The Spaghetti Bowl Phenomenon in Free Trade Agreements (FTAs) among APEC Economies
Journal of Global Business and Trade, Vol.14, No.2, pp.45-59 (2018)
15 Pages Posted: 5 Jun 2019
Date Written: November 3, 2018
This study attempts to empirically determine if the spaghetti bowl phenomenon (hereinafter referred to as the SBP) exists among the 21 member APEC trade bloc. The SBP phenomenon claims that the crisscrossing of multiple free trade agreements (FTAs) of a country with partner economies can lead to trade diversion, which creates a disadvantageous effect on the trade flow of the countries involved. The underlying cause of this occurrence is the proliferation of FTAs, which can result in more trade conflicts than benefits. Tinbergen’s trade gravity model was used in this study to investigate the SBP incidence in the study area. The model contains the traditional GDP and distance variables, but was augmented to capture the SBP effect through the inclusion of an index represented by a binary variable for the existence of FTAs interacted with the growth in the total number of concluded FTAs. Results of the study showed a positive and statistically significant coefficient for the SBP index in the gravity model. This suggests that the spaghetti bowl phenomenon is not yet present in the APEC trade bloc. Instead, the current number of FTAs still brings beneficial effects to trade flows among the APEC economies. Hence, this result provided evidence that the concluded trade agreements in these economies resulted in trade creation rather than trade diversion, which was generally espoused by the spaghetti bowl phenomenon in the western countries. Since only 29% of the total panel of economies included in the analysis showed the presence of a common FTA between trading partners, this proved to be too low to bring about the detrimental effect of the spaghetti bowl phenomenon among APEC economies.
Keywords: augmented gravity model, free trade Agreements (FTAs), spaghetti bowl phenomenon (SBP), trade diversion, APEC trade bloc
JEL Classification: C23, F13, F68
Suggested Citation: Suggested Citation