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GTAP Resource #2316

"GATT/WTO Promotes Trade Strongly: Sample Selection and Model Specification"
by Liu, Xuepeng

Some recent research papers challenge the conventional view on the impact of the GATT/WTO on trade. This paper investigates the sample selection bias and the gravity model specification issues in the existing studies and provides strong evidence that the GATT/WTO has been very effective in trade creation. First, the GATT/WTO not only makes existing trading partners trade more (intensive margin), but also creates new trading relationships (extensive margin). Some existing studies exclude zero trade observations from their analyses and hence ignore the extensive margin. Secondly, the violation of some maintained assumptions in the traditional log-linear gravity regression accounts for the failure to uncover the role of the GATT/WTO even at the intensive margin. Using a large bilateral panel dataset including zero trade flows and a more appropriate econometric method, this paper finds that the GATT/WTO has been very effective in promoting the world trade at both the intensive and the extensive margins. My preferred regression results show that 41.6 trillion dollars (in 1995 price) of the world import from 1948 to 2003 (one third of the total world import over the same period) was attributed to the GATT/WTO and about 30% of the world import created by the GATT/WTO can be explained by the extensive margin, with the rest 70% explained by the intensive margin. This paper also finds that the extensive margin was the most prominent during the first five GATT rounds, while the intensive margin dominated after the WTO was established. This paper contributes to the existing literature by considering those zero trade flows and investigating appropriate econometric methods to estimate the gravity equation.

Resource Details (Export Citation) GTAP Keywords
Category: 2007 Conference Paper
Status: Published
By/In: Presented at the 10th Annual Conference on Global Economic Analysis, Purdue University, USA
Date: 2007
Created: Liu, X. (4/9/2007)
Updated: Liu, X. (5/16/2007)
Visits: 2,551
- Preferential trading arrangements

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