Do we really know that the wto increases trade

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Do We Really Know That the WTO Increases Trade?
This paper estimates the effect on international trade of multilateral trade agreements—the World Trade Organization (WTO), its predecessor the General Agreement on Tariffs and Trade (GATT), and the Generalized System of Preferences (GSP) extended from rich countries to developing countries. I use a standard “gravity” model ofbilateral merchandise trade and a large panel data set covering over 50 years and 175 countries. An extensive search reveals little evidence that countries joining or belonging to the GATT/WTO have different trade patterns from outsiders, though the GSP seems to have a strong effect. (JEL F13, F15)

Economists disagree about a lot, but not everything. Almost all of us think that internationaltrade should be free.1 Accordingly, the multilateral organization charged with freeing trade—the World Trade Organization (WTO)— is probably the most popular international institution inside the profession, certainly compared with its obvious rivals, the International Monetary Fund (IMF) and the World Bank. This makes much of the furor over the WTO unfathomable to most of us. But should we—and theprotestors—really care about the WTO at all? Do we really know that the WTO and its predecessor the General Agreement on Tariffs

* Haas School of Business, University of California, Berkeley, CA 94720, NBER, and CEPR (e-mail: I thank three anonymous referees, Kyle Bagwell, Richard Baldwin, Eileen Brooks, Barry Eichengreen, Rob Feenstra, Jeff Frankel, Hans Genberg, BenGoodrich, Pierre-Olivier Gourinchas, Miriam Green, Gene Grossman, Harry Huizinga, Doug Irwin, Peter Kenen, Pravin Krishna, Paul Krugman, Rich Lyons, Assaf Razin, Gary Saxonhouse, Chris Sims, Lars Svensson, and seminar participants at Berkeley, the European Commission and Universite Libre de Brussels for comments; and the HKMA, ´ the MAS, and Princeton University for hospitality and helpful seminarfeedback. A conversation with Asher Isaac at Hong Kong airport and an EASE 13 paper by David Li and Changqi Wu inspired me. The data set, key output, and an unabridged version of the paper are available at my Web site ( 1 For instance, J. R. Kearl et al. (1979, p. 30) show that 97 percent of economists surveyed in 1976 agreed (generally or with provisions)that “Tariffs and import quotas reduce general economic welfare.” 98

and Trade (GATT) have actually promoted trade? Maybe not. While theory, casual empiricism, and strong statements abound, there is, to my knowledge, no compelling empirical evidence showing that the GATT/WTO has actually encouraged trade. In this paper, I provide the first comprehensive econometric study of the effect of thepostwar multilateral agreements on trade. It turns out that membership in the GATT/WTO is not associated with enhanced trade, once standard factors have been taken into account. To be more precise, countries acceding or belonging to the GATT/WTO do not have significantly different trade patterns than nonmembers. Not all multilateral institutions have been ineffectual; I find that the Generalized Systemof Preferences (GSP) extended from the North to developing countries approximately doubles trade. Thus the data and methodology clearly can deliver strong results. I conclude that we currently do not have strong empirical evidence that the GATT/WTO has systematically played a strong role in encouraging trade. To make my argument as persuasive as possible I use widely accepted techniques, aconventional empirical methodology, and standard data sets. I also examine the sensitivity of my results extensively. I do not attempt to provide any novelty in terms of data, theory, or methodology. Thus, any interest in this paper lies solely in its results; by design, there is no other innovation. The next section of the paper provides motiva-

VOL. 94 NO. 1

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