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Note: this is an informal, unpublished memo, on which I have not spent much time.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

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 (?)

There is no good bilateral model of capital flows
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.

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.

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.