Abstract
Do countries trade more when they participate in the World Trade Organisation (WTO)? After Rose’s (Am Econ Rev 94:98–114, 2004) initial “non-effect”, the literature has developed in several ways to re-examine this unexpected result. This paper gives a detailed overview of the developments and exposes the main biases that plague previous contributions. Using a dataset covering 181 countries for the period 1948–2007, we show that zero trade flows are best incorporated using (zero-inflated) negative binomial maximum likelihood estimation. We find that formal members gained more than non-member participants, and the level of WTO participants experienced gains go hand in hand with the extent of their multilateral liberalisation commitments. Developed nations gain more than developing or least developed countries, although poor countries do benefit from trading under the Generalised System of Preferences (GSP). We also correct for selection bias with respect to economic integration agreements and find, overall, that regionalism has a lower trade-promoting effect than WTO membership.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
The change in international trade volumes induced by WTO participation is what will be called the “WTO effect” throughout this paper.
- 2.
Following the WTO’s practice, this study considers LDCs and developing countries to be two distinct groups of countries.
- 3.
Unfortunately, the aggregate nature of the trade data in the present dataset does not allow for industry-specific analyses. However, studies focusing on a select number of countries, years and industries have found supporting evidence for WTO membership with respect to capital-intensive commodities (Engelbrecht and Pearce, 2007) and trade excluding agriculture, textiles and oil (Kim, 2010).
- 4.
The terms membership and participation are used interchangeably throughout this paper, but the context will be sufficiently specific when distinctions between de jure, formal membership and de facto, informal participation are necessary.
- 5.
Trade at the intensive margin studies the WTO effect on country-pairs that already have a trade relationship. However, WTO membership may also lead to the creation of trade relationships that countries would otherwise not have had, which is referred to as trade at the extensive margin.
- 6.
The former is calculated as \(ln[\frac{1} {4}(export_{ij} + export_{ji} + import_{ij} + import_{ji})]\), the latter as \(ln[(export_{ij} \times export_{ji} \times import_{ij} \times import_{ji})^{\frac{1} {4} }]\).
- 7.
There are no provisions in international law that require governments to notify their EIAs to the WTO before they can be enforced.
- 8.
Baldwin and Taglioni (2006) and Baier and Bergstrand (2007) argue that these “traditional,” time-invariant MRT should actually be time-varying to correct for endogeneity bias, and that it can be included in linear models by estimating importer-time (it), exporter-time (jt) and country-pair (ij) effects. However, the large number of dummies leads to an incidental parameter problem. Although this can be addressed in linear models by de-meaning the data, in this case cancelling the dyad dummies, there is as of yet no straightforward solution for non-linear models.
- 9.
Zero-truncated models are not considered because they only allow for positive trade flows, which does not help to address the zero trade flow problem.
- 10.
Rose’s model specification is slightly different from (5). In particular, he uses the natural logarithm of the product of the importer and exporter’s real GDP. In the remainder of this study, these variables are included separately.
- 11.
- 12.
Observing variation in countries that have been members since the GATT’s inception is not possible due to data limitations. The trade liberalisation efforts of these countries may have been even more extensive than those of countries that joined later because, being GATT founders, they showed the greatest formal initiative to liberalise trade. This may imply that the obtained estimates of the WTO effect are underestimated, although this seems difficult to verify directly.
References
Allison, P., & Waterman, R. (2002). Fixed effects negative binomial regression models. Sociological Methodology, 32, 247–265.
Anderson, J. E., & van Wincoop, E. (2003). Gravity with gravitas: A solution to the border puzzle. American Economic Review, 93, 170–192.
Baier, S. L., & Bergstrand, J. H. (2007). Do free trade agreements actually increase members’ international trade? Journal of International Economics, 71, 72–95.
Baldwin, R. E., & Taglioni, D. (2006). Gravity for Dummies and Dummies for Gravity Equations. Working Paper 12516. Cambridge, MA: National Bureau of Economic Research.
Barton, J. H., Goldstein, J. L., Josling, T. E., & Steinberg, R. H. (2006). The evolution of the trade regime: Politics, law, and economics of the GATT and the WTO. Princeton, NJ: Princeton University Press.
Bosker, M. (2008). The Empirical Relevance of Geographical Economics. PhD thesis, Utrecht University.
Brakman, S., Garita, G., Garretsen, J. H., & van Marrewijk, C.. (2010). Economic and financial integration and the rise of cross-border M&As. In P. A. G. van Bergeijk & S. Brakman (Eds.), The gravity model in international trade. Cambridge: Cambridge University Press.
Bureau of Labor Statistics. (2008). Consumer price index. http://www.bls.gov/cpi, last accessed November 8, 2008.
Burger, M. J., van Oort, F. G., & Linders, G. J. M. (2009). On the specification of the gravity model of trade: Zeros, excess zeros and zero-inflated estimation. Spatial Economic Analysis, 4, 167–190.
Cameron, A. C., & Trivedi, P. K. (2009). Microeconometrics using Stata. College Station, TX: Stata Press.
CEPII. (2008). Geodesic distances. http://www.cepii.fr/anglaisgraph/bdd/distances.htm, last accessed November 8, 2008.
Engelbrecht, H. J., & Pearce, C. (2007). The GATT/WTO has promoted trade, but only in capital-intensive commodities! Applied Economics 39, 1573–1581.
