Do Trade Flows Respond to Nudges? Evidence from the WTO’s Trade Policy Review Mechanism

The institutional underpinnings and trade effects of the WTO have been extensively scrutinized in the literature. There is, however, relatively little known about the economic effects of members’ communications outside of official negotiations and dispute proceedings. One of the WTO’s core missions is to ensure and further transparency of its members’ trade policies through regular reviews by its Trade Policy Review Mechanism (TPRM). This paper considers whether communications between members through the TPRM lead to subsequent changes in bilateral trade flows. To examine this question, I construct a detailed dataset on submitted trade policy concerns during TPRM proceedings going back to 1989. The results indicate substantial heterogeneity in the trade effects of submitted trade policy concerns. Positive trade responses are more likely to occur when (i) the receiver of the concern has less market power, (ii) the submitter is more willing to engage in WTO disputes with the reviewed member to challenge controversial trade policies, and (iii) few concerns have been communicated to the importing country before.