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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 ,
Xuepeng Liu ,
Miao Wang  and
M. C. S. Wong Open the ORCID record for M. C. S. Wong [Opens in a new window]
Abdur Chowdhury
Affiliation:
Department of Economics, Marquette University, 606 N. 13th St., Milwaukee, WI53233, USA
Xuepeng Liu
Affiliation:
Department of Economics & Finance, Kennesaw State University, Kennesaw, GA30144, USA
Miao Wang
Affiliation:
Department of Economics, Marquette University, 606 N. 13th St., Milwaukee, WI53233, USA
M. C. S. Wong*
Affiliation:
Hobby School of Public Affairs, University of Houston, 3623 Cullen Boulevard, Room 306, Houston, TX77204, USA
*
*Corresponding author. E-mail: mwong8@central.uh.edu
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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.

Keywords

World Trade Organizationmultilateralismtrade stability and volatilitygravity modelevent studyspatial analysis

JEL classification

F14: Empirical Studies of Trade F02: International Economic Order and Integration F13: Trade Policy • International Trade Organizations
Type
Original Article
Information
World Trade Review , Volume 20 , Issue 5 , December 2021 , pp. 668 - 689
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

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