Feenstra, R. C. (2004). Advanced international trade: Theory and evidence. Princeton, MA: Princeton University Press.
Felbermayr, G. J., & Kohler, W. (2006). Exploring the intensive and extensive margins of world trade. Review of World Economics, 142, 642–674.
Gould, W. W., Pitblado, J. S., & Sribney, W. M. (2006). Maximum likelihood estimation with Stata (3rd ed.). College Station, TX: Stata Station.
Herz, B., & Wagner, M. (2011). The ‘real’ effect of GATT/WTO - a generalised approach. The World Economy, 34, 1014–1041.
Hilbe, J. M. (2007). Negative binomial regression. Cambridge: Cambridge University Press.
IMF. (1995). Direction of trade statistics historical database (1948–1980) CD-ROM. Washington, DC: International Monetary Fund.
IMF. (2008). Direction of trade statistics. Washington, DC: International Monetary Fund.
Kim, M. H. (2010). Does the WTO promote trade? Further evidence. Journal of International Trade and Development, 19, 421–437.
Liu, X. (2009). GATT/WTO promotes trade strongly: Sample selection and model specification. Review of International Economics, 17, 428–446.
Maddison, A. (2007). Historical statistics of the world economy: 1–2006 AD. http://www.ggdc.net/maddison, last accessed November 8, 2008.
McGill. (2009). PTA database. http://ptas.mcgill.ca, last accessed October 3, 2009.
Preeg, E. H. (1970). Traders and diplomats: An analysis of the Kennedy Round of negotiations under the General Agreement on Tariffs and Trade. Washington, DC: Brookings Institute.
Rose, A. K. (2004). Do we really know that the WTO increases trade? American Economic Review, 94, 98–114.
Santos Silva, J. M. C., & Tenreyoro, S. (2006). The log of gravity. The Review of Economics and Statistics, 88, 641–658.
Siliverstovs, B., & Schumacher, D. (2009). Estimating gravity equations: To log or not to log? Empirical Economics, 36, 645–669.
Subramanian, A., & Wei, S. (2007). The WTO promotes trade, strongly but unevenly. Journal of International Economics, 72, 151–175.
Swart, J., & van Marrewijk, C. (2009). Cross-border Mergers and Acquisitions: A Piece of the Natural Resource Curse Puzzle. Discussion paper, Tinbergen Institute, Rotterdam.
Tomz, M., Goldstein, J. L., & Rivers, D. (2007). Do we really know that the WTO increases trade? Comment. American Economic Review, 97, 2005–2018.
Tuck. (2009). Trade Agreements Database. http://www.dartmouth.edu/tradedb, last accessed October 3, 2009.
UNCTAD. (1974). Operation and effects of the generalized system of preferences.
UNCTAD. (1975). Operation and effects of the generalized system of preferences.
UNCTAD. (1979). Operation and effects of the generalized system of preferences.
UNCTAD. (1981). Operation and effects of the generalized system of preferences.
UNCTAD. (1985). Operation and effects of the generalized system of preferences.
UNCTAD. (2005). Generalized system of preferences: List of beneficiaries.
UNCTAD. (2006). Generalized system of preferences: List of beneficiaries.
UNCTAD. (2008). Generalized system of preferences: List of beneficiaries.
van Bergeijk, P. A. G., & Brakman, S. (Eds.) (2010). The gravity model in international trade: Advances and applications. Cambridge: Cambridge University Press.
Vuong, Q. H. (1989). Likelihood ratio tests for model selection and non-nested hypothese. Econometrica, 57, 307–333.
Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data. Cambridge, MA: The MIT Press.
World Bank. (1951). Demographic yearbook 1949–1950. Washington, DC: World Bank.
World Bank. (2011a). Classification of economics by income and region. http://data.worldbank.org/about/country-classifications/country-and-lending-groups, last accessed December 18, 2011.
World Bank. (2011b). Development indicators. http://data.worldbank.org/indicator, last accessed December 18, 2011.
World Bank. (2011c). Global preferential trade agreements database. http://wits.worldbank.org/gptad, last accessed December 18, 2011.
WorldTradeLaw.net. (2009). FTA database. http://www.worldtradelaw.net/fta/ftadatabase/ftas.asp, last accessed October 3, 2009.
WTO. (2011a). Regional trade agreements information system. http://rtais.wto.org, last accessed December 18, 2011.
WTO. (2011b). Understanding the WTO. http://www.wto.org/english/thewto_e/whatis_e/tif_e/tif_e.htm, last accessed December 18, 2011.
Acknowledgements
The author thanks Rob Alessie, Jeff Bergstrand, Maarten Bosker, Steven Brakman, Bob Ethier, Marco Fugazza, Harry Garretsen, Michael Koetter, Suzanne Kok, Xuepeng Liu, Roger Smeets, Peter van Bergeijk, participants at the Seminar on Regionalism in an Integrating World Economy (Utrecht) and the European Trade Study Group Annual Conference (Lausanne), and an anonymous referee for insightful discussions and helpful comments on previous drafts.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2017 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Kohl, T. (2017). The WTO’s Effect on Trade: What You Give is What You Get. In: Christensen, B., Kowalczyk, C. (eds) Globalization. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-49502-5_19
Download citation
DOI: https://doi.org/10.1007/978-3-662-49502-5_19
Published:
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-662-49500-1
Online ISBN: 978-3-662-49502-5
eBook Packages: Economics and FinanceEconomics and Finance (R0)