Does WTO Membership Make a Difference at the Extensive Margin of World Trade? (original) (raw)

WTO Membership and the Extensive Margin of World Trade: New Evidence

World Scientific Studies in International Economics, 2014

Recent literature has argued that, contrary to the results of a seminal paper by Rose (2004), WTO membership does promote bilateral trade, at least for developed economies and if membership includes non-formal compliance. We review the literature in order to identify open issues. We then develop the simplest possible "corner-solutions" version of the gravity model which serves as a framework to readdress these issues. We focus on the extensive margin of trade that separates positive-trade from zero-trade country pairs. We argue that the model can be consistently estimated using Poisson pseudo-maximum-likelihood methods with exporter and importer fixed effects. We account for coding issues and the potential heterogeneity of the WTO membership which recent contributions have stressed. While we find that WTO membership increases the likelihood that a given country pair trades, we do not find that the extensive margin has a strong and systematic effect on the average trade-creating potential of the WTO.

Exploring the Intensive and Extensive Margins of World Trade

Review of World Economics, 2006

World trade evolves at two margins. Where a bilateral trading relationship already exists it may increase through time (intensive margin). But trade may also increase if a trading bilateral relationship is newly established between countries that have not traded with each other in the past (extensive margin). We provide an empirical dissection of post-World-War-II growth in manufacturing world trade along these two margins. We propose a "corner-solutions-version" of the gravity model to explain movements on both margins. A Tobit estimation of this model resolves the so-called "distance-puzzle". It also finds more convincing evidence than recent literature that WTO-membership enhances trade.

GATT/WTO membership does promote international trade after all–Some new empirical evidence

The declared objective of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) is to promote free trade between member states. Nonetheless, an exhaustive study of bilateral merchandise trade based on a large panel data set led Rose (2004) to conclude that there is no compelling empirical evidence to show that GATT/WTO membership does actually encourage international trade. This unanticipated finding generated a great deal of attention in the literature and several scholars put forward various explanations for it. In this paper we set up a new international trade data set which, unlike Rose's, allows us to model exports and imports separately and to study the extensive margin of trade, i.e., the number of bilateral trade relationships. Using this data set and a gravity framework, first we demonstrate how to obtain puzzling negative results and so explain the previous unintuitive findings. Then we show that GATT/WTO membership does indeed encourage international trade, so the most obvious reason for Rose's negative outcome is the lack of zero bilateral trade observations in his data set.

A Re-Examination of the Effect of GATT/WTO on Trade

Open Economies Review, 2015

The empirical literature on the effect of the GATT/WTO on trade provides ambiguous results. This paper sheds new light on whether and to what extent GATT/WTO membership has increased world trade using multiple econometric specifications of the gravity equation and examining several potential asymmetries of the GATT/WTO system. Our results show an uneven but pervasive evidence that membership in GATT/WTO have had an economically significant effect on members' bilateral trade. Moreover, we find that the GATT/WTO effect operates through both trade margins but mainly through the intensive margin.

On the Heterogeneous Trade and Welfare Effects of GATT/WTO Membership

SSRN Electronic Journal, 2020

We build on the latest developments in the structural gravity literature to quantify the partial and general equilibrium effects of GATT/WTO membership on trade and welfare. Using an extensive database covering manufacturing trade for 186 countries over the period 1980-2016, we find that the average impact of GATT/WTO membership on trade among member counties is large, positive, and significant. We contribute to the literature by estimating country-specific estimates and find them to vary widely across the countries in our sample with poorer members benefitting more. Using these estimates, we simulate the general equilibrium effects of GATT/WTO on welfare, which are sizable and heterogeneous across members, and relatively small for non-member countries. We show that countries not experiencing positive trade effects from joining GATT/WTO can still gain in terms of welfare, due to beneficial terms-of-trade effects.

The Effect of Membership in the GATT/WTO on Trade: Where do we Stand?

2006

Abstract This paper reviews the recent literature that quantitatively assesses the effect on international trade of membership in the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT). In my 2004a paper, I show that a straightforward look at the data does not find a strong effect of GATT/WTO membership on bilateral trade.

Does the GATT/WTO promote trade? After all, Rose was right

Review of World Economics, 2019

This paper reexamines the GATT/WTO's trade impact using recent econometric developments that allow us estimating structural gravity equations with the Poisson pseudo-maximum likelihood (PPML) estimator on a large dataset that requires calculating high-dimensional fixed effects. By doing so, we overcome computational limitations that are present in previous studies. In line with Rose's (2004) seminal work, we find that, unlike regional trade agreements and currency unions, the GATT/WTO accession has not generated positive trade effects. This result is robust across periods and country groups; when using data at five-year intervals or for consecutive years; and when taking into account the GATT/WTO accession dynamics.

GATT/WTO Membership and its Effect on Trade: Where Do We Stand?

1900

Does WTO Membership Make a Difference at the Extensive Margin of World Trade? (original) (raw)

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