Duration of the membership in the World Trade Organization, Structural Economic Vulnerability and Trade Costs

This paper assesses the effects of the duration of membership in the 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 1996–2019, and utilizes primarily the two-step system generalized method of moments estimator. It has established several findings. While the duration of WTO membership reduces trade costs, structural economic vulnerability leads to higher trade costs. However, these effects are heterogenous across countries as they depend on countries' level of real per capita income. Additionally, the magnitude of the trade costs reduction effect of the duration of WTO membership is particularly high in highly vulnerable. Landlocked developing countries (LLDCs) experience yet a higher reduction in trade costs as their membership duration increases, but concurrently higher trade costs when they become highly vulnerable. Meanwhile, vulnerable longstanding LLDC WTO members experience a higher decline in trade costs than their less vulnerable counterparts. On another note, longstanding WTO members that receive higher amounts of development aid (including Aid for Trade) enjoy a significant trade costs reduction than their less vulnerable counterparts. Finally, the duration of WTO membership induces a higher reduction in trade costs in countries that improve their market share in the world trade market. JEL Classification: E22; F24; F35.