Duration and Term Structure of Trade Agreements

Title: Duration and Term Structure of Trade Agreements
Format: Journal Article
Publication Date: December 2015
Published In: The Economic Journal

We use a dynamic incomplete contracting model to show that time structure of trade agreements is related to the characteristics of trade-facilitating investments. If these investments are specialised to trade in a particular homogeneous good, fixed-term agreements are more likely. Fixed-term agreements provide incentives for the initial investment but leave the parties the flexibility to revisit the need for future investment. If the agreement covers trade in multiple sectors or differentiated goods or services, inter-sectoral spillovers reduce risks of overinvestment. In this case, the parties are more likely to choose an evergreen agreement (with an advance termination notice).

Ivan Allen College Contributors:
External Contributors: Sergei Guriev (Sciences Po Paris)

Klimenko, Mikhail. “Duration and Term Structure of Trade Agreements,” (with Sergei Guriev), The Economic Journal 125 (2015): 1818–1849

  • International Trade
Related Departments:
  • School of Economics