Abstract

http://ssrn.com/abstract=1800563
 
 

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The Effect of WTO on the Extensive and the Intensive Margins of Trade


Pushan Dutt


INSEAD - Economics and Political Sciences

Ilian Mihov


INSEAD; Centre for Economic Policy Research (CEPR)

Timothy Van Zandt


INSEAD - Economics and Political Sciences; Centre for Economic Policy Research (CEPR)

February 28, 2013

INSEAD Working Paper No. 2013/38/EPS

Abstract:     
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.

Number of Pages in PDF File: 45

Keywords: WTO, Gravity, Extensive Margin of Trade, Intensive Margin of Trade, Trade Costs

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Date posted: April 4, 2011 ; Last revised: March 9, 2013

Suggested Citation

Dutt, Pushan and Mihov, Ilian and Van Zandt, Timothy, The Effect of WTO on the Extensive and the Intensive Margins of Trade (February 28, 2013). INSEAD Working Paper No. 2013/38/EPS. Available at SSRN: http://ssrn.com/abstract=1800563 or http://dx.doi.org/10.2139/ssrn.1800563

Contact Information

Pushan Dutt (Contact Author)
INSEAD - Economics and Political Sciences ( email )
1 Ayer Rajah Avenue
Singapore, 138676
Singapore
65-6799-5498 (Phone)
HOME PAGE: http://faculty.insead.edu/dutt/
Ilian Mihov
INSEAD ( email )
1 Ayer Rajah Avenue
Singapore, Singapore 138680
Singapore
+65 6799 5434 (Phone)
HOME PAGE: http://www.insead.edu/facultyresearch/faculty/personal/imihov/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Timothy Van Zandt
INSEAD - Economics and Political Sciences ( email )
Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4981 (Phone)
+33 1 6074 6192 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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