In Search of WTO Trade Effects: Preferential Trade Agreements Promote Trade Strongly, But Unevenly by Theo S. Eicher; Christian Henn

Author:Theo S. Eicher; Christian Henn
Language: eng
Format: epub
ISBN: 9781452787411
Publisher: International Monetary Fund
Published: 2009-08-15T00:00:00+00:00

V. INDIVIDUAL PTA TRADE EFFECTS, MULTILATERAL RESISTANCE, AND UNOBSERVED BILATERAL HETEROGENEITY (MUTUALLY INCLUSIVE WTO CODING)

Rose (2004 and 2005) controlled for unobserved bilateral heterogeneity through country-pair fixed effects. Nevertheless, SW lamented that he did not control fully for multilateral resistance. By introducing comprehensive controls for multilateral resistance to Rose’s dataset, we unify the SW and Rose approaches. Our approach controls for all three key determinants of trade under both coding conventions: unobserved bilateral heterogeneity, multilateral resistance, and individual PTA effects. The unified approach allows us to highlight whether any results are due to mutually inclusive (Rose) or mutually exclusive (SW) coding of WTO dummies. To allow for a comparison between Rose and SW coding results, we split Rose’s inclusive WTO-dummy into SW-style indicators for industrialized and developing importers’ WTO membership.

Our robustness analysis reexamines regressions 1-6 using inclusive trade agreement coding. Our first set of regressions, which includes multilateral resistance but excludes country-pair fixed effects, is then given by

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