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

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

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File URL: http://www.uni-hohenheim.de/RePEc/hoh/papers/304.pdf
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Paper provided by Department of Economics, University of Hohenheim, Germany in its series Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim with number 304/2009.

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Length: 35 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:hoh:hohdip:304
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Web page: http://www.uni-hohenheim.de/institution/institut-fuer-economics-11
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  1. 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.
  2. Pao-Li Chang & Myoung-Jae Lee, 2007. "The WTO Trade Effect," Working Papers 06-2007, Singapore Management University, School of Economics.
  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. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  5. Felbermayr, Gabriel & Kohler, Wilhelm K., 2006. "Exploring the intensive and extensive margins of world trade," Munich Reprints in Economics 20610, University of Munich, Department of Economics.
  6. Anne-Célia Disdier & Keith Head, 2004. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," Development Working Papers 186, Centro Studi Luca d\'Agliano, University of Milano.
  7. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
  8. Andrew Rose, 2005. "Which International Institutions Promote International Trade?," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 682-698, 09.
  9. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
  10. Rose, Andrew K, 2002. "Do We Really Know that the WTO Increases Trade?," CEPR Discussion Papers 3538, C.E.P.R. Discussion Papers.
  11. Rubinstein, Yona & Helpman, Elhanan & Melitz, Marc, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," Scholarly Articles 3228230, Harvard University Department of Economics.
  12. 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.
  13. Rose, Andrew K, 2002. "Do WTO Members have More Liberal Trade Policy?," CEPR Discussion Papers 3659, C.E.P.R. Discussion Papers.
  14. repec:inr:wpaper:21709 is not listed on IDEAS
  15. 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.
  16. Schmitt, Nicolas & Yu, Zhihao, 2001. "Economies of scale and the volume of intra-industry trade," Economics Letters, Elsevier, vol. 74(1), pages 127-132, December.
  17. Bogdan Lissovolik & Yaroslav Lissovolik, 2006. "Russia and the WTO: The "Gravity" of Outsider Status," IMF Staff Papers, Palgrave Macmillan, vol. 53(1), pages 1.
  18. Scott L. Baier & Jeffrey H. Bergstrand, 2005. "Do free trade agreements actually increase members’ international trade?," Working Paper 2005-03, Federal Reserve Bank of Atlanta.
  19. 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.
  20. Andrew K. Rose, 2007. "Do We Really Know That the WTO Increases Trade? Reply," American Economic Review, American Economic Association, vol. 97(5), pages 2019-2025, December.
  21. Xuepeng Liu, 2009. "GATT/WTO Promotes Trade Strongly: Sample Selection and Model Specification," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 428-446, 08.
  22. 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.
  23. 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.
  24. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524341, June.
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