ECON Seminar by Malachy Gavan (University of Liverpool)
Malachy Gavan will present the paper entitled “Mandates, Trade Structure, and Trade Agreements ” on Wednesday, 8th of April at 11:45 AM. The seminar will be physical at FASS 2054 but it can also be attended at the following link:
Mandates, Trade Structure, and Trade Agreements (joint with Ptashkina)
Can the way trade agreements are negotiated impede their formation? We show that the mandate-driven negotiations under which trade agreements are formed--where countries pre-commit to contingent concessions--can themselves prevent efficient outcomes. In a canonical two-country setting, the feasibility of efficient liberalisation is determined by the modularity of welfare with respect to tariffs: when welfare is supermodular, efficiency can be sustained, whereas when it is strictly submodular, efficient agreements cannot be achieved. Embedding this condition in a general equilibrium model, we show that the key determinant is the structure of trade: when trade is sufficiently tilted toward complements, efficient agreements can be sustained, whereas when it is sufficiently tilted toward substitutes, no agreement is possible. Consistent with this mechanism, we document that country pairs that subsequently form trade agreements tend to trade less in substitutable goods.