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

45 Pages Posted: 4 Apr 2011 Last revised: 9 Mar 2013

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)

Multiple version iconThere are 3 versions of this paper

Date Written: February 28, 2013

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.

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

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: https://ssrn.com/abstract=1800563 or http://dx.doi.org/10.2139/ssrn.1800563

Pushan Dutt (Contact Author)

INSEAD - Economics and Political Sciences ( email )

1 Ayer Rajah Avenue
Singapore, 138676
Singapore
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HOME PAGE: http://faculty.insead.edu/pushan-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)

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London, EC1V 3PZ
United Kingdom

Timothy Van Zandt

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

INSEAD - Economics and Political Sciences ( email )

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F-77305 Fontainebleau Cedex
France
+33 1 6072 4981 (Phone)
+33 1 6074 6192 (Fax)

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