Hubs and Spokes, and Free Trade in the Americas

Abstract

This paper compares two possible formats for free trade in the Americas: a system of spokes surrounding a U.S. hub, and a free trade area. The paper identifies the sources of welfare change, and it argues that a country's attitude towards a system depends on whether the arrangement is a complement or a substitute trading club. The paper argues also that rent-seeking activities, and costs of administration and transportation, are likely to be higher in a hub-and-spoke system than in a free trade area.