1028. Institute for the Study of Labor, Bonn.Google Scholar
  50. 50.
    Schiff, M., and L. A. Winters (2003). Regional Integration and Development. Washington, D.C.: World Bank.Google Scholar
  51. 51.
    Sjöholm, F. (1996). International Transfer of Knowledge: The Role of International Trade and Geographic Proximity. Weltwirtschaftliches Archiv/Review of World Economics 132 (1): 97–115.Google Scholar
  52. 52.
    Xu, B., and J. Wang (1999). Capital Goods Trade and R&D Spillovers in the OECD. Canadian Journal of Economics 32 (5): 1258–1274.Google Scholar
  53. 53.
    OECD (2000). Science, Technology and Industry Scoreboard of Indicators. Paris: OECD.Google Scholar
  54. 54.
    World Bank (1999). Knowledge for Development. World Development Report 1998/9. New York: Oxford University Press.Google Scholar

Copyright information

© The Kiel Institute 2006

Authors and Affiliations

  1. 1.Department of Economics and BusinessHanyang UniversityKyunggi-Do, AnsanSouth Korea
  2. 2.World BankWashingtonUSA

Personalised recommendations