Spatial Spillovers in Trade Agreement Memberships: Does Institutional Proximity Matter?

67 Pages Posted: 22 Mar 2021 Last revised: 20 Mar 2023

See all articles by Renliang Liu

Renliang Liu

Liaoning University

Thanasis Stengos

University of Guelph - Department of Economics

Yiguo Sun

University of Guelph

Date Written: April 19, 2021

Abstract

This paper examines spatial spillovers in the formation of preferential trade agreements (PTAs) through a new channel of institutional proximity. Our dependent variable is the status of PTAs between country attributes within a country-pair. The explanatory variable of interest is the status of PTAs in neighbouring country-pairs that share proximity in institutional development. We consider democracy and economic freedom as the main aspects of institutions, and use both as the fundamental components of institutional distance between country-pairs. Employing a spatial econometric method, we find strong evidence of the institutional interdependence of PTAs: country-pairs tend to influence each other’s decision on the formation and the chosen type of PTAs (i.e., deep or shallow), such a neighbourhood effect increases with institutional proximity and is more prominent for the decisions on the type of PTAs. The institutional spatial channel is robust to the controlling for geographical channel and possible endogeneity.

Keywords: Preferential trade agreements, institutions, democracy, economic freedom, spatial econometrics

JEL Classification: C21, C25, F13, F15, O24

Suggested Citation

Liu, Renliang and Stengos, Thanasis and Sun, Yiguo, Spatial Spillovers in Trade Agreement Memberships: Does Institutional Proximity Matter? (April 19, 2021). Available at SSRN: https://ssrn.com/abstract=3808871 or http://dx.doi.org/10.2139/ssrn.3808871

Renliang Liu (Contact Author)

Liaoning University ( email )

Shenyang, Liaoning
China

Thanasis Stengos

University of Guelph - Department of Economics ( email )

50 Stone Road East
Guelph, Ontario N1G 2W1
Canada

Yiguo Sun

University of Guelph ( email )

Guelph, Ontario
Canada

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