The WTO Trade Effect

• Main Authors: CHANG, Pao Li, LEE, Myoung-Jae
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2007
• Subjects: GATT/WTO; GSP; treatment effect; matching; permutation test; signed-rank test; sensitivity analysis; International Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/1075; https://ink.library.smu.edu.sg/context/soe_research/article/2074/viewcontent/WTOeffect.pdf
• Institution: Singapore Management University

Rose (2004) showed that the WTO or its predecessor, the GATT, did not promote trade, based on conventional econometric analysis of gravity-type equations of trade. We argue that conclusions regarding the GATT/WTO trade effect based on gravity-type equations are arbitrary and subject to parametric misspecifications. We propose using nonparametric matching methods to estimate the 'treatment effect' of GATT/WTO membership, and permutation-based inferential procedures for assessing statistical significance of the estimated effects. A sensitivity analysis following Rosenbaum (2002) is then used to evaluate the sensitivity of our estimation results to potential selection biases. Contrary to Rose (2004), we find the effect of GATT/WTO membership economically and statistically significant, and far greater than that of the Generalized System of Preferences (GSP).