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Modelling the Extensive Margin of World Trade: New Evidence on GATT and WTO Membership

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  • Gabriel Felbermayr
  • Wilhelm Kohler

Abstract

Recent literature has argued that, contrary to the results of a seminal paper by Rose (2004), General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO) membership does promote bilateral trade, at least for developed economies and if membership includes non-formal compliance. We review the literature to identify open issues. We then develop a simple extension of the gravity model that gives rise to an extensive country margin of trade separating positive trade from zero trade country pairs. The model is used to identify WTO membership effects at both the intensive and the extensive margins. Empirical estimation of this model, based on Poisson pseudo‐maximum likelihood methods with exporter and importer fixed effects, allows us to readdress the empirical issue of whether GATT/WTO membership does or does not promote trade. We find that GATT membership was successful on the extensive margin of world trade but not on the intensive margin. For the recent WTO episode (1995–2008), we find consistent and robust evidence for a substantial trade‐creating role of membership which is driven primarily by the intensive margin. WTO membership results in higher bilateral trade of about 40 per cent.

Suggested Citation

  • Gabriel Felbermayr & Wilhelm Kohler, 2010. "Modelling the Extensive Margin of World Trade: New Evidence on GATT and WTO Membership," The World Economy, Wiley Blackwell, vol. 33(11), pages 1430-1469, November.
  • Handle: RePEc:bla:worlde:v:33:y:2010:i:11:p:1430-1469
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    File URL: http://hdl.handle.net/10.1111/j.1467-9701.2010.01292.x
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    1. Gabriel J Felbermayr & Wilhelm Kohler, 2014. "Exploring the Intensive and Extensive Margins of World Trade," World Scientific Book Chapters, in: European Economic Integration, WTO Membership, Immigration and Offshoring, chapter 4, pages 115-148, World Scientific Publishing Co. Pte. Ltd..
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    3. Dutt, Pushan, 2020. "The WTO is not passé," European Economic Review, Elsevier, vol. 128(C).
    4. Jung, Benjamin, 2020. "The heterogeneous effects of China's accession to the world trade organization," Hohenheim Discussion Papers in Business, Economics and Social Sciences 10-2020, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    5. Nelson, Douglas R., 2015. "Prospects for Constitutionalization of the WTO," World Trade Review, Cambridge University Press, vol. 14(1), pages 135-153, January.
    6. Aichele, Rahel & Heiland, Inga, 2018. "Where is the value added? Trade liberalization and production networks," Journal of International Economics, Elsevier, vol. 115(C), pages 130-144.
    7. Sofiane Ghali & Habib Zitouna & Zouhour Karray & Slim Driss, 2013. "Effects of NTMs on the Extensive and Intensive Margins to Trade: The Case of Tunisia and Egypt," Working Papers 820, Economic Research Forum, revised Dec 2013.
    8. Jeffrey H. Bergstrand, 2013. "Measuring the Effects of Endogenous Policies on Economic Integration," CESifo Economic Studies, CESifo, vol. 59(2), pages 199-222, June.
    9. Prehn, Soren & Brümmer, Bernhard, 2011. "Estimation Issues in Single Commodity Gravity Trade Models," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114776, European Association of Agricultural Economists.
    10. Wilhelm Kohler, 2010. "Das Spannungsfeld von Protektion, Liberalisierung und Freihandel," FIW Policy Brief series 008, FIW.
    11. Machado, José A.F. & Santos Silva, J.M.C. & Wei, Kehai, 2016. "Quantiles, corners, and the extensive margin of trade," European Economic Review, Elsevier, vol. 89(C), pages 73-84.
    12. Prehn, Sören & Brümmer, Bernhard, 2011. "Estimation issues in disaggregate gravity trade models," DARE Discussion Papers 1107, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
    13. Garg, Shamita & Sushil,, 2021. "Determinants of deglobalization: A hierarchical model to explore their interrelations as a conduit to policy," Journal of Policy Modeling, Elsevier, vol. 43(2), pages 433-447.
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    15. Rishav Bista, 2017. "Revisiting the Olympic Effect," Review of International Economics, Wiley Blackwell, vol. 25(2), pages 279-291, May.

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