Dynamic Structural Estimation of World Trade Organization Membership Accession

• In Event: Growth and Decay of International Institutions

Abstract

This paper explores the intricate dynamics of the membership application process for International Organizations (IOs), focusing on the World Trade Organization (WTO). The central question is: When and why does an IO admit a new member? While empirical analysis of this question is challenging due to the protracted and evolving nature of the application process, this study employs a dynamic perspective to model the strategic interaction between applicant countries and IOs. I employ a dynamic discrete choice game framework using WTO accession data to structurally estimate the parameters governing membership applications. To overcome the computational challenges associated with dynamic structural estimation, a two-stage approach is adopted. In the first stage, ensemble methods estimate the state transition function and choice probabilities conditional on the state variable. In the second stage, Pesendorfer and Schmidt-Dengler's minimum distance estimator (2008) is applied to recover the primitive parameters.

Contrary to previous empirical findings, the result from structural estimation challenges the assumption that the WTO favors democratic countries. Instead, the empirical model uncovers a sample selection issue, where all countries perceive the applicant status as costly, but the perceived benefits of membership differ between democratic and nondemocratic nations. Democratic nations strategically apply when the likelihood of WTO acceptance is higher, whereas nondemocratic nations lack a strategic incentive to expedite their application due to concerns about regime survival. These findings highlight sample selection in WTO application data, emphasizing that initiating the process shapes a country's future trajectory. Democracies prefer shorter application durations, driven by the trade-off between applicant costs and membership rewards. At the same time, nondemocracies tend to avoid WTO membership, reflecting apprehensions about its impact on regime survival. This research enriches our understanding of the nuanced dynamics in international organization membership applications, providing valuable insights.

Author

• Sangmin Lee, University of Rochester