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What is litigation in the WTO worth?

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Conventional wisdom holds that the creation of international, court-like institutions helps countries to peacefully settle trade con icts, thereby enhancing welfare through trade. Others, however, point out that these institutions remain ultimately ineffective, because their alleged effects merely re ect the distribution of power in the anarchic international system. We explore how litigation in the World Trade Organization (WTO) affects bilateral trade relations between countries involved in a trade dispute. We find that sectoral exports from complainant countries to the defendant increase by about $9.5 billion in the three years after a panel ruling. However, countries that have proactively fled a complaint and carried the costs of litigation do not systematically gain more than far less active third parties that merely joined an existing WTO dispute and carried considerably smaller litigation costs. We conclude that international judicial institutions create incentives for freeriding, but at the same time may lead to a less power-based distribution of the gains from trade.

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