The effect of WTO on the extensive and the intensive margins of trade

We use 6-digit bilateral trade data to document the effect of WTO/GATT membership on the extensive and intensive product margins of trade. We construct gravity equations for the two product margins motivated by Chaney (2008). The empirical results show that standard gravity variables provide good explanatory power for bilateral trade on both margins. Importantly, we show that the impact of the WTO is concentrated almost exclusively on the extensive product margin of trade, i.e. trade in goods that were not previously traded. In our preferred specification, WTO membership increases the extensive margin of exports by 25%. At the same time, WTO membership has a negative impact on the intensive margin. Based on novel comparative statics results about how fixed and variable trade costs impact the product margins of trade, our results suggest that WTO membership works by reducing primarily the fixed rather than the variable costs of trade.     

Do WTO members have more liberal trade policy?

This paper uses 68 measures of trade policy and liberalization to ask if membership in the World Trade Organization (WTO) and its predecessor the General Agreement on Tariffs and Trade (GATT) is associated with more liberal trade policy. Almost no measures of trade policy are significantly correlated with GATT/WTO membership. Trade liberalizations, when they occur, usually lag GATT entry by many years, and the GATT/WTO often admits countries that are closed and remain closed for years. The exception to the rule is that WTO members tend to have slightly more freedom as judged by the Heritage Foundation's index.     

The WTO promotes trade, strongly but unevenly

This paper furnishes robust evidence that the WTO has had a strong positive impact on trade, amounting to about 120% of additional world trade (or US$ 8 trillion in 2000 alone). The impact has, however, been uneven. This, in many ways, is consistent with theoretical models of the GATT/WTO. The theory suggests that the impact of a country's membership in the GATT/WTO depends on what the country does with its membership, with whom it negotiates, and which products the negotiation covers. Using a properly specified gravity model, we find evidence broadly consistent with these predictions. First, industrial countries that participated more actively than developing countries in reciprocal trade negotiations witnessed a large increase in trade. Second, bilateral trade was greater when both partners undertook liberalization than when only one partner did. Third, sectors that did not witness liberalization did not see an increase in trade.     

The WTO trade effect

This paper re-examines the GATT/WTO membership effect on bilateral trade flows, using nonparametric methods including pair-matching, permutation tests, and a Rosenbaum (2002) sensitivity analysis. Together, these methods provide an estimation framework that is robust to misspecification bias, allows general forms of heterogeneous membership effects, and addresses potential hidden selection bias. This is in contrast to most conventional parametric studies on this issue. Our results suggest large GATT/WTO trade-promoting effects that are robust to various restricted matching criteria, alternative GATT/WTO indicators, non-random incidence of positive trade flows, inclusion of multilateral resistance terms, and different matching methodologies.     

Multilateral stability and efficiency of trade agreements: A network formation approach

We study the endogenous network formation of bilateral and multilateral trade agreements by means of hypergraphs and introduce the equilibrium concept of multilateral stability. We consider multicountry settings with a firm in each country that produces a homogeneous good and competes as a Cournot oligopolist in each market. Under endogenous tariffs, we find that a multilateral trade agreement governing the rules and norms of tariff setting, that is the WTO/GATT regime itself, together with a bilateral preferential trade agreement (PTA) is multilaterally stable. We also find that the existence of the WTO is necessary for the stability of the trading system. We further analyse the impact of PTAs on multilateral tariffs within the WTO. We find that the formation of PTAs increases countries' incentives for multilateral tariff reduction.     

The Evolution of Japan's Aggressive Legalism

Japan's recent trade policy is sometimes characterised as ‘aggressive legalism’ in the sense that it aggressively utilises the multilateral trade rules embodied in the Marrakesh Agreement Establishing the World Trade Organisation in dealing with disputes with its trade partners. This policy may appear to be a marked departure from Japan's past practice of favouring bilateral, non‐legal settlement of trade disputes. Upon closer examination, however, while Japan has been moderately active in using the WTO dispute settlement process for resolving its trade disputes, it behaves more like a country that resorts to surgical strikes on selected targets (usually the United States) under a powerful cover of the European Community. Compared to Japan, Korea's attitude in the WTO is more aggressive. While the Japanese Ministry of Economy, Trade and Industry (METI) is not content with the status quo and is seeking to expand its aggressiveness in the WTO dispute settlement mechanism, it faces an uphill battle. One of the difficulties facing trade officials in Japan may be the lack of a national system for lodging WTO complaints, open to any citizens or firms, like Section 301 of the US Trade Act of 1974 or the European Trade Barriers Regulation. Nonetheless, in the historical context, Japan is far more aggressive than in the past in utilising the rules of the GATT/WTO to advance its national interests. It will never revert to the infamous practice of bilateralism and grey area measures.     

