Baldwin and Jaimovich (2010) point out that free trade agreements (FTAs) are contagious
and the degree of contagion is related to the importance of the partners’ markets.
The trade diversion will cause the adjusting of politics and economy in a country
excluded by an FTA. According to the empirical results, the contagion phenomenon is
present in Baldwin and Jaimovich’s data and robust to various econometric specifications
and samples.