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Exploring the Intensive and Extensive Margins of World Trade

  • Gabriel J. Felbermayr
  • Wilhelm Kohler

World trade evolves at two margins. Where a bilateral trading relationship already exists it may increase through time (intensive margin). But trade may also increase if a trading bilateral relationship is newly established between countries that have not traded with each other in the past (extensive margin). We provide an empirical dissection of post-World-War-II growth in manufacturing world trade along these two margins. We propose a “corner-solutions-version” of the gravity model to explain movements on both margins. A Tobit estimation of this model resolves the so-called “distance-puzzle”. It also finds more convincing evidence than recent literature that WTO-membership enhances trade.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1276.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1276
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  1. Rose, Andrew K, 2002. "Do We Really Know that the WTO Increases Trade?," CEPR Discussion Papers 3538, C.E.P.R. Discussion Papers.
  2. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters, in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
  3. Brun, Jean-François & Carrère, Céline & de Melo, Jaime & Guillaumont, Patrick, 2002. "Has Distance Died? Evidence from a Panel Gravity Model," CEPR Discussion Papers 3500, C.E.P.R. Discussion Papers.
  4. Peter Egger & Michael Pfaffermayr, 2001. "Distance, Trade and FDI: A Hausman-Taylor SUR Approach," WIFO Working Papers 164, WIFO.
  5. Arvind Subramanian & Shang-Jin Wei, 2003. "The WTO Promotes Trade, Strongly But Unevenly," NBER Working Papers 10024, National Bureau of Economic Research, Inc.
  6. Alan V Deardorff, 2004. "Local Comparative Advantage: Trade Costs and the Pattern of Trade," Working Papers 500, Research Seminar in International Economics, University of Michigan.
  7. Claudia M. Buch & Jörn Kleinert & Farid Toubal, 2003. "The Distance Puzzle: On the Interpretation of the Distance Coefficient in Gravity Equations," Kiel Working Papers 1159, Kiel Institute for the World Economy.
  8. repec:rus:hseeco:123558 is not listed on IDEAS
  9. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, June.
  10. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
  11. Andrew Bernard & J. Bradford Jensen & Peter Schott, 2003. "Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics," IFS Working Papers W03/10, Institute for Fiscal Studies.
  12. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  13. Leamer, E. & Levingsohn, J., 1994. "International Trade Theory: The Evidence," Working Papers 368, Research Seminar in International Economics, University of Michigan.
  14. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  15. Barry Eichengreen & Douglas A. Irwin, 1998. "The Role of History in Bilateral Trade Flows," NBER Chapters, in: The Regionalization of the World Economy, pages 33-62 National Bureau of Economic Research, Inc.
  16. Rikhil Bhavnani & Natalia T. Tamirisa & Arvind Subramanian & David T. Coe, 2002. "The Missing Globalization Puzzle," IMF Working Papers 02/171, International Monetary Fund.
  17. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72, December.
  18. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  19. Simon J. Evenett & Wolfgang Keller, 2002. "On Theories Explaining the Success of the Gravity Equation," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 281-316, April.
  20. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  21. Irwin, Douglas A. & Tervio, Marko, 2002. "Does trade raise income?: Evidence from the twentieth century," Journal of International Economics, Elsevier, vol. 58(1), pages 1-18, October.
  22. J. M. C. Santos Silva & Silvana Tenreyro, 2003. "Gravity-defying trade," Working Papers 03-1, Federal Reserve Bank of Boston.
  23. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," World Bank Economic Review, World Bank Group, vol. 22(2), pages 187-231, June.
  24. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  25. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February.
  26. Rozanski, Jerzy & Yeats, Alexander, 1994. "On the (in)accuracy of economic observations: An assessment of trends in the reliability of international trade statistics," Journal of Development Economics, Elsevier, vol. 44(1), pages 103-130, June.
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