The WTO puzzle, multilateral resistance terms and multicollinearity

Cheong, Juyoung, Kwak, Do Won and Tang, Kam Ki (2014) The WTO puzzle, multilateral resistance terms and multicollinearity. Applied Economics Letters, 21 13: 928-933. doi:10.1080/13504851.2014.899663

Author Cheong, Juyoung
Kwak, Do Won
Tang, Kam Ki
Title The WTO puzzle, multilateral resistance terms and multicollinearity
Journal name Applied Economics Letters   Check publisher's open access policy
ISSN 1350-4851
Publication date 2014-04-04
Sub-type Article (original research)
DOI 10.1080/13504851.2014.899663
Volume 21
Issue 13
Start page 928
End page 933
Total pages 6
Place of publication Abingdon, Oxon, United Kingdom
Publisher Routledge
Language eng
Formatted abstract
Since Rose’s (2004) striking finding of negligible WTO trade effects, numerous studies have attempted to solve the so-called WTO puzzle. These studies have progressively improved model specifications to control for potential sources of bias, but they often lead to conflicting results. Multilateral resistance terms (MRTs) are considered to be one of the most crucial factors to be accounted for to avoid the omitted variable bias in the gravity model. What has gone unnoticed, however, is that the control for MRTs leads to near-prefect multicollinearity because of the structural relationship between the variables that measure the General Agreement on Tariffs and Trade/World Trade Organization (GATT/WTO) membership status of any country pairs. This multicollinearity contributes to the fragility of the WTO effect estimates, as it dramatically increases SEs. In this article, we explain how this multicollinearity arises and provide evidence of it.
Keyword World Trade Organization
Gravity model
WTO puzzle
Multilateral resistance terms
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2015 Collection
School of Economics Publications
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Created: Wed, 09 Apr 2014, 21:45:18 EST by Alys Hohnen on behalf of School of Economics