The Impacts of GATT/WTO on Firm Dynamics: 1978-2015

15:30-17:00, Friday, October 9, 2020

Tencent Meeting (Meeting ID: 225 380 200)

Dr. Renjing CHEN is now a fifth year Ph.D candidate in Economics at School of Economics, Singapore Managemrnt University. Her research interest is International Trade.

In this paper, we develop a general equilibrium model to identify the partial direct effects of GATT/WTO on variable trade cost and fixed trade cost, respectively. Specifically, this model considers both active and inactive trade between country pairs. We then use a two-stage procedure to estimate the GATT/WTO effects on the incidence and volume of trade while correcting the selection bias from inactive trade. The estimation results show that GATT/WTO membership mainly reduces variable trade costs rather than fixed trade costs, thus enlarging the disparity between large firms and small firms. In the counterfactual analysis, we study the changes in welfare, trade flow, extensive margins, and intensive margins when facing the trade cost shocks associated with GATT/WTO membership. The fact that trade flow is truncated at zero prevents most literature from studying the status change of inactive trade in the counterfactual. However, in this paper, the latent variable in the general equilibrium framework allows us to investigate the trade status and volume change of both active and inactive trade, thus filling in the gap in the literature. According to the counterfactual results, GATT/WTO increases the welfare of countries by 2.09 percent on average. In addition, shut down GATT/WTO effects also generally reduce the trade flow, extensive margin and intensive margin.

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