How does the World Trade Organisation (WTO) benefit developing countries?

The World Trade Organisation's purpose is to promote the free trade of goods and services amongst its 164 member states by discouraging protectionist measures and settling trade disputes. This directly benefits developing countries as it results in an increase in real GDP. This is because a reduction in protectionist measures, especially tariffs, by other countries means their goods and services are more internationally competitive in those states, which is likely to result in an increase in demand for exports and thus raise the value of exports and aggregate demand subsequently. Thus, the WTO contribute to higher levels of economic growth within developing countries.

On the other hand, the WTO may not be beneficial for developing countries as it leaves their infant industries exposed to larger firms from developing countries which can be significantly detrimental for their economy and its development. This is because the developing country would also have to lower their own protectionist barriers, such as tariffs. This allows firms in developed countries to export to the developing country and due to the fact that they are able to exploit economies of scale, they are able to produce the good or service at a lower price than the firms within the infant industries in developing countries. This increases the demand for imports as well as potentially resultign in bankruptcies for these infant firms due to the lack of demand and thus lowers economic growth due to a reduction in aggregate demand and aggregate supply. However, this greatly depends on the developing country as each economy will respond differently to the WTO, some benefitting more than others whilst some even lose out.

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Answered by Luke H. Economics tutor

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