Effect of Special and Differential Treatment Flexibilities in WTO Rules on Trade Reforms, Manufactured Exports and Export Upgrading in the Least Developed Countries

This article examines the effect of special and differential treatment (S&D) flexibilities embedded in the World Trade Organization (WTO) rules on trade reforms, manufactured exports and export upgrading in least developed countries (LDCs). The empirical analysis uses the entropy balancing approach over different samples with data spanning the annual period from 1996 to 2018. The treatment group includes LDCs that acceded to the WTO under the WTO Article XII, (LDC Article XII Members). Control groups include carefully selected countries among non-LDC developing countries that did not join the WTO under Article XII (referred to as LDC founding Members). The findings show that the utilization of S&D flexibilities is associated with a greater trade policy liberalization in LDC Article XII Members, but with a greater trade protectionism in LDC founding Members. The utilization of S&D flexibilities is also associated with higher trade costs for manufactured goods, but to a lesser extent for LDC Article XII Members than for LDC founding Members. In connection with these findings, the utilization of S&D flexibilities leads to an improvement in manufactured exports across different types of manufactures, and export upgrading in LDC Article XII Members, but to the reverse outcomes in LDC founding Members. Finally, the utilization of S&D flexibilities enhances the integration of LDC Article XII Members into the world market of manufactured exports, while it does not for LDC founding Members. The implications of the analysis are discussed.