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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 of bilateral 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 international trade 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 the protestors-really care about the WTO at all? Do we really know that the WTO and its predecessor the General Agreement on Tariffs 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 the postwar 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 System of 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, a conventional empirical methodology, and standard data sets. I also examine the sensitivity of my results...