Hostname: page-component-586b7cd67f-gb8f7 Total loading time: 0 Render date: 2024-11-24T00:44:18.221Z Has data issue: false hasContentIssue false
  • English
  • Français

The Role of Multilateralism of the WTO in International Trade Stability

Published online by Cambridge University Press:  06 April 2021

Abdur Chowdhury ,
Xuepeng Liu ,
Miao Wang  and
M. C. S. Wong Open the ORCID record for M. C. S. Wong [Opens in a new window]
Abdur Chowdhury
Affiliation:
Department of Economics, Marquette University, 606 N. 13th St., Milwaukee, WI53233, USA
Xuepeng Liu
Affiliation:
Department of Economics & Finance, Kennesaw State University, Kennesaw, GA30144, USA
Miao Wang
Affiliation:
Department of Economics, Marquette University, 606 N. 13th St., Milwaukee, WI53233, USA
M. C. S. Wong*
Affiliation:
Hobby School of Public Affairs, University of Houston, 3623 Cullen Boulevard, Room 306, Houston, TX77204, USA
*
*Corresponding author. E-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

We look at the effect of the WTO on stabilizing international trade using both a fixed-effects and an event study approach. Our results show that WTO members experience lower trade volatilties in a predictable and integrated system. In addition, we focus on the trade volatility comovement among countries in a multilateral framework. Previous research has mainly focused on WTO membership in a bilateral trade framework, which only allows interactions between two trade partners without considering any possible influence from other countries. A bilateral trade framework does not fully capture the effect of WTO membership, nor does it investigate why the multilateral platform of the WTO should exist. With a unique setup estimating interactions among multiple trading dyads, we find strong evidence supporting positive correlation or comovement of trade volatilities across trading pairs. Such a comovement appears much stronger among WTO members than between WTO and non-WTO members. Due to the feedback mechanism among dyads in a multilateral framework, such as the WTO, bilateral trade stability may further stabilize the global trade. Our results remain robust to a battery of sensitivity checks.

Keywords

World Trade Organizationmultilateralismtrade stability and volatilitygravity modelevent studyspatial analysis

