The WTO Matters Strongly Over Time, But Unevenly Across Countries
30 Pages Posted: 27 Jun 2018
Date Written: June 27, 2018
The empirical literature on the effect of trade agreements on trade flows has reached the consensus that WTO effects are insignificant or modest at best, especially compared to the robust and strong positive effect of preferential trade agreements (PTAs) on bilateral trade (Rose, 2004; Eicher and Henn, 2011; Baier and Bergstrand, 2007, 2009). We show that previous papers that report “average treatment effects” on trade flows, fail to account for the heterogeneity in effects of trade arrangements over time, leading to an underestimation of the WTO effect on bilateral trade. In this paper we present semi-parametric estimates of the impact of WTO membership and PTA membership, allowing for heterogeneity of WTO and PTA effects over time and show that WTO effects eventually dominate the PTA effects. PTA effects are stronger initially but in the long-term the WTO effect dominates. Disaggregating PTAs into bilateral, multilateral and deep integration (customs union, common markets, and economic union) we find that the long-term effect of the WTO dominates bilateral and multilateral PTAs and depending on the specification is almost equivalent to deep integration arrangements. We also show the heterogeneity of WTO effects by level of development (advanced vs. emerging markets), and on the extensive vs. intensive margins of trade.
Keywords: WTO, Preferential Trade Agreements, Gravity Model
JEL Classification: F10, F14
Suggested Citation: Suggested Citation