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International Institutions and the Volatility of International Trade


  • Mansfield, Edward D.
  • Reinhardt, Eric


During the past half-century, states have established a large number of international trade institutions, both multilateral and regional in scope. The existing literature on this topic emphasizes that these agreements are chiefly designed to liberalize and increase the flow of overseas commerce. Yet such institutions have another function that has been largely ignored by researchers, namely, reducing volatility in trade policy and trade flows. Exposure to global markets increases the vulnerability of a country's output to terms of trade shocks. Governments seek to insulate their economies from such instability through membership in international trade institutions, particularly the World Trade Organization (WTO) and preferential trading arrangements (PTAs). We hypothesize that these institutions reduce the volatility of overseas commerce. We further hypothesize that, because market actors prefer price stability, trade institutions increase the volume of foreign commerce by reducing trade variability. This article conducts the first large-scale, multivariate statistical tests of these two hypotheses, using annual data on exports for all pairs of countries from 1951 through 2001. The tests provide strong support for our arguments. PTAs and the WTO regime significantly reduce export volatility. In so doing, these institutions also increase export levels.

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  • Mansfield, Edward D. & Reinhardt, Eric, 2008. "International Institutions and the Volatility of International Trade," International Organization, Cambridge University Press, vol. 62(04), pages 621-652, October.
  • Handle: RePEc:cup:intorg:v:62:y:2008:i:04:p:621-652_08

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    1. Swarnali Ahmed Hannan, 2016. "The Impact of Trade Agreements; New Approach, New Insights," IMF Working Papers 16/117, International Monetary Fund.
    2. Nuno Limão & Giovanni Maggi, 2015. "Uncertainty and Trade Agreements," American Economic Journal: Microeconomics, American Economic Association, vol. 7(4), pages 1-42, November.
    3. Kyle Handley & Nuno Limão, 2015. "Trade and Investment under Policy Uncertainty: Theory and Firm Evidence," American Economic Journal: Economic Policy, American Economic Association, vol. 7(4), pages 189-222, November.
    4. Adlung, Rudolf, 2009. "Services liberalization from a WTO/GATS perspective: In search of volunteers," WTO Staff Working Papers ERSD-2009-05, World Trade Organization (WTO), Economic Research and Statistics Division.
    5. Baccini, Leonardo & Urpelainen, Johannes, 2012. "Strategic side payments: preferential trading agreements, economic reform, and foreign aid," LSE Research Online Documents on Economics 45057, London School of Economics and Political Science, LSE Library.
    6. Baccini, Leonardo, 2012. "Democratization and trade policy: an empirical analysis of developing countries," LSE Research Online Documents on Economics 44924, London School of Economics and Political Science, LSE Library.
    7. Bacchetta, Marc & Piermartini, Roberta, 2011. "The value of bindings," WTO Staff Working Papers ERSD-2011-13, World Trade Organization (WTO), Economic Research and Statistics Division.
    8. Matthias Kalkuhl & Lukas Kornher & Matthias Kalkuhl & Irfan Mujahid, 2015. "Food price volatility in developing countries – the role of trade and storage," EcoMod2015 8415, EcoMod.
    9. Thomas H.W. Ziesemer, 2014. "Country terms of trade: trends, unit roots, over-differencing, endogeneity, time dummies, and heterogeneity," International Review of Applied Economics, Taylor & Francis Journals, vol. 28(6), pages 767-796, September.
    10. Thierry PAIRAULT, 2013. "Chinese Direct Investment In Africa: A State Strategy ?," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 37, pages 259-284.
    11. María Virginia Mattheus & Alberto Martín Díaz Cafferata, 2011. "Co-movements in terms of trade volatility in land-abundant countries," Working Papers 07/11, Instituto Universitario de Análisis Económico y Social.
    12. Guanyi Leu, 2011. "ASEAN’s Preferential Trade Agreements (PTA) Strategy," Journal of Current Southeast Asian Affairs, Institute of Asian Studies, GIGA German Institute of Global and Area Studies, Hamburg, vol. 30(2), pages 31-64.
    13. Thierry Pairault, 2014. "Chinese direct investment in Africa. A state strategy?," Post-Print halshs-00981417, HAL.
    14. Jonathan B. Slapin and Julia Gray, University of Pittsburgh, 2009. "Why Some Regional Trade Agreements Work: Private Rents, Exit Options, and Legalization," The Institute for International Integration Studies Discussion Paper Series iiisdp289, IIIS.
    15. Leonardo Baccini & Soo Kim, 2012. "Preventing protectionism: International institutions and trade policy," The Review of International Organizations, Springer, vol. 7(4), pages 369-398, December.
    16. Valeria Groppo & Roberta Piermartini, 2014. "Trade Policy Uncertainty and the WTO," Discussion Papers of DIW Berlin 1437, DIW Berlin, German Institute for Economic Research.
    17. Aliyev, Khatai, 2014. "Expected Macroeconomic Impacts of the Accession to WTO on Azerbaijan Economy: Empirical Analysis," MPRA Paper 55096, University Library of Munich, Germany.
    18. José Luis Arrufat & Alberto Martín Díaz Cafferata & José Antonio Viceconte, 2011. "Terms of trade cycles in extreme land abundant countries, 1870-2009. Spectral analysis," Working Papers 05/11, Instituto Universitario de Análisis Económico y Social.
    19. María Franco Chuaire & Carlos Scartascini & Mariano Tommasi, 2017. "State capacity and the quality of policies. Revisiting the relationship between openness and government size," Economics and Politics, Wiley Blackwell, vol. 29(2), pages 133-156, July.
    20. Asif Efrat, 2016. "Promoting trade through private law: Explaining international legal harmonization," The Review of International Organizations, Springer, vol. 11(3), pages 311-336, September.
    21. Andreas Dür & Leonardo Baccini & Manfred Elsig, 2014. "The design of international trade agreements: Introducing a new dataset," The Review of International Organizations, Springer, vol. 9(3), pages 353-375, September.
    22. Dutt, Pushan & Mobarak, Ahmed Mushfiq, 2016. "Democracy and policy stability," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 499-517.
    23. Olajide S. Oladipo, 2017. "Export Instability and Economic Growth in Nigeria: A Time Series Analysis," Research Papers RP_322, African Economic Research Consortium.
    24. Julia Gray & Jonathan Slapin, 2012. "How effective are preferential trade agreements? Ask the experts," The Review of International Organizations, Springer, vol. 7(3), pages 309-333, September.
    25. Daniela Benavente, 2010. "Constraining and supporting effects of the multilateral trading system on U.S. unilateralism," IHEID Working Papers 09-2010, Economics Section, The Graduate Institute of International Studies.

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