Research

We use 6-digit bilateral trade data to document the effect of WTO/GATT membership on the extensive and intensive product margins of trade. We construct gravity equations for the two product margins motivated by Chaney (2008). The empirical results show that standard gravity variables provide good explanatory power for bilateral trade on both margins. Importantly, we show that the impact of the WTO is concentrated almost exclusively on the extensive product margin of trade, i.e. trade in goods that were not previously traded. In our preferred specification, WTO membership increases the extensive margin of exports by 25%. At the same time, WTO membership has a negative impact on the intensive margin. Based on novel comparative statics results about how fixed and variable trade costs impact the product margins of trade, our results suggest that WTO membership works by reducing primarily the fixed rather than the variable costs of trade.

This paper analyzes the impact of corruption on bilateral trade flows, highlighting the dual role of corruption in terms of extortion and evasion. On one hand, corruption taxes trade, when corrupt customs officials in the importing country extort bribes from exporters (the extortion effect); on the other, if tariffs are high, corruption may be trade enhancing, when the corrupt officials allow exporters to evade tariff barriers (the evasion effect). The paper derives and estimates a corruption-augmented gravity model that shows that the effect of corruption on trade flows is ambiguous and is contingent on the level of tariffs. The predictions are borne out in the data: corruption taxes trade in the majority of cases, but in high tariff environments (covering 5-14% of the observations,) its marginal effect is trade-enhancing.

In this paper, we present a model of trade and unemployment, in which unemployment is search induced and trade arises as a result of Heckscher-Ohlin (H-O) comparative advantage based on differences in factor proportions and/or Ricardian comparative advantage based on relative technological differences. Using cross-country data on various measures of trade policy, unemployment, and a variety of controls (that include labor-market institutions and macroeconomic distortions), and controlling for endogeneity and measurement error problems, we find fairly strong and robust evidence for the Ricardian prediction that unemployment and trade openness are negatively related (protection and unemployment are positively related). This effect of trade seems to dominate the H-O effect of trade openness on unemployment that changes from negative to positive as we move from labor-abundant to capital-abundant countries. Using panel data, we find support for an unemployment increasing short-run impact effect of trade liberalization, followed by an unemployment reducing effect leading to the new steady state.