THE CONSIDERATION OF HUB-AND-SPOKE STATUS IN FTA FORMATION

This paper extends the literature on the determinants of free trade area (FTA) taking hub-and-spoke status and hub status-seeking into account. The analysis is based on purely cross-sectional data and the main findings are different from previous studies. First, the hub-and-spoke status and hub status-seeking are two important determinants of FTA. Moreover, the hub-and-spoke status and hub status-seeking have greater partial effects on the response probabilities than other determinants. Second, the probability of forming an FTA between a pair of economies is higher if they share a common language. Finally, the probability of forming an FTA between a pair of economies falls at first but eventually increases as the difference in their relative factor endowments increases.