Duration of the Membership in the GATT/WTO, Structural Economic Vulnerability and Trade Costs

Abstract

This paper assesses the effects of the duration of membership in the General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO) and structural economic vulnerability on trade costs in developing countries. The analysis is performed on an unbalanced panel dataset of 121 countries over the period 1996–2018 and primarily utilizes the two-step system generalized method of moments estimator. It has established several findings. We obtain that longstanding GATT/WTO members enjoy a larger reduction in trade costs than relatively new GATT/WTO members. Concomitantly, a higher degree of structural economic vulnerability leads to higher trade costs. Moreover, the membership duration exerts a higher trade costs reduction effect in countries that are highly “structurally” vulnerable, including those that face high levels of exposure to shocks and high magnitudes of shocks. Finally, longstanding GATT/WTO members that receive higher amounts of development aid (including total development aid flows, Aid for Trade flows, and NonAfT flows) enjoy a larger trade costs reduction than relatively new GATT/WTO members.