A Domino Theory of Regionalism Revisited in an Era of Deep Integration : The Role of Homogeneity/Heterogeneity in Institutions

This paper aims to explore the relevance of trade partners' institutional background on the formation of PTAs by investigating whether countries sharing homogeneity in institutions tend to form PTAs interdependently. We take economic system and political regime measured by economic freedom and democracy indexes, respectively, as the fundamental components of institutional distance and find strong evidence of institutional interdependence both for PTA memberships and for the type of PTA chosen (deep or shallow) based on a sample of 142 countries. These findings are robust to the controlling for the spillovers through geographical proximity as well as possible endogeneity, and highlight the role of institutions in the domino-like evolution of PTAs