 The WTO puzzle, multilateral resistance terms and multicollinearityJuyoung Cheong (), Do Won Kwak () and Kam Ki Tang Applied Economics Letters, 2014, vol. 21, issue 13, 928-933 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. Date: 2014 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:21:y:2014:i:13:p:928-933 Ordering information: This journal article can be ordered from DOI: 10.1080/13504851.2014.899663 Access Statistics for this article Applied Economics Letters is currently edited by Anita Phillips More articles in Applied Economics Letters from Taylor & Francis Journals |
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