Hub and spoke trade agreements under oligopoly with asymmetric costs

Using an oligopoly model of trade, we study the individual and world welfare implications of hub and spoke trade agreements. Under a hub and spoke 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 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.oligopoly, hub and spoke trade agreements, global free trade