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Exploring the Intensive and Extensive Margins of World Trade

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  • Felbermayr, Gabriel

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 University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20646.

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Date of creation: 2006
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Publication status: Published in Review of World Economics 142(2006): pp. 642-674
Handle: RePEc:lmu:muenar:20646

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  1. Subramanian, Arvind & Wei, Shang-Jin, 2005. "The WTO Promotes Trade, Strongly But Unevenly," CEPR Discussion Papers 5122, C.E.P.R. Discussion Papers.
  2. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  3. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
  4. Barry Eichengreen & Douglas A. Irwin, 1998. "The Role of History in Bilateral Trade Flows," NBER Chapters, in: The Regionalization of the World Economy, pages 33-62 National Bureau of Economic Research, Inc.
  5. Andrew K. Rose, 2002. "Do We Really Know that the WTO Increases Trade?," NBER Working Papers 9273, National Bureau of Economic Research, Inc.
  6. 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, vol. 44(1), pages 103-130, June.
  7. J. M. C. Santos Silva & Silvana Tenreyro, 2003. "Gravity-defying trade," Working Papers 03-1, Federal Reserve Bank of Boston.
  8. Buch, Claudia M. & Kleinert, Jorn & Toubal, Farid, 2004. "The distance puzzle: on the interpretation of the distance coefficient in gravity equations," Economics Letters, Elsevier, vol. 83(3), pages 293-298, June.
  9. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, December.
  10. Simon J. Evenett & Wolfgang Keller, 1998. "On Theories Explaining the Success of the Gravity Equation," NBER Working Papers 6529, National Bureau of Economic Research, Inc.
  11. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  12. Jean-François BRUN & Céline CARRERE & Patrick GUILLAUMONT & Jaime MELO DE, 2002. "Has Distance Died? Evidence from a Panel Gravity Model," Working Papers 200215, CERDI.
  13. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February.
  14. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  15. Leamer, E. & Levingsohn, J., 1994. "International Trade Theory: The Evidence," Working Papers 368, Research Seminar in International Economics, University of Michigan.
  16. Peter Egger & Michael Pfaffermayr, 2001. "Distance, Trade and FDI: A Hausman-Taylor SUR Approach," WIFO Working Papers 164, WIFO.
  17. Romain Wacziarg & Karen Horn Welch, 2003. "Trade Liberalization and Growth: New Evidence," NBER Working Papers 10152, National Bureau of Economic Research, Inc.
  18. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2003. "Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics," NBER Working Papers 9639, National Bureau of Economic Research, Inc.
  19. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  20. Irwin, Douglas A. & Tervio, Marko, 2002. "Does trade raise income?: Evidence from the twentieth century," Journal of International Economics, Elsevier, vol. 58(1), pages 1-18, October.
  21. repec:rus:hseeco:123558 is not listed on IDEAS
  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, vol. 34(2), pages 430-447, May.
  23. Alan V Deardorff, 2004. "Local Comparative Advantage: Trade Costs and the Pattern of Trade," Working Papers 500, Research Seminar in International Economics, University of Michigan.
  24. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72, July.
  25. Rikhil Bhavnani & Natalia T. Tamirisa & Arvind Subramanian & David T. Coe, 2002. "The Missing Globalization Puzzle," IMF Working Papers 02/171, International Monetary Fund.
  26. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
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