The ‘Real’ Impact of GATT/WTO – a Generalised Approach

Rose’s result in 2004 that GATT/WTO has no significant impact on bilateral trade triggered off a series of empirical studies. Each of those studies augments Rose’s paper in one specific methodological aspect with the general finding that GATT/WTO significantly fosters members’ trade, although the estimated impact varies between 2 per cent and 195 per cent of trade creation. We combine the methodological contributions of previous studies to overcome these isolated approaches, to account for possible interactions and to develop a more general view on the impact of GATT/WTO. In particular, we find that GATT/WTO promotes members’ trade by around 86 per cent.     

Governance and Globalisation

Unlike the large literature on ‘democracy and trade’, there is a much smaller literature on the effect of the level of democracy in a nation on the level of its foreign direct investment (FDI) inflow. These few studies reveal mixed empirical results, and surprisingly only one study has examined bilateral FDI flows. Moreover, few of these studies use multiple governance indicators separating the ‘pluralism’ effect of democratic institutions from the ‘good governance’ effect, there are no studies on democratic institutions’ various effects on the level of FDI relative to trade, and there are no studies of democratic institutions’ various effects on the selection of countries into FDI. We focus on three contributions. First, we examine the simultaneous effects of the World Bank's (six) Worldwide Governance Indicators (WGIs) – which allow separating the effects of pluralism from those of five other good governance measures – on bilateral trade, FDI and FDI relative to trade using state‐of‐the‐art gravity specifications. Second, we find strong evidence that – after accounting for host governments’ effectiveness in various roles of good governance – a higher level of pluralism as measured by the WGIs’ Voice and Accountability Index reduces trade levels, likely by increasing the ‘voice’ of more protectionist less‐skilled workers, but not FDI levels. Moreover, we find qualitatively different effects of other WGIs – such as political stability – on trade versus FDI flows. Third, we account for firm heterogeneity alongside a large number of zeros in bilateral FDI flows using recent advances in gravity modelling. We distinguish between the (country) intensive and extensive margins and show that pluralism affects FDI inflows negatively at the intensive margin, but positively at the extensive margin.     

Does International Trade Cause Economic Growth? A Survey

This study surveys the literature on the relationship between international trade and economic growth, and succinctly reviews the role of GATT/WTO in fostering free trade. Most studies support the gains of trade and recognise the substantive contributions of GATT/WTO in fostering free trade; the evidence is, however, not ubiquitously unambiguous. The macroeconomic evidence provides a dominant support for the positive and significant effects of trade on output and growth, while the microeconomic evidence lends larger support to the exogenous effects of productivity on trade, as compared to the effects of trade on productivity. The GATT/WTO remains surrounded by barriers to trade and avowed preferences for preferential trade agreements. The strength of the argument for the gains of trade needs to be evaluated in juxtaposition with several methodological and measurement issues that surround the trade‐growth empirics. Most studies focus on partial equilibrium analysis of trade policy and ignore the general equilibrium aspects of macroeconomic policy. It is difficult to disentangle the effects of trade policies from those of other macroeconomic policies and unequivocally interpret the observed correlations between trade policies and economic growth. Trade is one of the several catalysts of productivity and growth and hence its contribution is contingent on its weight in economic activity.     

The Role of GATT/WTO as a Commitment Device in the Presence of a Time Lag: Free Trade,Time‐consistent Tariff Policy and Market Size

We consider whether a free trade policy is superior to tariff policies in the presence of a time lag between production and trade decisions. We show that the preferable choice between a free trade policy and a time‐consistent tariff policy depends on the market size of the importing country. However, because a free trade policy itself is not necessarily credible in the presence of a time lag, the importing country requires an international organisation such as GATT/WTO as a commitment device. Accordingly, employing a non‐cooperative game approach, we analyse under what conditions becoming a member of such an international organisation is a subgame perfect Nash equilibrium and show that free trade under the GATT/WTO regime is Pareto improving for the importing and exporting countries.     

