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GATT/WTO membership does promote international trade after all – Some new empirical evidence

  • Konya, Laszlo
  • Matyas, Laszlo
  • Harris, Mark

The declared objective of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) is to promote free trade between member states. Nonetheless, an exhaustive study of bilateral merchandise trade based on a large panel data set led Rose (2004) to conclude that there is no compelling empirical evidence to show that GATT/WTO membership does actually encourage international trade. This unanticipated finding generated a great deal of attention in the literature and several scholars put forward various explanations for it. In this paper we set up a new international trade data set which, unlike Rose’s, allows us to model exports and imports separately and to study the extensive margin of trade, i.e., the number of bilateral trade relationships. Using this data set and a gravity framework, first we demonstrate how to obtain puzzling negative results and so explain the previous unintuitive findings. Then we show that GATT/WTO membership does indeed encourage international trade, so the most obvious reason for Rose’s negative outcome is the lack of zero bilateral trade observations in his data set.

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File URL: http://mpra.ub.uni-muenchen.de/34978/1/MPRA_paper_34978.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34978.

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Date of creation: Jun 2011
Date of revision: 20 Nov 2011
Handle: RePEc:pra:mprapa:34978
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  1. Subramanian, Arvind & Wei, Shang-Jin, 2005. "The WTO Promotes Trade, Strongly But Unevenly," CEPR Discussion Papers 5122, C.E.P.R. Discussion Papers.
  2. 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.
  3. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
  4. Hummels, D. & Levinsohn, J., 1993. "Monopolistic Competition and International Trade: Reconsidering the Evidence," Working Papers 339, Research Seminar in International Economics, University of Michigan.
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  7. Andrew K. Rose, 2002. "Do We Really Know that the WTO Increases Trade?," NBER Working Papers 9273, National Bureau of Economic Research, Inc.
  8. 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.
  9. repec:lmu:muenar:20646 is not listed on IDEAS
  10. Rubinstein, Yona & Helpman, Elhanan & Melitz, Marc, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," Scholarly Articles 3228230, Harvard University Department of Economics.
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  12. Gabriel J. Felbermayr & Wilhelm Kohler, 2006. "Exploring the Intensive and Extensive Margins of World Trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(4), pages 642-674, December.
  13. William Greene, 2004. "Fixed Effects and Bias Due to the Incidental Parameters Problem in the Tobit Model," Econometric Reviews, Taylor & Francis Journals, vol. 23(2), pages 125-147.
  14. 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.
  15. Mark N. Harris & László Kónya & László Mátyás, 2002. "Modelling the Impact of Environmental Regulations on Bilateral Trade Flows: OECD, 1990-1996," The World Economy, Wiley Blackwell, vol. 25(3), pages 387-405, 03.
  16. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
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  18. Piermartini, Roberta & Teh, Robert, 2005. "Demystifying modelling methods for trade policy," WTO Discussion Papers 10, World Trade Organization (WTO), Economic Research and Statistics Division.
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