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GATT/WTO Promotes Trade Strongly: Sample Selection and Model Specification

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  • Liu, Xuepeng

Abstract

Some recent research papers challenge the conventional view on the impact of the GATT/WTO on trade. This paper investigates the sample selection bias and the gravity model specification issues in the existing studies and provides strong evidence that the GATT/WTO has been very effective in trade creation. First, the GATT/WTO not only makes existing trading partners trade more (intensive margin), but also creates new trading relationships (extensive margin). Some existing studies exclude zero trade observations from their analyses and hence ignore the extensive margin. Secondly, the violation of some maintained assumptions in the traditional log-linear gravity regression accounts for the failure to uncover the role of the GATT/WTO even at the intensive margin. Using a large bilateral panel dataset including zero trade flows and a more appropriate econometric method, this paper finds that the GATT/WTO has been very effective in promoting the world trade at both the intensive and the extensive margins.

Suggested Citation

  • Liu, Xuepeng, 2007. "GATT/WTO Promotes Trade Strongly: Sample Selection and Model Specification," Conference papers 331648, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331648
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