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Do the World Trade Organization and the Generalized System of Preferences foster bilateral trade?

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  • Bernhard Herz
  • Marco Wagner

Abstract

World trade has grown exponentially during the last 60 years. Admittedly, it is not clear if this development can be assigned to international trade agreements like the World Trade Organization or the Generalized System of Preferences as previous empirical studies found contradicting results. In this paper we generalize the different approaches used in the lit- erature to estimate the role of GATT/WTO and the Generalized System of Preferences for trade. We use a gravity model and apply FE estimation on a disaggregated bilateral data set of the trade flows between 145 countries across 1962-99. In our analysis we find a significant positive effect of WTO membership on bilateral trade. Referring to other multi- lateral institutions, we find robust evidence that membership in regional trade agreements or currency unions substantially increase bilateral trade flows as well. By contrast, we fi nd that the Generalized System of Preferences does not foster trade in general, rather the opposite. This might be due to the opportunistic behavior of industrial countries that grant GSP schemes as long as the concerned products are relatively unimportant, but restrict them as soon as they become relevant.

Suggested Citation

  • Bernhard Herz & Marco Wagner, 2007. "Do the World Trade Organization and the Generalized System of Preferences foster bilateral trade?," Working Papers 020, Bavarian Graduate Program in Economics (BGPE).
    • Handle: RePEc:bav:wpaper:020_herz_wagner.pdf
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    File URL: https://www.bgpe.de/files/2024/05/020_herz_wagner.pdf
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    References listed on IDEAS

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    1. Subramanian, Arvind & Wei, Shang-Jin, 2007. "The WTO promotes trade, strongly but unevenly," Journal of International Economics, Elsevier, vol. 72(1), pages 151-175, May.
    2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    3. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
    4. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
    5. André Sapir & Rolf Langhammer, 1987. "Economic impact of generalized tariff preferences," ULB Institutional Repository 2013/8090, ULB -- Universite Libre de Bruxelles.
    6. Howard J. Wall, 1999. "Using the gravity model to estimate the costs of protection," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 33-40.
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    Cited by:

    1. Bernhard Herz & Marco Wagner, 2008. "Exportweltmeister Deutschland – ein Sommermärchen?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 9(4), pages 446-464, November.
    2. Aaronson Susan Ariel & Abouharb M. Rodwan & Daniel Wang K., 2015. "The Liberal Illusion Is Not a Complete Delusion: The WTO Helps Member States Keep the Peace Only When It Increases Trade," Global Economy Journal, De Gruyter, vol. 15(4), pages 455-484, December.
    3. Türkcan, Kemal & Pişkin, Erhan, 2014. "Ticaret Anlaşmalarının Türkiye’nin İhracat Dinamiğine Etkisi: Yaygın ve Yoğun Ticaret [The Effects of the Trade Agreements on the Dynamics of Turkey’s Export: Extensive and Intensive Margins]," MPRA Paper 59841, University Library of Munich, Germany.
    4. Xavier Cirera & Francesca Foliano & Michael Gasiorek, 2016. "The impact of preferences on developing countries’ exports to the European Union: bilateral gravity modelling at the product level," Empirical Economics, Springer, vol. 50(1), pages 59-102, February.
    5. Bernhard Herz & Marco Wagner, 2011. "The Dark Side of the Generalized System of Preferences," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 763-775, September.
    6. Rolf J. Langhammer, 2010. "Unordnung in der internationalen Handelsordnung: Befunde, Gründe, Auswirkungen und Therapien," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(1), pages 75-98, February.
    7. Christodoulopoulou, Styliani, 2010. "THE Effects of Multilateral Trade Liberalization on the Extensive and the Intensive Margins of Trade," MPRA Paper 29169, University Library of Munich, Germany.
    8. Jason H. Grant & Kathryn A. Boys, 2012. "Agricultural Trade and the GATT/WTO: Does Membership Make a Difference?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 1-24.

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    More about this item

    Keywords

    WTO; GSP; regional trade agreements; currency union; gravity model; international trade;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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