Template-Type: ReDIF-Paper 1.0

Author-Name:  Bernhard Herz
Author-X-Name-First: Bernhard
Author-X-Name-Last: Herz

Author-Name:  Marco Wagner
Author-X-Name-First: Marco
Author-X-Name-Last: Wagner

Title: Do the World Trade Organization and the Generalized System of Preferences foster bilateral trade?
Abstract: World trade has grown exponentially during the last 60 years. Admittedly, it is not clear if
this development can be assigned to international trade agreements like the World Trade
Organization or the Generalized System of Preferences as previous empirical studies found
contradicting results. In this paper we generalize the different approaches used in the lit-
erature to estimate the role of GATT/WTO and the Generalized System of Preferences
for trade. We use a gravity model and apply FE estimation on a disaggregated bilateral
data set of the trade flows between 145 countries across 1962-99. In our analysis we find a
significant positive effect of WTO membership on bilateral trade. Referring to other multi-
lateral institutions, we find robust evidence that membership in regional trade agreements
or currency unions substantially increase bilateral trade flows as well. By contrast, we fi	nd
that the Generalized System of Preferences does not foster trade in general, rather the
opposite. This might be due to the opportunistic behavior of industrial countries that
grant GSP schemes as long as the concerned products are relatively unimportant, but
restrict them as soon as they become relevant.
Length:  24 pages
Creation-Date:  2007-01
File-URL: http://www.bgpe.de/texte/DP/020_herz_wagner.pdf
File-Format: Application/pdf
File-Function: First version, 2007
Number: 020
Classification-JEL: C13, C15, F13, F15
Keywords: WTO, GSP, regional trade agreements, currency union, gravity model, international trade
Handle: RePEc:bav:wpaper:020_herz_wagner.pdf