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In Search of WTO Trade Effects

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  • Theo S. Eicher
  • Christian Henn

Abstract

The literature measuring the impact of Preferential Trade Agreements (PTA) and WTO membership on trade flows has produced remarkably diverse results. Rose''s (2004) seminal paper reports a range of specifications that show no WTO effects, but Subramanian and Wei (2007) contend that he does not fully control for multilateral resistance (which could bias WTO estimates). Subramanian and Wei (2007) address multilateral resistance comprehensively to report strong WTO trade effects for industrialized countries but do not account for unobserved bilateral heterogeneity (which could inflate WTO estimates). We unify these two approaches by accounting for both multilateral resistance and unobserved bilateral heterogeneity, while also allowing for individual trade effects of PTAs. WTO effects vanish and remain insignificant throughout once multilateral resistance, unobserved bilateral heterogeneity, and individual PTA effects are introduced. The result is robust to the use of alternative definitions and coding conventions for WTO membership that have been employed by Rose (2004), Tomz et al. (2007), or by Subramanian and Wei''s (2007).

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/31.

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Length: 30
Date of creation: 01 Feb 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/31

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Keywords: World Trade Organization; Bilateral trade agreements; Multilateral trade negotiations; Trade restrictions; Trade models; trade creation; trade effects; trade agreements; trade flows; equation; bilateral trade; bilateral imports; trade agreement; trading partners; free trade; preferential trade; preferential trade agreements; trade impact; standard errors; significance levels; world trade; statistics; average trade; statistic; common market; trade costs; trade creating; international trade; multilateral trade; net trade creation; tariff reductions; internal trade; trade flow; preferential trading; external trade; economic cooperation; trading blocs; regional trade; transport costs; andean pact; statistical significance; trade diversion; sample selection; bilateral trade flows; trade effect; trade area; economic community; mutual trade; trade theory; preferential trading arrangements; free trade agreements; trade theories; trade volumes; equations; free trade agreement; trading arrangements; trade partners; import activity; standard deviation; regional trade agreements; trade volume; unilateral trade; trade determinants; multilateral trade agreements; world trading system; trade barriers; prediction; trade concessions; impact of trade; trading system; increased trade; trade negotiations; trade relations; empirical framework; increase trade flows; trading partner; liberalized trade; bilateral relationships; world economy; predictions; bilateral agreements; trade values; trade gains; member country; dummy variables; low trade; tariff preferences; free trade area; trade integration; tariff reduction;

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References

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Cited by:
  1. Vollrath, Thomas L. & Hallahan, Charles B., 2011. "Reciprocal Trade Agreements: Impacts on Bilateral Trade Expansion and Contraction in the World Agricultural Marketplace," Economic Research Report, United States Department of Agriculture, Economic Research Service 102755, United States Department of Agriculture, Economic Research Service.
  2. Wilhelm Kohler & Gabriel Felbermayr, . "WTO Membership and the Extensive Margin of World Trade: New Evidence," Discussion Papers 09/06, University of Nottingham, GEP.

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