Working Paper: CEPR ID: DP7904
Authors: Richard Baldwin; Dany Jaimovich
Abstract: 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 due to the trade diversion. 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.
Keywords: contagion effect; free trade agreements; international trade
JEL Codes: F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Formation of FTAs (F15) | Political economy forces influence other nations (P19) |
| Contagion effect (E44) | Trade diversion (F14) |
| Contagion hypothesis (E44) | Robustness across econometric specifications (C51) |
| Signing an FTA by one nation (F15) | Increased likelihood of other nations signing FTAs (F15) |
| Contagion index (F44) | Likelihood of FTA formation (F15) |