Export Promotion: Bundled Services Work Better

Export promotion agencies provide exporters with a broad range of services, going from counselling to sponsoring their participation in international trade missions and fairs. These services may have heterogeneous effects and thus contribute differently to achieve the goals of these organisations. Empirical evidence on their relative effectiveness is rather limited. This paper aims at filling this gap in the literature. We compare the impact of different public trade promotion programmes on the extensive and intensive margin of firms’ exports, both to each other and with respect to no participation in these activities, by applying multiple treatment matching difference‐in‐differences on highly disaggregated export data for the whole population of Colombian exporters over the period 2003–06. We find that use of programmes that combine different services is associated with better export performance than their basic individual components, primarily along the country‐extensive margin.     

The Effect of GATT/WTO on Export and Import Price Volatility

Despite much interest and discussion concerning the trade‐promoting effects of membership in multilateral trade agreements, little is known about the effect of membership on world trade prices. This paper fills this gap by studying the effects of membership on export and import price volatility. We document a surprisingly strong and robust empirical regularity: GATT/WTO membership reduces the volatility of prices over time for both import and export countries, with similar results found for free trade agreements. We show that results are not driven by sample selection or endogeneity concerns and that the effect is captured by members subject to rigorous accession procedures.     

Do Trade Agreements Stimulate International Trade Differently? Evidence from 296 Trade Agreements

In a seminal article, Rose (2004) found that the assumed positive impact of the WTO on international trade was questionable. This finding has been scrutinised and modified in subsequent research, using different data sets, econometric methods and separating the WTO from other forms of trade agreements. A key characteristic of the subsequent literature is the rather simplistic way in which trade agreements are treated whereby all trade agreements are lumped together. Trade agreements come, however, in many different forms and shapes. This study addresses these differences in trade agreements. Using a unique database of 296 trade agreements, we distinguish 17 trade‐related policy domains and indicate whether the agreements contain legally enforceable commitments. This extensive and novel taxonomy of trade agreements enables us to allow for the possible heterogeneity of the impact of trade agreements on international trade. Using a gravity model, we find that trade agreement heterogeneity indeed matters for international trade and that countries experience significant trade increases due to comprehensive trade agreements even if not all participants are in the WTO.     

The WTO,the Environment and Health and Safety Standards

The World Trade Organization (WTO) is a product of the General Agreement on Tariffs and Trade (GATT). The WTO was created in the last round of negotiations (Uruguay Round, 1986‐94) to provide a stronger set of institutions to administer the various agreements negotiated under the GATT framework. Because the WTO is more powerful than its predecessors, critics claim that it poses a threat to national sovereignty. Concerns about the ability of nations to set their own environmental and health and safety agendas have figured prominently in these critiques. In addition, critics suggest that the WTO prioritises trade objectives at the expense of environmental and health and safety objectives. The article explores the extent to which the WTO has been able to reconcile trade, environmental and health and safety objectives by analysing its rulings on these matters. Overall, this analysis suggests that the WTO dispute resolution process has balanced all three sets of objectives. However, it is important to note the small number of disputes to date; only 21of the 175 disputes before the WTO involve environmental and health and safety matters. Further, the WTO has issued decisions in only six of these cases.     

In search of WTO trade effects: Preferential trade agreements promote trade strongly, but unevenly

The literature measuring the effects of WTO membership on trade flows has produced remarkably diverse results. Rose (2004) reports a wide range of empirical specifications that produce no WTO effects. Tomz et al. (2007) use Rose's data but include de facto WTO membership, to find positive WTO trade effects. Rose (2005) also produced positive WTO trade effects after accounting for the diverse trade effects produced by individual preferential trade agreements (PTAs). When Subramanian and Wei (2007) emphasize general equilibrium trade effects by controlling for multilateral resistance, they find strong WTO trade effects only for industrialized countries. Subramanian and Wei (2007), however, account neither for unobserved heterogeneity among trading partners, nor for differences in trade effects across PTAs (which could inflate WTO estimates). We unify the Rose, Tomz et al., and Subramanian and Wei specifications in one comprehensive approach that minimizes omitted variable bias to show that all specifications produce one consistent result: WTO effects on trade flows are not statistically significant, while PTAs produce strong but uneven trade effects. Extending the gravity model to address specific avenues in which WTO may have affected trade flows, we find that WTO membership boosts trade prior to PTA formation and increases trade among proximate developing countries (at the expense of distant trade). An augmented gravity model that accounts for WTO terms-of-trade theory shows that countries with greater incentives to bargain for tariff reductions before WTO accession experience positive and significant subsequent WTO trade effects.     

