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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. Joao Santos Silva & Silvana Tenreyro, 2005. "The log of gravity," LSE Research Online Documents on Economics 3744, London School of Economics and Political Science, LSE Library.
  2. 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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  9. Rose, Andrew K, 2002. "Do We Really Know that the WTO Increases Trade?," CEPR Discussion Papers 3538, C.E.P.R. Discussion Papers.
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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. 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.
  14. Egger, Peter, 2000. "A note on the proper econometric specification of the gravity equation," Economics Letters, Elsevier, vol. 66(1), pages 25-31, January.
  15. repec:lmu:muenar:20646 is not listed on IDEAS
  16. Piermartini, Roberta & Teh, Robert, 2005. "Demystifying modelling methods for trade policy," WTO Discussion Papers 10, World Trade Organization (WTO), Economic Research and Statistics Division.
  17. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-60, February.
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