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GATT/WTO membership does promote international trade after all – Some new empirical evidence

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  • Konya, Laszlo
  • Matyas, Laszlo
  • Harris, Mark

Abstract

The declared objective of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) is to promote free trade between member states. Nonetheless, an exhaustive study of bilateral merchandise trade based on a large panel data set led Rose (2004) to conclude that there is no compelling empirical evidence to show that GATT/WTO membership does actually encourage international trade. This unanticipated finding generated a great deal of attention in the literature and several scholars put forward various explanations for it. In this paper we set up a new international trade data set which, unlike Rose’s, allows us to model exports and imports separately and to study the extensive margin of trade, i.e., the number of bilateral trade relationships. Using this data set and a gravity framework, first we demonstrate how to obtain puzzling negative results and so explain the previous unintuitive findings. Then we show that GATT/WTO membership does indeed encourage international trade, so the most obvious reason for Rose’s negative outcome is the lack of zero bilateral trade observations in his data set.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34978.

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Date of creation: Jun 2011
Date of revision: 20 Nov 2011
Handle: RePEc:pra:mprapa:34978

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Keywords: GATT/WTO; international trade; gravity model; multidimensional panel data;

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  1. Scott L. Baier & Jeffrey H. Bergstrand, 2005. "Do free trade agreements actually increase members’ international trade?," Working Paper, Federal Reserve Bank of Atlanta 2005-03, Federal Reserve Bank of Atlanta.
  2. 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.
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  10. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics, Boston College Department of Economics 485, Boston College Department of Economics.
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  14. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, American Economic Association, vol. 85(3), pages 615-23, June.
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  16. William Greene, 2004. "Fixed Effects and Bias Due to the Incidental Parameters Problem in the Tobit Model," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 23(2), pages 125-147.
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Cited by:
  1. Aliyev, Khatai, 2014. "Expected Macroeconomic Impacts of the Accession to WTO on Azerbaijan Economy: Empirical Analysis," MPRA Paper 55096, University Library of Munich, Germany.
  2. Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2014. "A Within Estimator for Three-Level Data: An Application to the WTO Effect on Trade Flows," Discussion Papers Series 501, School of Economics, University of Queensland, Australia.
  3. 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.

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