WTO accession and firm exports in developing economies

The World Trade Organization (WTO) has a significant impact on international business activities due to its actions and decisions that set the rules of international trade. However, our understanding of how WTO affects firm behavior is limited. Taking advantage of the variations in entry dates to the World Trade Organization, we perform difference-in-differences estimation to examine whether a country’s accession to the WTO significantly increases firms’ export intensity. In addition, we apply insights from the threat-rigidity hypothesis to argue that firms’ reactions to supranational institutions vary depending on how managers perceive the institutional environment. We find that firms from countries that enter the WTO experience significantly higher growth in export intensity when their managers have positive perceptions about domestic institutions. In contrast, accession to the WTO does not significantly increase firms’ export intensity whose managers perceive domestic institutions as obstacles. Our findings suggest that supranational institutions, such as the WTO, play an important role in the strategic decisions that firms make. However, the full value of such institutions can only be realized if the managers are aware and positively disposed to engage with these institutions.