A strategic statistical model of the escalation of trade disputes at the WTO

This paper presents a strategic statistical model of the World Trade Organization’s Dispute Settlement, with a special focus on developing countries. The WTO Dispute Settlement Understanding (WTO DSU) allows WTO members to enforce the trade liberalization commitments made by other WTO members over the different trade liberalization rounds. The WTO DSU has been put forwards as a means to level the playfield between developing and developed WTO member states. This paper empirically studies whether developing countries still settle for less beneficial outcomes, and whether this type of countries use the WTO litigation process to the same extent as their developed counterparts. We empirically estimate the determinants of the decisions of developing and developed countries within the WTO dispute settlement structure. We allow for forward-looking governments, that take into account their expectations regarding the actions of the other party in the dispute.