Market-Protecting Institutions and the World Trade Organization's Ability to Promote Trade


  • An earlier version of this research was presented at the annual meeting of the Southern Political Science Association, January 2008, New Orleans, Louisiana. The authors thank the ISQ reviewers and editors for their helpful comments on this research. Data for replication and a web appendix that includes all additional analysis referenced in the text, and footnotes are available from the authors.


Recent research has shown that the General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO), contrary to common perceptions, does not increase trade. We argue that the effect of the GATT/WTO on dyadic trade flows is conditioned by the strength of market-protecting institutions (MPIs), which are the fundamental determinant of transaction costs. Dyads with weak MPIs do not see an increase in trade from GATT/WTO membership while dyads that have strong MPIs do see an increase in trade from GATT/WTO membership. In the former case, the benefits of GATT/WTO membership are outweighed by the high risk of doing business under weak market protection, but when property rights are well protected, GATT/WTO membership contributes positively to international trade. Empirical analysis of bilateral trade flows from 1948 to 1999 supports this hypothesis.