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Does WTO Matter for the Extensive and the Intensive Margins of Trade?

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  • Dutt, Pushan
  • Mihov, Ilian
  • Van Zandt, Timothy

Abstract

We use 6-digit bilateral trade data to document the effect of WTO/GATT membership on the extensive and intensive product margins of trade. We construct gravity equations for the two product margins where the specifications of these gravity equations are motivated by the model of Eaton and Kortum (2002). The data show that the puzzle of no significant impact of WTO membership on trade documented by Rose (2004) manifests itself differently at the product margins of trade. We show that the impact of the WTO is almost exclusively on the extensive product margin of trade, i.e. trade in goods that were not previously traded. In our preferred specification, WTO membership increases the extensive margin of exports by 31%. At the same time, WTO membership has a negligible or even a negative impact on the intensive margin (the volume of already-traded goods). Incidentally, we also document that standard gravity variables provide good explanatory power for bilateral trade on both margins.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8293.

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Date of creation: Mar 2011
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Handle: RePEc:cpr:ceprdp:8293

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Keywords: extensive margin of trade; Gravity; intensive margin of trade; WTO;

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References

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  1. Pushan Dutt & Daniel Traca, 2010. "Corruption and Bilateral Trade Flows: Extortion or Evasion?," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 843-860, November.
  2. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Felbermayr, Gabriel, 2006. "Exploring the Intensive and Extensive Margins of World Trade," Munich Reprints in Economics 20646, University of Munich, Department of Economics.
  4. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  5. Ghosh, Sucharita & Yamarik, Steven, 2004. "Are regional trading arrangements trade creating?: An application of extreme bounds analysis," Journal of International Economics, Elsevier, vol. 63(2), pages 369-395, July.
  6. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June.
  7. Xuepeng Liu, 2009. "GATT/WTO Promotes Trade Strongly: Sample Selection and Model Specification," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 428-446, 08.
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Citations

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Cited by:
  1. Natalia Kapelko & Natalya Volchkova, 2013. "Export costs of visa restrictions," Working Papers w0195, Center for Economic and Financial Research (CEFIR).
  2. Dick Nuwamanya Kamuganga, 2012. "What Drives Africa's Export Diversification?," IHEID Working Papers 15-2012, Economics Section, The Graduate Institute of International Studies.
  3. Aleksandra Parteka & Massimo Tamberi, 2012. "Relative Product Diversification in the Course of Economic Development: Import-Export Analysis," DEGIT Conference Papers c017_056, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2013. "WTO Trade Effects and Identification Problems: Why Knowing The Structural Properties of WTO Memberships Matters?," Discussion Papers Series 491, School of Economics, University of Queensland, Australia.
  5. Scoppola, M. & Raimondi, V. & Olper, A., 2013. "The Impact of EU Trade Preferences on the Extensive and Intensive Agricultural and Food Product Margins," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151145, Agricultural and Applied Economics Association.
  6. Persson, Maria & Wilhelmsson, Fredrik, 2013. "EU Trade Preferences and Export Diversification," Working Papers 2013:32, Lund University, Department of Economics.
  7. Alessia Amighini & Marco Sanfilippo, 2013. "Impact of South-South FDI and trade on the export upgrading of African economies," RSCAS Working Papers 2013/75, European University Institute.
  8. Ana Santacreu, 2012. "The Trade Comovement Puzzle and the Margins of International Trade," 2012 Meeting Papers 34, Society for Economic Dynamics.
  9. Dan Ciuriak & Beverly Lapham & Robert Wolfe & Terry Collins-Williams & John M. Curtis, 2011. "New-New Trade Policy," Working Papers 1263, Queen's University, Department of Economics.

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