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Exploring the Intensive and Extensive Margins of World Trade

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  • Gabriel J. Felbermayr
  • Wilhelm Kohler

Abstract

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.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1276.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1276

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Keywords: bilateral trade; globalization; globalisation; gravity model;

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References

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  1. Leamer, E. & Levingsohn, J., 1994. "International Trade Theory: The Evidence," Working Papers, Research Seminar in International Economics, University of Michigan 368, Research Seminar in International Economics, University of Michigan.
  2. Barry Eichengreen & Douglas A. Irwin, 1996. "The Role of History in Bilateral Trade Flows," NBER Working Papers 5565, National Bureau of Economic Research, Inc.
  3. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2003. "Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics," Yale School of Management Working Papers, Yale School of Management ysm357, Yale School of Management.
  4. Buch, Claudia M. & Kleinert, Jorn & Toubal, Farid, 2004. "The distance puzzle: on the interpretation of the distance coefficient in gravity equations," Economics Letters, Elsevier, Elsevier, vol. 83(3), pages 293-298, June.
  5. Jean-François Brun & Céline Carrère & Patrick Guillaumont & Jaime de Melo, 2005. "Has Distance Died? Evidence from a Panel Gravity Model," World Bank Economic Review, World Bank Group, World Bank Group, vol. 19(1), pages 99-120.
  6. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  7. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  8. Simon J. Evenett & Wolfgang Keller, 1996. "On Theories Explaining the Success of the Gravity Equation," International Trade, EconWPA 9608001, EconWPA, revised 13 Jun 1997.
  9. Rozanski, Jerzy & Yeats, Alexander, 1994. "On the (in)accuracy of economic observations: An assessment of trends in the reliability of international trade statistics," Journal of Development Economics, Elsevier, Elsevier, vol. 44(1), pages 103-130, June.
  10. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, American Economic Association, vol. 69(1), pages 106-16, March.
  11. Andrew K. Rose, 2002. "Do We Really Know that the WTO Increases Trade?," NBER Working Papers 9273, National Bureau of Economic Research, Inc.
  12. Subramanian, Arvind & Wei, Shang-Jin, 2005. "The WTO Promotes Trade, Strongly But Unevenly," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5122, C.E.P.R. Discussion Papers.
  13. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, American Economic Association, vol. 85(5), pages 1029-46, December.
  14. Peter Egger & Michael Pfaffermayr, 2004. "Distance, trade and FDI: a Hausman-Taylor SUR approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(2), pages 227-246.
  15. Deardorff, A.V., 1995. "Determinants of Bilateral Trade : Does Gravity Work in a Neoclassical World?," Papers, Michigan - Center for Research on Economic & Social Theory 95-05, Michigan - Center for Research on Economic & Social Theory.
  16. Irwin, Douglas A. & Tervio, Marko, 2002. "Does trade raise income?: Evidence from the twentieth century," Journal of International Economics, Elsevier, Elsevier, vol. 58(1), pages 1-18, October.
  17. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, Elsevier, vol. 53(1), pages 1-27, February.
  18. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  19. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 72, July.
  20. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  21. Alan V Deardorff, 2004. "Local Comparative Advantage: Trade Costs and the Pattern of Trade," Working Papers, Research Seminar in International Economics, University of Michigan 500, Research Seminar in International Economics, University of Michigan.
  22. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 34(2), pages 430-447, May.
  23. Romain Wacziarg & Karen Horn Welch, 2003. "Trade Liberalization and Growth: New Evidence," NBER Working Papers 10152, National Bureau of Economic Research, Inc.
  24. Rikhil Bhavnani & Natalia T. Tamirisa & Arvind Subramanian & David T. Coe, 2002. "The Missing Globalization Puzzle," IMF Working Papers 02/171, International Monetary Fund.
  25. J. M. C. Santos Silva & Silvana Tenreyro, 2003. "Gravity-defying trade," Working Papers, Federal Reserve Bank of Boston 03-1, Federal Reserve Bank of Boston.
  26. repec:rus:hseeco:123558 is not listed on IDEAS
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