Depth and Death: Trade Agreements and Trade Duration

ABSTRACT We examine how shallow and deep economic integration agreements affect duration of spells of trade. We build a dynamic model of firm behavior which allows us to characterize duration of trade and the effect of agreements. The model predicts that duration increases in size and length of spells, which is supported by data. The model also predicts that agreements will reduce the hazard of already active spells when an agreement starts, and increase the hazard of spells that start after the agreement. We find empirical support for these predictions as well. Shallow agreements have larger effects than deep agreements.