Are Free Trade Agreements Contagious?
This paper presents a new model of the domino effect which is used to generate an empirical index of how "contagious" FTAs are with respect to third nations. We test our contagion hypothesis together with alternative specifications of interdependence and other political, economical and geographical determinants of FTA formation. Our main finding is that contagion is present in our data and is robust to various econometric specifications and samples.
We would like to thank the useful comments and suggestions of Jean-Louis Arcand, Patricio Aroca, and participants of seminars organised by the Swiss Trade Economist Cooperative (STEC), Graduate Institute (Geneva), World Trade Organization (WTO), Hitotsubashi University, European Economic Association, Latin American and Caribbean Economic Association (LACEA), Universidad de Chile, and Universidad Catolica del Norte (Antofagasta). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.