thewtopromotestrade,stronglybutunevenly.docVIP

The WTO Promotes Trade, Strongly But Unevenly Arvind Subramanian and Shang-Jin Wei January 12, 2006 The authors are grateful to James Anderson, Alina Carare, Peter Clark, K. Michael Finger, Carsten Fink, Hans-Peter Lankes, Gary Hufbauer, Patrick Low, Will Martin, Aaditya Mattoo, Hildegunn Nordas, Caglar Ozden, Arvind Panagariya, Roberta Piermartini, Dani Rodrik, Andy Rose, Robert Teh Jr., Luke Willard, Alan Winters, and seminar participants at the IMF, WTO, Inter-American Development Bank for helpful suggestions and discussions. The authors would also like to thanks two anonymous referees and the editor (Bob Staiger) for comments that have substantially improved the paper. Ethan Ilzetzski, Azim Sadikov, Li Zeng, and Yuanyuan Chen provided excellent research assistance. ABSTRACT This paper furnishes robust evidence that the WTO has had a strong positive impact on trade, amounting to about 120 percent of additional world trade (or US$ 8 trillion in 2000 alone). The impact has, however, been uneven. This, in many ways, is consistent with theoretical models of the GATT/WTO. The theory suggests that the impact of a country’s membership in the GATT/WTO depends on what the country does with its membership, with whom it negotiates, and which products the negotiation covers. Using a properly specified gravity model, we find evidence broadly consistent with these predictions. First, industrial countries that participated more actively than developing countries in reciprocal trade negotiations witnessed a large increase in trade. Second, bilateral trade was greater when both partners undertook liberalization than when only one partner did. Third, sectors that did not witness liberalization did not see an increase in trade. Arvind Subramanian Shang-Jin Wei Research Department Research Department Room 9-718L Room 10-700M International Monetary Fund International Monetary Fund 700 19th Street 700 19th Street