GATT/WTO Promotes Trade Strongly: Sample Selection and Model Specification
35 Pages Posted: 19 Jan 2009 Last revised: 9 Jul 2009
Date Written: April 1, 2007
Some recent empirical studies examine the impact of the GATT/WTO on trade. This paper investigates the sample selection bias and the gravity model specification issues in these studies. Firstly, the GATT/WTO not only makes existing trading partners trade more at intensive margin, but also creates new trading relationships at extensive margin. Most existing papers exclude zero trade observations and hence ignore the extensive margin. Secondly, due to the violation of some maintained assumptions, the traditional log-linear gravity regressions fail to uncover the role of the GATT/WTO even at the intensive margin. Using a large bilateral panel dataset including zero trade flows and a more appropriate econometric method, this paper finds that the GATT/WTO has been very effective in promoting the world trade at both intensive and extensive margins.
Keywords: GATT/WTO, Gravity Model, Bilateral Trade, Sample Selection, Poisson Regression
JEL Classification: F13, F15
Suggested Citation: Suggested Citation