In Search of WTO Trade Effects: Preferential Trade Agreements Promote Trade Strongly, But Unevenly

32 Pages Posted: 18 Mar 2009

See all articles by Theo S. Eicher

Theo S. Eicher

University of Washington - Department of Economics

Christian Henn

International Monetary Fund

Date Written: March 2009

Abstract

The literature measuring the impact of Preferential Trade Agreements (PTA) and WTO membership on trade flows has produced remarkably diverse results. Rose's (2004) seminal paper reports a range of specifications that show no WTO effects, but Subramanian and Wei (2007) contend that he does not fully control for multilateral resistance (which could bias WTO estimates). Subramanian and Wei (2007) address multilateral resistance comprehensively to report strong WTO trade effects for industrialized countries but do not account for unobserved bilateral heterogeneity (which could inflate WTO estimates). We unify these two approaches by accounting for both multilateral resistance and unobserved bilateral heterogeneity, while also allowing for individual trade effects of PTAs. WTO effects vanish and remain insignificant throughout once multilateral resistance, unobserved bilateral heterogeneity, and individual PTA effects are introduced. The result is robust to the use of alternative definitions and coding conventions for WTO membership that have been employed by Rose (2004), Tomz et al. (2007), or by Subramanian and Wei's (2007).

Keywords: Working Papers

Suggested Citation

Eicher, Theo S. and Henn, Christian, In Search of WTO Trade Effects: Preferential Trade Agreements Promote Trade Strongly, But Unevenly (March 2009). IMF Working Paper No. 09/31, Available at SSRN: https://ssrn.com/abstract=1361372

Theo S. Eicher (Contact Author)

University of Washington - Department of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

Christian Henn

International Monetary Fund ( email )

700 19th St NW
Washington, DC 20431
United States

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