| When Will WTO Membership Signal Commitment to Free Trade by A Developing Country |
S. Mansoob Murshed |
| Institute of Social Studies |
| Copyright ©2004 Journal of Economic Integration |
| ABSTRACT |
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A signalling game involving three parties: a developing country, the WTO and a developed country is outlined. The developing country might be tempted to renege or deviate from free trade. Although the costs of reneging from free trade result in a loss of credibility, the costs come in the future and are discounted. Short-term gains include revenues from import taxes that are important to the public finances of low-income countries. Membership of a rules based organisation such as the WTO can act as a credible commitment device. In these circumstances, however, the South's commitment to free trade depends upon a clear signal from the North that it too is committed to free trade. Otherwise the South will continue to deviate from optimal and freer trade policies. JEL Classifications: C72, D84, F13 |
| Keywords:
WTO | North-South trade | Commitment | Delegation
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