Political stability and trade agreements: Evidence for 'endgame FTAs'

- Governments are more likely to adopt trade reforms when they are about to lose power.
- The unexpected exit of a leader increases significantly political turnover.
- Countries engage more in FTAs after the unexpected exit of a leader.
- Governments on their way out attach less value to rents from protectionist policies.

This paper empirically examines the idea that Free Trade Agreements (FTAs) are more likely to be signed by governments playing 'endgames'; that is, when governments are about to lose power. Two empirical strategies shed light on this hypothesis. One relies on events that increase the probability of political turnover, the other on term limits. I find that countries are more likely to sign FTAs after the unexpected exit of their leaders, when political instability is high. The key finding is partly confirmed in the term-limits strategy as governments are found to form more FTAs during their last term in office.