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The Role of Multilateralism of the WTO in International Trade Stability

Published online by Cambridge University Press:  06 April 2021

Abdur Chowdhury
Affiliation:
Department of Economics, Marquette University, 606 N. 13th St., Milwaukee, WI 53233, USA
Xuepeng Liu
Affiliation:
Department of Economics & Finance, Kennesaw State University, Kennesaw, GA 30144, USA
Miao Wang
Affiliation:
Department of Economics, Marquette University, 606 N. 13th St., Milwaukee, WI 53233, USA
M. C. S. Wong
Affiliation:
Hobby School of Public Affairs, University of Houston, 3623 Cullen Boulevard, Room 306, Houston, TX 77204, USA
Corresponding
E-mail address:

Abstract

We look at the effect of the WTO on stabilizing international trade using both a fixed-effects and an event study approach. Our results show that WTO members experience lower trade volatilties in a predictable and integrated system. In addition, we focus on the trade volatility comovement among countries in a multilateral framework. Previous research has mainly focused on WTO membership in a bilateral trade framework, which only allows interactions between two trade partners without considering any possible influence from other countries. A bilateral trade framework does not fully capture the effect of WTO membership, nor does it investigate why the multilateral platform of the WTO should exist. With a unique setup estimating interactions among multiple trading dyads, we find strong evidence supporting positive correlation or comovement of trade volatilities across trading pairs. Such a comovement appears much stronger among WTO members than between WTO and non-WTO members. Due to the feedback mechanism among dyads in a multilateral framework, such as the WTO, bilateral trade stability may further stabilize the global trade. Our results remain robust to a battery of sensitivity checks.

Type
Original Article
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

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Chowdhury et al. supplementary material

Chowdhury et al. supplementary material

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