The Relationship between Political Tensions,Trade and Capital Flows in ASEAN Plus Three

We estimate the effects of political tension on trade and capital flows in ASEAN Plus Three countries in the framework of a gravity model. We quantify political tension through text‐parsing software reading daily Reuters’ articles from 1990 to 2013 and exclude Brunei and Laos due to sparsity of news coverage. Regarding bilateral trade, we find that political conflict, measured by negative reports in Reuters’ articles, seems to only affect bilateral trade between countries that are not both members of the World Trade Organization (WTO). For these countries, a 1 per cent rise in the tension score results in a 0.05 per cent decline in trade. There is weaker evidence that improvement in bilateral relationship, measured by positive reports in Reuters’ articles, is associated with more trade. As for capital flows, while long‐term capital flows, measured by foreign direct investment, appear to be unaffected by short‐term tensions, both a non‐democratic government and a history of war negatively affect FDI.     

针对产品生产和加工方法贸易措施的违法性分析

在GATT—WTO体系内部,针对产品生产和加工方法贸易措施的合法性,以及如何规范允许使用的针对产品生产和加工方法贸易措施的讨论甚为激烈,成为最有争议的焦点问题之一。本文根据对WTO协议中的GATT第1条、第3条、第20条,以及《技术性贸易壁垒协议》相关条文和案例的研究,分析了针对产品生产和加工方法贸易措施的违法性及其可能的负面效应,以供进一步的研究参考。     

A global analysis of factors impacting the intensive and extensive margins of bilateral foreign direct investment

This study investigates determinants of bilateral foreign direct investment (FDI) on both margins, the extensive margin (whether to invest) and the intensive margin (how much to invest), based on the recent structural gravity model for FDI developed by Anderson et al. (Trade and investment in the global economy. National Bureau of Economic Research, Cambridge, MA, 2017). I examine a global data set comprised of 110 countries over 9 years, 2004–12. Apart from conventional gravity variables, the source country's technology capital shows a significant and positive impact on both FDI margins. Bilateral investment treaties play a significant role only in determining the extensive margin. Results on FDI stocks and FDI flows can lead to different conclusions; thus, research should consult both types of data series to find which variables have robust effects. Furthermore, breaking down the sample by country development levels reveals that FDI from less‐developed countries (LDCs) is not affected by many common variables, and thus, there is a need to develop more theories and empirical work to investigate the FDI from LDCs in particular.     

GATT/WTO与管理贸易

现实中的国际贸易不是自由贸易，国际贸易体制中一直都是自由贸易和贸易保护同时并存，以1GATT／WTO也不是自由贸易组织。管理贸易是指介于纯粹自由贸易和完全贸易保护之间的各种情形，其特点是规则导向、有较大兼容性以及可塑性。管理贸易的发展可以有两个完全相反的方向，而GATT／WTO倡导的贸易自由化实质上是在自由贸易和贸易保护两种成分并存的国际贸易体制中抑制贸易保护、提高贸易自由的程度。     

Market access implications of non‐tariff measures: Estimates for four developed country markets

We quantify the effects of non‐tariff measures on the extensive margin of trade, examining the number of countries exporting particular products to Canada, the European Union, New Zealand and the United States. We find that non‐tariff measures that impose a conformity requirement, that is, testing, certification or inspection, will reduce the number of countries exporting to these markets. Conformity requirements imposed for sanitary or phytosanitary reasons have the largest effect in Canada, reducing the number of exporting countries by 47% compared to the situation where no compliance requirement is imposed. Conformity requirements imposed for other reasons covered by the WTO Agreement on Technical Barriers to Trade have the largest effect in Canada and New Zealand, reducing the number of exporting countries by 27% compared to the situation where no compliance requirement is imposed. However, we generally find a statistically significant positive effect for nontariff measures that do not impose a compliance burden, suggesting that such measures may facilitate trade.