WTO Membership and the Extensive Margin of World Trade: New Evidence (original) (raw)
Related papers
Does WTO Membership Make a Difference at the Extensive Margin of World Trade?
2007
In his seminal paper, Rose (2004) concluded from a gravity-type study of bilateral trade that the GATT/WTO does not play a strong role in encouraging trade. Rose looks at countries where the amount of trade was positive to start with (intensive margin). In this paper, we present a corner-solutions version of the gravity model of bilateral trade which explains zero trade and leaves room for WTO membership to promote trade at the extensive margin of trade. Relying on a Tobit estimation approach, we find that WTO membership has promoted world trade to a larger extent than Rose's results seem to indicate. JEL Code: F12, F13.
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.
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.
Documentos de Trabajo RedNIE, 2020
In the last decade, there has been an intense development in trade models aiming to explain the determinants of bilateral trade. A seminal theoretical and methodological contribution is Anderson and van Wincoop (2003), who introduced the concept of multilateral resistance and structural gravity. However, there is still an important gap between the theoretical developments of the structural gravity model and its empirical applications. Two main issues come from the presence of zeros in bilateral trade and missing data for internal trade flows (own production oriented to the own market). The presence of zero trade flows has been considered in Santos Silva and Tenreyro (2006) and Helpman, Melitz, and Rubinstein (2008). The consequences of omitting internal transactions have not been much studied, even when its relevance may be greater due to a significant heterogeneity across countries’ openness. The objective of the paper is to analyze and characterize the consequences from omitting internal trade in the estimation of trade proximities (inverse trade costs) and on the values of multilateral resistances, which in turn will affect the comparative statics effects derived from different trade policy measures.
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.
Special issue on the estimation of gravity models of bilateral trade: Editors’ introduction
Empirical Economics, 2015
We were fortunate to have been able to solicit papers for this special issue of Empirical Economics from the CESifo Workshop entitled "On the estimation of gravity models of bilateral trade" that took place on May 30-31, 2014, in Munich, Germany. The workshop was organized by the guest editors, and the local organization and sponsorship were generously provided by CESifo as well as ETH Zurich to which we are thankful. This special issue in Empirical Economics contains important contributions for the gravity model of bilateral trade as well as econometric methodology applied to this model. These include simultaneous quantiles regression, a random coefficients model, generalized linear models (GLMs), and fixed effects panel data models. All of the papers selected for this special issue have gone through the usual process of peer review for Empirical Economics, and we would like to thank all of the referees for their hard work.
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.