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Exploring the intensive and extensive margins of world trade

Listed author(s):
  • Felbermayr, Gabriel
  • Kohler, Wilhelm K.

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 University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20610.

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Date of creation: 2006
Publication status: Published in Review of World Economics 4 142(2006): pp. 642-674
Handle: RePEc:lmu:muenar:20610
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  1. 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.
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  17. Romain Wacziarg & Karen Horn Welch, 2003. "Trade Liberalization and Growth: New Evidence," NBER Working Papers 10152, National Bureau of Economic Research, Inc.
  18. 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.
  19. 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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