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

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Abstract

Recent literature has argued that, contrary to the results of a seminal paper by Rose (2004), WTO membership does promote bilateral trade, at least for developed economies and if membership includes non-formal compliance. We review the literature in order to identify open issues. We then develop the simplest possible "corner-solutions" version of the gravity model which serves as a framework to readdress these issues. We focus on the extensive margin of trade that separates positive-trade from zero-trade country pairs. We argue that the model can be consistently estimated using Poisson pseudo-maximum-likelihood methods with exporter and importer fixed effects. We account for coding issues and the potential heterogeneity of the WTO membership which recent contributions have stressed. While we find that WTO membership increases the likelihood that a given country pair trades, we do not find that the extensive margin has a strong and systematic effect on the average trade-creating potential of the WTO. JEL classifcation: F12, F13

Suggested Citation

  • Gabriel J Felbermayr & Wilhelm Kohler, 2009. "WTO Membership and the Extensive Margin of World Trade: New Evidence," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 304/2009, Department of Economics, University of Hohenheim, Germany.
  • Handle: RePEc:hoh:hohdip:304
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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..
    2. Chang, Pao-Li & Lee, Myoung-Jae, 2011. "The WTO trade effect," Journal of International Economics, Elsevier, vol. 85(1), pages 53-71, September.
    3. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers.
    4. Rose, Andrew K., 2004. "Do WTO members have more liberal trade policy?," Journal of International Economics, Elsevier, vol. 63(2), pages 209-235, July.
    5. 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.
    6. Andrew Rose, 2005. "Which International Institutions Promote International Trade?," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 682-698, September.
    7. 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.
    8. 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.
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    12. Michael Tomz & Judith L. Goldstein & Douglas Rivers, 2007. "Do We Really Know That the WTO Increases Trade? Comment," American Economic Review, American Economic Association, vol. 97(5), pages 2005-2018, December.
    13. Ghosh, Sucharita & Yamarik, Steven, 2004. "Are regional trading arrangements trade creating?: An application of extreme bounds analysis," Journal of International Economics, Elsevier, vol. 63(2), pages 369-395, July.
    14. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 441-487.
    15. Eicher, Theo S. & Henn, Christian, 2011. "In search of WTO trade effects: Preferential trade agreements promote trade strongly, but unevenly," Journal of International Economics, Elsevier, vol. 83(2), pages 137-153, March.
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    19. Bogdan Lissovolik & Yaroslav Lissovolik, 2006. "Russia and the WTO: The "Gravity" of Outsider Status," IMF Staff Papers, Palgrave Macmillan, vol. 53(1), pages 1-1.
    20. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2003. "A generalized design for bilateral trade flow models," Economics Letters, Elsevier, vol. 80(3), pages 391-397, September.
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    Cited by:

    1. Hogrefe, Jan & Jung, Benjamin & Kohler, Wilhelm K., 2010. "Readdressing the trade effect of the Euro: Allowing for currency misalignment," ZEW Discussion Papers 10-023, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Jayjit Roy, 2014. "On the robustness of the trade-inducing effects of trade agreements and currency unions," Empirical Economics, Springer, vol. 47(1), pages 253-304, August.
    3. Prehn, Sören & Brümmer, Bernhard & Thompson, Stanley R., 2010. "Payment decoupling and the intra-European calf trade," DARE Discussion Papers 1008, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).

    More about this item

    Keywords

    gravity approach; WTO; monopolistic competition; real trade costs;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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