Factor Mobility, Agriculture, Environment and Quantitative Studies
Edited by Miroslav N. Jovanović
Chapter 18: GATT/WTO Membership and its Effect on Trade: Where Do We Stand?
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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