Does WTO Membership Make a Difference at the Extensive Margin of World Trade?
39 Pages Posted: 8 Feb 2007
Date Written: January 2007
In his seminal paper, Rose (2004) concluded from a gravity-type study of bilateral trade that the GATT/WTO does not play a strong role in encouraging trade. Rose looks at countries where the amount of trade was positive to start with (intensive margin). In this paper, we present a corner-solutions version of the gravity model of bilateral trade which explains zero trade and leaves room for WTO membership to promote trade at the extensive margin of trade. Relying on a Tobit estimation approach, we find that WTO membership has promoted world trade to a larger extent than Rose's results seem to indicate.
Keywords: gravity approach, WTO, monopolistic competition, real trade costs
JEL Classification: F12, F13
Suggested Citation: Suggested Citation