International Handbook on the Economics of Integration, Volume III
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International Handbook on the Economics of Integration, Volume III

Factor Mobility, Agriculture, Environment and Quantitative Studies

Edited by Miroslav N. Jovanović

With this Handbook, Miroslav Jovanović has provided readers with both an excellent stand-alone original reference book as well as an integral part of a comprehensive three-volume set. This introduction into a rich and expanding academic and practical world of international economic integration also provides a theoretical and analytical framework to the reader, presenting select analytical studies and encouraging further research.
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Chapter 18: GATT/WTO Membership and its Effect on Trade: Where Do We Stand?

Andrew K. Rose


Andrew K. Rose* 1 INTRODUCTION In 2002 I began to work on the effects of the World Trade Organization (WTO) and its predecessor the General Agreement on Tariffs and Trade (GATT).1 I was interested in quantifying the effects of membership in these multilateral trade organisations on international trade. I fully expected to find a large positive effect, and was primarily interested in comparing this to the effects of other things that enhanced trade (particularly the effects of currency unions). However, I was astonished to find that a naive look at the data yielded little evidence that membership in the GATT/WTO had an effect on trade that was either economically or statistically substantive. In this chapter, I review the state of the small literature that developed around this issue, as of April 2006. This chapter is structured as follows. Section 2 reviews the author’s contribution, Sections 3–5 raise key criticisms of the author’s work: excessive pooling; fixed effects and variation across countries and time; and selection bias. Sections 6–8 issue various challenges to the critics: beyond bilateral trade flows; beyond trade flows; and what does the WTO do? Section 9 concludes. 2 WHAT I DID My initial (2004a) entrée used bilateral data to estimate the effect of membership in the GATT/WTO on trade. Since this paper has generated the most heat, it is worth explaining my methodology a little. I used a standard ‘gravity’ model of bilateral trade augmented with additional controls: ln (Tijt) 5 bD ln...

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