Notes on Other Things the WTO Might be Doing (besides liberalizing trade)

Andrew K. Rose UC Berkeley NBER and CEPR

Revised Draft: November 18, 2003

 

I’ve argued in a series of papers that the GATT/WTO hasn’t had much effect on either trade or trade policy (these papers and other relevant materials are available under “The Multilateral (GATT/WTO) System and Trade” topic category in my Research webpage).  Still, perhaps the WTO has other ambitions.  One would like to examine the possible effects of GATT/WTO membership on other international economic phenomena.  At the top of the list are: capital flows, FDI, and services.  In this brief memo I set out the issues associated with each.

 

Note: this is an informal, unpublished memo, on which I have not spent much time.

 

Capital Flows

  • Bilateral capital flow data exist for flows between the US and the ROW.  The website is www.ustreas.gov/tic/
  • Still, there are serious problems.
    1. The data set is available from 1988 onwards, and only for the US vis-à-vis the rest of the world.  During this period of time, there were data for few countries that switched GATT/WTO status, and few outsiders.
      • Outsiders: Bahamas, Bermuda (?), Lebanon, Liberia, Russia, Syria
      • Switchers: Bulgaria, Ecuador, Guatemala, Panama, Venezuela
        • After 1999 or questionable: China, Taiwan, Czech Rep (?)
    2. There is no good bilateral model of capital flows
    3. The WTO doesn’t say that it tries to liberalize capital flows

 

FDI

  • Bilateral FDI data is available from the OECD from 1985-1999 [A1].
  • The gravity model probably works OK for FDI
  • The WTO doesn’t say that it tries to liberalize capital flows.  That may not be a serious problem, since some FDI is either a substitute for or a complement to trade in practice.
  • Problems
  1. All the FDI source countries are continuous GATT/WTO members.  Still, there are a few outsiders/switchers in the host/recipients
  • Switchers: Mexico (barely outside in the sample since it joined in 1986), Morocco (barely), Costa Rica, Panama, Venezuela, UAE, Hong Kong (barely)
  • Outsiders: Algeria, Libya, Saudi Arabia, Iran
  • Results
    • Membership has no economically or statistically significant effect, if you use a standard gravity model estimated with standard panel data techniques.  Results are in Table 1 below.
    • The output is available here.

Table 1: Determinants of Log of Bilateral FDI Flows [AR2] 

  Fixed Effects Random

Effects
Both in GATT/WTO -.01

(.16)

 .04

(.15)
GSP .54

(.78)

 -.11

(.24)
Regional

FTA

 .16

(.19)

 .54

(.19)
Log

Distance

 .17

(.14)
Log product Real GDP -2.79

(.29)

 .43

(.07)
Log product Real GDP p/c 2.83

(.30)

 -.17

(.08)
Currency

Union

 5.04

(1.57)
Common Language .74

(.29)
Land

Border

 2.38

(.94)
Number Landlocked -.37

(.24)
Number

Islands

 .77

(.22)
Log product

Land Area

 -.03

(.05)
Currently Colonized .43

(.47)

 .55

(.49)
Ever

Colony

 .90

(.47)
R2 .37 .33

Regressand: log FDI.  Intercepts and year controls not reported.  2663 observations in 308 country-pairs.

 

Services

  • Bilateral service trade data exist, gathered by the OECD.  The website is http://www.oecd.org/EN/document/0,,EN-document-423-nodirectorate-no-1-32974-24,00.html
  • Still, there are problems.
  1. The data set is available for two years only, 1998-99 and 1999-2000.
  2. The data exist for bilateral flows between the OECD (always members) and selected other countries.  Still, some are not WTO members.
  • Results
    • At least one country is always a WTO member (since it’s OECD data and all OECD members are in the WTO now).  But service trade with non-WTO members is higher with a coefficient of .38 (.18), barely significant.  No sign that WTO membership encourages trade in services.
    • The output is available here.

Table 2: Determinants of Bilateral Service Flows [AR3] 

One in GATT/WTO .38

(.18)
GSP .30

(.13)
Regional

FTA

 -.16

(.15)
Log

Distance

 -1.01

(.08)
Log product Real GDP .96

(.04)
Log product Real GDP p/c .31

(.05)
Common Language .99

(.19)
Land

Border

 .02

(.25)
Number Landlocked -.00

(.13)
Number

Islands

 .20

(.13)
Log product

Land Area

 -.01

(.03)
Ever

Colony

 .67

(.37)
R2 .80

Regressand: log bilateral service trade (exports plus imports).  Intercepts and year controls not reported.  OLS estimation.  1053 observations.


[A1] We have it in \res\Spiegel\pan>\res\wto\progs\serv1.log
[A2] \res\wto\progs\fdi.log
[A3] \res\wto\progs\fdi.log