DP7904 Are Free Trade Agreements Contagious?

Author(s): Richard Baldwin, Dany Jaimovich
Publication Date: June 2010
Keyword(s): Contagion Effec, Free Trade Agreements, International Trade
JEL(s): F13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7904

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.