What Is Litigation in the World Trade Organization Worth?

Abstract

Conventional wisdom holds that the creation of international, court-like institutions helps countries to peacefully settle trade conflicts, thereby enhancing overall welfare. Many have argued, however, that these institutions remain ultimately ineffective because they merely reflect the distribution of power in the anarchic international system. We argue that international litigation provides economic spillovers that create opportunities for judicial free-riding and explore empirically how litigation in the World Trade Organization affects bilateral trade between countries involved in a trade dispute. We use a matching approach to compare the dynamics of trade flows between countries that experienced a panel ruling with trade relations of observably similar country pairs that did not experience a ruling. Based on this comparison we find that sectoral exports from complainant countries to the defendant increase by about $7.7 billion in the three years after a panel ruling.

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