Disentangling the Effects of Gatt/Wto on Variable And Fixed Trade Costs: Trade Status, Trade Margins, And Export Sales Distribution

Abstract

In this paper, we propose an estimation procedure to identify and disentangle the effects of GATT/WTO membership on the variable and fixed trade costs. Given the variable and fixed trade costs estimated, we develop a general equilibrium framework to simulate the impact of the GATT/WTO system (via all trade cost changes and also by the respective channel of variable and fixed trade costs) on the trade status (i.e., positive/zero trade) and trade margins across bilateral trade relationships for the period 1991–2017. The simulation results suggest significant and positive impacts of GATT/WTO membership on trade status, trade margins, and overall national welfare. In particular, we find that the fixed trade cost mechanism dominates, such that the GATT/WTO-induced changes in trade costs tend to flatten export sales distributions of existing firms, allow export entry by smaller firms, and overall reduce the disparity of firm export sales.

Keywords: Truncated Pareto Distribution, Identification of Fixed and Variable Trade Costs, Simulation of Counterfactual Changes in Trade Status, Quantitative Welfare Analysis