Depth, Flexibility and International Cooperation: The Politics of Trade Agreement Design

Abstract

States design some international institutions more flexibly than others. What explains this variation? Focusing on preferential trade agreements, we argue that different aspects of institutional design are interdependent. In particular, we posit that deep agreements create an incentive for states to add more flexibility, which can take the form of transitional flexibility or provisions that serve as safety valves in the long term. Both types of flexibility mechanisms increase with depth and are complementary. We also argue that states are concerned about the stability of an agreement and as a consequence introduce ex-ante constraints against exploiting the future application of flexibility. An original data-set on the design of 587 trade agreements signed between 1945 and 2009 allows us to test our arguments. Descriptive evidence, multivariate statistics and instrumental variable models all support the theoretical expectations. The paper contributes to the literature on the design of international institutions and preferential trade agreements.

Keywords: international institutions, preferential trade agreements, institutional design, depth, flexibility

JEL Classification: F1, F5