The WTO Promotes Trade, Strongly But Unevenly

The General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), were set up to promote world trade. That trade increased courtesy of this institution may seem self-evident. To the doubters, Bhagwati (1991) has this succinct riposte:

“A common criticism is that the GATT in truth is the General Agreement to Talk and Talk: It has delivered nothing. This is nonsense.”

However, in one of the first and very few empirical analyses of this question, Rose (2002a and 2002b), after an impressively meticulous and comprehensive scrutiny, has argued that there is no evidence that the World Trade Organization (WTO) has increased world trade. To quote Rose (2002a):

“My quantitative examination indicates that there is little reason to believe that the GATT/WTO has had a dramatic effect on trade. In particular, once standard gravity effects have been taken into account, bilateral trade cannot be strongly and dependably linked to membership in the WTO or its predecessor the GATT.”

In this paper, we attempt to reconcile the apparent inconsistency between the well-entrenched belief in the benefits of the WTO and the conclusion of Rose’s analysis. We will furnish evidence that Rose’s analysis is incomplete and can be misread seriously. The incompleteness is on two grounds.