Interaction between corruption and the GATT-WTO trade effect: a panel data analysis

Using cross-country time series data for 133 countries between 1984 and 2010, and implementing a fixed effects Poisson estimator using the gravity model of trade, we study the interaction between domestic and partner-country corruption and the treatment effect of a country joining the GATT-WTO on bilateral trade. The results highlight two sources of asymmetry in the effect of corruption on bilateral trade. First, exports rather than imports are found to be affected due to corruption and second, domestic corruption is found to be detrimental to exports from the GATT-WTO members to the non-member nations, but favorable to exports from the non-member countries to the GATT members. The results suggest the importance of accounting for institutional heterogeneity of countries to explain mixed results on the effectiveness of the GATT-WTO for global trade.