JEL classification

F14: Empirical Studies of Trade F02: International Economic Order and Integration F13: Trade Policy • International Trade Organizations
Type
Original Article
Information
World Trade Review , Volume 20 , Issue 5 , December 2021 , pp. 668 - 689
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Anderson, J. and van Wincoop, E. (2003) ‘Gravity with Gravitas: A Solution to the Border Puzzle’, American Economic Review 93(1), 170–192.CrossRefGoogle Scholar
Anselin, L. (1988) Spatial Econometrics: Methods and Models. Boston. MA: Kluwer Academic Publishers.CrossRefGoogle Scholar
Anselin, L. (2003a) ‘Spatial Externalities, Spatial Multipliers and Spatial Econometrics’, International Regional Science Review 26(2), 153–166.CrossRefGoogle Scholar
Anselin, L. (2003b) ‘Spatial Econometrics’, in Baltagi, B. (ed.), A Companion to Theoretical Econometrics. Hoboken, NJ: Blackwell Publishing Ltd, pp. 310–330.Google Scholar
Bacchetta, M., Beverelli, C., Cadot, O., Fugazza, M., Grether, J.-M., Helble, M., Nicita, A., and Piermartini, R. (2012) ‘A Practical Guide to Trade Policy Analysis’, United Nations and World Trade Organization, New York, NY, USA.Google Scholar
Baldwin, R. (2012) ‘WTO 2.0: Global Governance of Supply-Chain Trade’, CEPR Policy Insight No. 64.Google Scholar
Baldwin, R. (2013) ‘Global Supply Chains: Why They Emerged, Why They Matter, and Where They Are Going’, in Elms, D. and Low, P. (eds.), Global Value Chains in a Changing World. Geneva, Switzerland: World Trade Organization, pp. 13–59.Google Scholar
Baxter, M. and Kouparitsas, M. (2005) ‘Determinants of Business Cycle Comovement: A Robust Analysis’, Journal of Monetary Economics 52(1), 113–157.CrossRefGoogle Scholar
Behrens, K., Ertur, C., and Koch, W. (2012) ‘Dual Gravity: Using Spatial Econometrics to Control for Multilateral Resistance’, Journal of Applied Econometrics 27(5), 773–794.CrossRefGoogle Scholar
Bista, R. (2015) ‘Reconciling the WTO Effects on Trade at the Extensive and Intensive Margins’, International Economic Journal 29(2), 231–257.CrossRefGoogle Scholar
Blattman, C., Hwang, J., and Williamson, J. (2007) ‘Winners and Losers in the Commodity Lottery: The Impact of Terms of Trade Growth and Volatility in the Periphery 1870–1939’, Journal of Development Economics 82(1), 152–179.CrossRefGoogle Scholar
Brueckner, M. and Carneiro, F. (2017) ‘Terms of Trade Volatility, Government Spending Cyclicality, and Economic Growth’, Review of International Economics 25(5), 975–989.CrossRefGoogle Scholar
Cadot, O., Olarreaga, M., and Tschopp, J. (2008) ‘Does Regionalism Reduce the Volatility of Trade Policy?’, Mimeo, www.wto.org/english/res_e/reser_e/gtdw_e/wkshop08_e/cadot_e.pdf.Google Scholar
Chang, P.-L. and Lee, M.-J. (2011) ‘The WTO trade effect’, Journal of International Economics 85(1), 53–71.CrossRefGoogle Scholar
Cho, S.-Y., Dreher, A., and Neumayer, E. (2014) ‘Determinants of Anti-Trafficking Policies: Evidence from a New Index’, Scandinavian Journal of Economics 116(2), 429–454.CrossRefGoogle Scholar
Clark, T. and van Wincoop, E. (2001) ‘Borders and Business Cycles’, Journal of International Economics 55(1), 59–85.CrossRefGoogle Scholar
Crawford, J. and Laird, S. (2001) ‘Regional Trade Agreements and the WTO’, North American Journal of Economics and Finance 12(2), 193–211.CrossRefGoogle Scholar
Davey, W. (2009) ‘Compliance Problems in WTO Dispute Settlement’, Cornell International Law Journal 42(1), 119–128.Google Scholar
Di Giovanni, J. and Levchenko, A. (2010) ‘Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement’, American Economic Journal: Macroeconomics 2(2), 95–124.Google Scholar
Dreher, A. and Voigt, S. (2011) ‘Does Membership in International Organizations Increase Governments’ Credibility? Testing the Effects of Delegating Powers’, Journal of Comparative Economics 39(3), 326–348.CrossRefGoogle Scholar
Egger, P. and Larch, M. (2008) ‘Interdependent Preferential Trade Agreement Memberships: An Empirical Analysis’, Journal of International Economics 76(2), 384–399.CrossRefGoogle Scholar
Felbermayr, G. and Kohler, W. (2010) ‘Modelling the Extensive Margin of World Trade: New Evidence on GATT and WTO Membership’, The World Economy 33(11), 1430–1469.CrossRefGoogle Scholar
Frankel, J. and Rose, A.K. (1998) ‘The Endogeneity of the Optimum Currency Area Criteria’, Economic Journal 108(449), 1009–1025.CrossRefGoogle Scholar
Goldstein, J., Rivers, D., and Tomz, M. (2007) ‘Institutions in International Relations: Understanding the Effects of the GATT and the WTO on World Trade’, International Organization 61(1), 37–67.CrossRefGoogle Scholar
Grimes, A. (2006) ‘A Smooth Ride: Terms of Trade, Volatility and GDP growth’, Journal of Asian Economics 17(4), 583–600.CrossRefGoogle Scholar
