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In Search of WTO Trade Effects: Preferential Trade Agreements Promote Trade Strongly, But Unevenly

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  • Theo S. Eicher

    (University of Washington)

  • Christian Henn

    (IMF)

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 robustly insignificant 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 University of Washington, Department of Economics in its series Working Papers with number UWEC-2008-22-FC.

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Date of creation: Oct 2008
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Publication status: Forthcoming in journal of international economics
Handle: RePEc:udb:wpaper:uwec-2008-22-fc

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References

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Citations

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Cited by:
  1. Bradley J. McDonald & Christian Henn, 2011. "Protectionist Responses to the Crisis," IMF Working Papers 11/139, International Monetary Fund.
  2. 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.
  3. Gabriel J Felbermayr & Wilhelm Kohler, 2009. "WTO Membership and the Extensive Margin of World Trade: New Evidence," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 304/2009, Department of Economics, University of Hohenheim, Germany.
  4. 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.
  5. Dutt, Pushan & Mihov, Ilian & Van Zandt, Timothy, 2013. "The effect of WTO on the extensive and the intensive margins of trade," Journal of International Economics, Elsevier, vol. 91(2), pages 204-219.
  6. Aliyev, Khatai, 2014. "Expected Macroeconomic Impacts of the Accession to WTO on Azerbaijan Economy: Empirical Analysis," MPRA Paper 55096, University Library of Munich, Germany.
  7. Cecília Hornok, 2012. "Gravity or Dummies? The Limits of Identification in Gravity Estimations," CEU Working Papers 2012_11, Department of Economics, Central European University, revised 20 May 2012.
  8. Gil-Pareja, Salvador & Llorca-Vivero, Rafael & Martínez-Serrano, José Antonio, 2014. "Do nonreciprocal preferential trade agreements increase beneficiaries' exports?," Journal of Development Economics, Elsevier, vol. 107(C), pages 291-304.
  9. Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2013. "Heterogeneous effects of preferential trade agreements: How does partner similarity matter?," Discussion Papers Series 490, School of Economics, University of Queensland, Australia.
  10. Joanne Gowa & Raymond Hicks, 2012. "The most-favored nation rule in principle and practice: Discrimination in the GATT," The Review of International Organizations, Springer, vol. 7(3), pages 247-266, September.
  11. Barbara Dluhosch & Stefanie Krause, 2013. "Diversity and the disinterest in trade liberalization: on the prospects of self-enforcing cooperation," Journal of Evolutionary Economics, Springer, vol. 23(2), pages 455-475, April.
  12. Moelders, Florian, 2011. "Trade Persistence and the Limits of Trade Agreements," Proceedings of the German Development Economics Conference, Berlin 2011 58, Verein für Socialpolitik, Research Committee Development Economics.

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