Applying Hub - Spoke Model to Analyze Welfare Efficacy in Global FTA Network and Some Recommendations for Vietnam

Abstract

Based on the model of general equilibrium in monopolistic competition, the main purpose of the research paper is to analyze welfares of nations with discrepant positions, benefits of FTA as well as determinants in accordance with Hub - Spoke system and its extended structure. Results show that: (1) Country H and Country S are disproportionate in efficacy with the former earning more benefits than the latter; (2) the welfare distribution of Hub - Spoke system and spoke connective structure both exhibit extensive complexity, subject to combined effects of product substitution, commercial complementarity, extent of bilateral trading relation, profitability   of scale, etc; (3) thanks to the extension of Hub-spoke system to global free trade, it is possible for country S to increase its trade volume and welfare, and by contrast, for country H to decrease its trade volume and welfare. Based on those arguments, the paper proposes some policy implications for Vietnam in its FTA partner selection and implementation of FTA strategies.