A Domino Theory of Regionalism Revisited: The Role of Homogeneity/Heterogeneity in Institutions

48 Pages Posted: 22 Mar 2021 Last revised: 19 Apr 2021

See all articles by Renliang Liu

Renliang Liu

University of Guelph

Thanasis Stengos

University of Guelph - Department of Economics

Yiguo Sun

University of Guelph

Date Written: April 19, 2021

Abstract

This paper proposes that country-pairs sharing homogeneity in domestic institutions tend to sign preferential trade agreements (PTAs) interdependently, and such an interdependence effect decreases with institutional differential. Using spatial econometrics, we take democracy and economic freedom as fundamental components of the spatial weight matrix. The baseline results support our hypothesis from both the panel data over 1996 to 2017 through a probit model and the cross-sectional data through a spatial autoregressive probit model. We also employ a compound spatial weight matrix to account for the institutional differential and geographical distance simultaneously, which confirms the role of domestic institutions in the evolution of PTAs. Our findings are robust to the correction of potential endogeneity in the spatial weight matrix, and we provide not only novel evidence for the spatial effect of institutional differential on the domino-like spread of PTAs, but also some insights on the relationship between regionalism and multilateralism.

Keywords: Domino theory, institutions, multilateralism, preferential trade agreements, probit model, regionalism, spatial econometrics

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

Suggested Citation

Liu, Renliang and Stengos, Thanasis and Sun, Yiguo, A Domino Theory of Regionalism Revisited: The Role of Homogeneity/Heterogeneity in Institutions (April 19, 2021). Available at SSRN: https://ssrn.com/abstract=3808871 or http://dx.doi.org/10.2139/ssrn.3808871

Renliang Liu (Contact Author)

University of Guelph ( email )

50 Stone Road East
Guelph, Ontario N1G 2W1
Canada

HOME PAGE: http://sites.google.com/view/jason-renliang-liu

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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