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The WTO Trade Effect

  • Pao-Li Chang

    ()

    (School of Economics, Singapore Management University)

  • Myoung-Jae Lee

    ()

    (Department of Economics, Korea University)

Rose (2004) showed that the WTO or its predecessor, the GATT, did not promote trade, based on conventional econometric analysis of gravity-type equations of trade. We argue that conclusions regarding the GATT/WTO trade effect based on gravity-type equations are arbitrary and subject to parametric misspecifications. We propose using nonparametric matching methods to estimate the `treatment effect' of GATT/WTO membership, and permutation-based inferential procedures for assessing statistical significance of the estimated effects. A sensitivity analysis following Rosenbaum (2002) is then used to evaluate the sensitivity of our estimation results to potential selection biases. Contrary to Rose (2004), we find the effect of GATT/WTO membership economically and statistically significant, and far greater than that of the Generalized System of Preferences (GSP).

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Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 06-2007.

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Length: 40 pages
Date of creation: Sep 2007
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:06-2007
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