Joining the WTO: What is the Impact?

Abstract:     
Recent research (Rose 2003) has called into question the impact of the World Trade Organization on trade. According to Rose, the WTO has no statistically significant impact on trade. The Rose research however, has been called into question on both modeling grounds for regressing against average real trade rather than imports and failing to utilize fixed importer and exporter effects. Subramanian and Wei (2003) find that when these factors are accounted for, imports rise by economically and statistically significant amounts for WTO members. This paper seeks to reconcile these works and study an overlooked aspect of WTO membership. Regressing against imports with and without fixed year and country effects for the sake of comparison, I find that the WTO has a large though uneven impact on exports than imports. More importantly, the results indicate that the WTO frequently causes imports and exports to move in opposite directions negating any increase in overall trade. The regressions with and without fixed country effects generally demonstrate pattern consistency for generalized results that are robust to change. Results indicate that trade rises consistently between members, but falls when only one country of a trading pair is a WTO member, consistent with findings by Rose. Due to the finding that imports rise modestly or even fall without country effects while exports rise, the results imply that countries may not be as interested in liberalizing trade as selling to the world.

Number of Pages in PDF File: 36

Keywords: WTO, trade policy, gravity model, and panel data

JEL Classification: F13, F15

working papers series