Subramanian and Wei: The TWO Promotes Trade, Strongly but Unevenly

Subramanian, A, and SJ Wei. 2007. The WTO promotes trade, strongly but unevenly. Journal of International Economics 72, no. 1: 151-175.

"This paper furnishes robust evidence that the GATT/WTO has had a powerful and positive impact on trade. The impact has, however, been uneven. GATT/WTO membership for industrial countries has been associated with a large increase in imports estimated at about 30% of world trade. The same has not been true for developing country members, although those that joined after the Uruguay Round have benefited from increased imports. Similarly, there have been asymmetric effects among sectors, with WTO membership associated with substantially greater imports in sectors where barriers are low. These results are consistent with the history and design of the institution, which presided over significant trade liberalization by the industrial countries except in sectors such as food and clothing; l largely exempted developing countries from the obligations to liberalize under the principle of special and differential treatment; but attempted to redress the latter by imposing greater obligations on developing country members that joined after the Uruguay Round" (1).

They argue that Rose's analysis is incomplete in two distinct ways: firstly, the gravity equation must include country-fixed effects, as earlier identified by Anderson and van Wincoop (2003). Additionally, the study should take into consideration the asymmetric ways in which the WTO has worked to improve trade liberalization post WWII. Making these modifications, they find robust evidence that the WTO improves trade.

Three types of liberalization asymmetries: "...between developed and developing countries; between developing countries that join the WTO before and after the Uruguay Round; and between sectors where the TWO has been effective in bringing down trade barriers and those...where it has been less effective" (3).

Use extended gravity model.

Their DV is different from Rose and is imports instead of total trade, which they "deflate" (8) through the US consumer price index.

"One of our main and robust findings is that industrial country WTO membership is associated with greater trade. In our sample, however, all industrial countries are WTO members. How can we be sure that we are picking up a WTO effect rather than an industrial country effect?" (16-7). They try to minimize this through their covariates, but it's still a possibility.

"There is a separate question of whether industrial country liberalization would have taken place without the GATT/WTO. This paper does not and cannot address this question" (17).