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The WTO Trade Effect

  • Pao-li Chang

    (SMU)

  • Myoung-jae Lee

Rose (2004) showed that the WTO or its predecessor, the GATT, did not promote trade, based on conventional econometric analysis of gravity-type equations of trade. We argue that conclusions regarding the GATT/WTO trade effect based on gravity-type equations are arbitrary and subject to parametric misspecifications. We propose using nonparametric matching methods to estimate the `treatment effect' of GATT/WTO membership, and permutation-based inferential procedures for assessing statistical significance of the estimated effects. A sensitivity analysis following Rosenbaum (2002) is then used to evaluate the sensitivity of our estimation results to potential selection biases. Contrary to Rose (2004), we find the effect of GATT/WTO membership economically and statistically significant, and far greater than that of the Generalized System of Preferences (GSP).

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File URL: http://www.eaber.org/node/22063
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Paper provided by East Asian Bureau of Economic Research in its series Trade Working Papers with number 22063.

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Date of creation: Jan 2007
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Handle: RePEc:eab:tradew:22063
Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org

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