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WTO Membership and the Extensive Margin of World Trade: New Evidence

Author

Listed:
  • Wilhelm Kohler
  • Gabriel Felbermayr
Abstract
Recent literature has argued that, contrary to the results of a seminal paper by Rose (2004), WTO membership does promote bilateral trade, at least for developed economies and if membership includes non-formal compliance. We review the literature in order to identify open issues. We then develop the simplest possible “corner-solutions" version of the gravity model which serves as a framework to readdress these issues. We focus on the extensive margin of trade that separates positive-trade from zero-trade country pairs. We argue that the model can be consistently estimated using Poisson pseudo-maximum-likelihood methods with exporter and importer fixed effects. We account for coding issues and the potential heterogeneity of the WTO membership which recent contributions have stressed. While we find that WTO membership increases the likelihood that a given country pair trades, we do not find that the extensive margin has a strong and systematic effect on the average trade-creating potential of the WTO.

Suggested Citation

  • Wilhelm Kohler & Gabriel Felbermayr, 2009. "WTO Membership and the Extensive Margin of World Trade: New Evidence," Discussion Papers 09/06, University of Nottingham, GEP.
    • Handle: RePEc:not:notgep:09/06
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    References listed on IDEAS

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    1. Gabriel J Felbermayr & Wilhelm Kohler, 2014. "Exploring the Intensive and Extensive Margins of World Trade," World Scientific Book Chapters, in: European Economic Integration, WTO Membership, Immigration and Offshoring, chapter 4, pages 115-148, World Scientific Publishing Co. Pte. Ltd..
    2. Chang, Pao-Li & Lee, Myoung-Jae, 2011. "The WTO trade effect," Journal of International Economics, Elsevier, vol. 85(1), pages 53-71, September.
    3. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers.
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    7. Eicher, Theo S. & Henn, Christian, 2011. "In search of WTO trade effects: Preferential trade agreements promote trade strongly, but unevenly," Journal of International Economics, Elsevier, vol. 83(2), pages 137-153, March.
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    14. Ghosh, Sucharita & Yamarik, Steven, 2004. "Are regional trading arrangements trade creating?: An application of extreme bounds analysis," Journal of International Economics, Elsevier, vol. 63(2), pages 369-395, July.
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    17. Xuepeng Liu, 2009. "GATT/WTO Promotes Trade Strongly: Sample Selection and Model Specification," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 428-446, August.
    18. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524341, April.
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    Cited by:

    1. Hogrefe, Jan & Jung, Benjamin & Kohler, Wilhelm K., 2010. "Readdressing the trade effect of the Euro: Allowing for currency misalignment," ZEW Discussion Papers 10-023, ZEW - Leibniz Centre for European Economic Research.
    2. Jayjit Roy, 2014. "On the robustness of the trade-inducing effects of trade agreements and currency unions," Empirical Economics, Springer, vol. 47(1), pages 253-304, August.
    3. Sören Prehn & Bernhard Brümmer & Stanley R. Thompson, 2015. "Payment decoupling and intra-European calf trade," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 42(4), pages 625-650.

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    More about this item

    Keywords

    gravity approach; WTO; monopolistic competition; real trade costs;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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