Trade Coordination Agreements

Abstract

In Chap. 6 we analysed how different shipping networks can stimulate trade flows and facilitate the emergence of a hub-and-spoke structure. The hub-and-spoke offers significant gains in trade, because by implementing consolidation, it increases competition and economies of scale, reduces transport costs, and therefore fosters a collaborative approach to trade. In this chapter we extend the argument still further and test how different shipping network structures can increase trade flows when we implement trade coordination agreements. In other words, our objective here is based on hypothesis (2): Do trade coordination initiatives provide greater long-term economic growth for the SPICs? In testing hypothesis 2, we revisit the three scenarios of Chap. 6 and introduce two types of trade coordination agreements. In general, trade agreements offer numerous gains in the development of trade and growth within a region; in fact, not only may a region capitalise on economies of scale and comparative advantage, but also with increases in foreign and private capital and access to larger trade markets a region can realise more efficient and effective production. Being a participant in a trade agreement certainly generates positive ripple effects in education and infrastructure endowments and the overall income of a region increases. In this chapter we therefore combine two main concepts: trade agreement and network structure, in particular the hub-and-spoke structure. The roots of this approach are found in the work of Wonnacott (1996) and Enders and Wonnacott (1996) who demonstrate that the gains from hub-and-spoke logistics networks are reduced according to type of trade agreement implemented. Under bilateral agreements in particular, Wonnacott (1996) finds that “the hub gets a larger percentage share of the region’s total income, whereas the spokes get a smaller share.”