Haddad, M., Lim, J., Pancaro, C., and Saborowski, C. (2013) ‘Trade Openness Reduces Growth Volatility when Countries Are Well Diversified’, Canadian Journal of Economics 46(2), 765–790.CrossRefGoogle Scholar
Head, K. (2003) ‘Gravity for Beginners’, Working Paper, University of British Columbia, Vancouver, BC.Google Scholar
Head, K. and Mayer, T. (2014) ‘Gravity Equations: Workhorse, Toolkit, and Cookbook’, in Gopinath, G., Helpman, E., and Rogoff, K. (eds.), Handbook of International Economics. Vol. IV. Amsterdam: Elsevier, pp. 131–195.Google Scholar
Helpman, E., Melitz, M., and Rubinstein, Y. (2008) ‘Estimating Trade Flows: Trading Partners and Trading Volumes’, Quarterly Journal of Economics 123(2), 441–487.CrossRefGoogle Scholar
Hudec, R. (1993) Enforcing International Trade Law: The Evolution of the Modern GATT Legal System. Salem. NH: Butterworth Legal Publishers.Google Scholar
Hummels, D. (2007) ‘Transportation Costs and International Trade in the Second Era of Globalization’, Journal of Economic Perspective 21(3), 131–154.CrossRefGoogle Scholar
Iscan, T.B. (2011) ‘Changes in the Terms of Trade and Sectoral Reallocation of Labor: The Case of Guyana, Jamaica, and Trinidad and Tobago’, Open Economies Review 23(3), 473–500.CrossRefGoogle Scholar
Li, Q. and Vashchilko, T. (2010) ‘Dyadic Military Conflict, Security Alliances, and Bilateral FDI Flows’, Journal of International Business Studies 41(5), 765–782.CrossRefGoogle Scholar
Liu, X. (2009) ‘GATT/WTO Promotes Trade Strongly: Sample Selection and Model Specification’, Review of International Economics 17(3), 428–446.CrossRefGoogle Scholar
MacKinlay, C. (1997) ‘Event Studies in Economics and Finance’, Journal of Economic Literature 35(March), 13–39.Google Scholar
Maggi, G. (1999) ‘The Role of Multilateral Institutions in International Trade Cooperation’, American Economic Review 89(1), 190–214.CrossRefGoogle Scholar
Mansfield, E. and Reinhardt, E. (2008) ‘International Institutions and the Volatility of International Trade’, International Organization 62(4), 621–652.CrossRefGoogle Scholar
Moser, C. and Rose, A.K. (2014) ‘Who Benefits from Regional Trade Agreements? The View from the Stock Market’, European Economic Review 68(C), 31–47.CrossRefGoogle Scholar
Neumayer, E. and Plümper, T. (2010a) ‘Spatial Effects in Dyadic Data’, International Organization 64(1), 145–166.CrossRefGoogle Scholar
Neumayer, E. and Plümper, T. (2010b) ‘Making Spatial Analysis Operational: Commands for Generating Spatial-Effect Variables in Monadic and Dyadic Data’, Stata Journal 10(4), 1–21.CrossRefGoogle Scholar
OECD (2013) ‘Interconnected Economies: Benefiting from Global Value Chains – Synthesis Report’, Paris: Organisation for Economic Cooperation and Development.Google Scholar
Razin, A., Sadka, E., and Coury, T. (2003) ‘Trade Openness, Investment Instability and Terms-of-Trade Volatility’, Journal of International Economics 61(2), 285–306.CrossRefGoogle Scholar
Rose, A. (2004) ‘Do We Really Know That the WTO Increases Trade’, American Economic Review 94(1), 98–114.CrossRefGoogle Scholar
Rose, A. (2005) ‘Does the WTO Make Trade More Stable?’, Open Economies Review 16(1), 7–22.CrossRefGoogle Scholar
Rose, A. (2019) ‘Soft Power and Exports’, Review of International Economics 27(5), 1573–1590.CrossRefGoogle Scholar
Subramanian, A. and Wei, S. (2007) ‘The WTO Promotes Trade Strongly but Unevenly’, Journal of International Economics 72(1), 151–175.CrossRefGoogle Scholar
Tobler, W. (1970) ‘A Computer Movie Simulating Urban Growth in the Detroit Region’, Economic Geography 46(2), 234–240.CrossRefGoogle Scholar
Tomz, M., Goldstein, J., and Rivers, D. (2007) ‘Do We Really Know that the WTO Increases Trade? Comment’, American Economic Review 97(5), 2005–2018.CrossRefGoogle Scholar
Turnovsky, S.J. and Chattopadhyay, P. (2003) ‘Volatility and Growth in Developing Economies: Some Numerical Results and Empirical Evidence’, Journal of International Economics 59(2), 267–295.CrossRefGoogle Scholar
Wang, M., Wong, M.C.S., and Granato, J. (2015) ‘International Comovement of Economic Fluctuations: A Spatial Analysis’, World Development 67(March), 186–201.CrossRefGoogle Scholar
World Bank (2017) World Development Indicators. Washington, D.C.Google Scholar
WTO News (1995) Ruggiero: ‘Multilateralism is Fundamental to US-LED Strategy for Global Stability and Prosperity’, World Trade Organization Speeches – DG Renato Ruggiero, Williamsburg, Virginia, USA.Google Scholar
WTO News (2018) Azevêdo: ‘The Stability of the Trading System Is Fundamental to Our Economic Wellbeing’, World Trade Organization Speeches—DG Roberto Azevêdo, Paris, France.Google Scholar
Supplementary material: PDF

Chowdhury et al. supplementary material

Chowdhury et al. supplementary material

Download Chowdhury et al. supplementary material(PDF)
PDF 2.6 MB