WTO Membership and the Extensive Margin of World Trade: New Evidence

Posted: 15 Aug 2009

See all articles by Wilhelm Kohler

Wilhelm Kohler

University of Tuebingen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Gabriel J. Felbermayr

University of Stuttgart-Hohenheim

Date Written: February 1, 2009

Abstract

Recent literature has argued that, contrary to the results of a seminal paper by Rose (2004), WTO membership does promote bilateral trade, at least for developed economies and if membership includes non-formal compliance. We review the literature in order to identify open issues. We then develop the simplest possible “corner-solutions" version of the gravity model which serves as a framework to readdress these issues. We focus on the extensive margin of trade that separates positive-trade from zero-trade country pairs. We argue that the model can be consistently estimated using Poisson pseudo-maximum-likelihood methods with exporter and importer fixed effects. We account for coding issues and the potential heterogeneity of the WTO membership which recent contributions have stressed. While we find that WTO membership increases the likelihood that a given country pair trades, we do not find that the extensive margin has a strong and systematic effect on the average trade-creating potential of the WTO.

Keywords: gravity approach, WTO, monopolistic competition, real trade costs

JEL Classification: F12, F13

Suggested Citation

Kohler, Wilhelm K. and Felbermayr, Gabriel J., WTO Membership and the Extensive Margin of World Trade: New Evidence (February 1, 2009). Available at SSRN: https://ssrn.com/abstract=1448519

Wilhelm K. Kohler (Contact Author)

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Gabriel J. Felbermayr

University of Stuttgart-Hohenheim ( email )

Keplerstraße 17
D-70174 Stuttgart
Germany

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