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

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  • Gabriel Felbermayr
  • Wilhelm Kohler

Abstract

Recent literature has argued that, contrary to the results of a seminal paper by Rose (2004), General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO) membership does promote bilateral trade, at least for developed economies and if membership includes non-formal compliance. We review the literature to identify open issues. We then develop a simple extension of the gravity model that gives rise to an extensive country margin of trade separating positive trade from zero trade country pairs. The model is used to identify WTO membership effects at both the intensive and the extensive margins. Empirical estimation of this model, based on Poisson pseudo‐maximum likelihood methods with exporter and importer fixed effects, allows us to readdress the empirical issue of whether GATT/WTO membership does or does not promote trade. We find that GATT membership was successful on the extensive margin of world trade but not on the intensive margin. For the recent WTO episode (1995–2008), we find consistent and robust evidence for a substantial trade‐creating role of membership which is driven primarily by the intensive margin. WTO membership results in higher bilateral trade of about 40 per cent.

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File URL: http://hdl.handle.net/10.1111/j.1467-9701.2010.01292.x
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Bibliographic Info

Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 33 (2010)
Issue (Month): 11 (November)
Pages: 1430-1469

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Handle: RePEc:bla:worlde:v:33:y:2010:i:11:p:1430-1469

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0378-5920

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Cited by:
  1. Prehn, Soren & Brummer, Bernhard, 2011. "Estimation Issues In Single Commodity Gravity Trade Models," 51st Annual Conference, Halle, Germany, September 28-30, 2011 114524, German Association of Agricultural Economists (GEWISOLA).
  2. Prehn, Soren & Brummer, Bernhard, 2011. "Estimation Issues in Single Commodity Gravity Trade Models," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114776, European Association of Agricultural Economists.
  3. Wilhelm Kohler, 2010. "Das Spannungsfeld von Protektion, Liberalisierung und Freihandel," FIW Policy Brief series 008, FIW.
  4. Prehn, Sören & Brümmer, Bernhard, 2011. "Estimation issues in disaggregate gravity trade models," DARE Discussion Papers 1107, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).

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