Transcript Power Point Presentation

What is the Impact of WTO
Accession?
Evidence from the World
David D. Li and Changqi Wu
The Global Institute Conference
The 2nd Annual China-Russia Conference
The Role of the State in the Economy in the 21th Century
13-14 Oct 2006
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I. Motivations
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WTO accession is a big push for integration with the
world economy. It typically requires:
1) Tariff reduction;
2) More market access to foreign investors;
3) Institutional changes.
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What is the impact of WTO accession on the domestic
economy of accession economies?
This is an interesting testing case of the impact of
globalization.
This is apparently relevant to all economies that have
not yet joint the WTO.
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Existing Theories and Opinions

On international trade: (competing theories)
 Trade volume will increase after WTO due
to tariff reduction.
 It may not be the case, WTO may not
increase trade.
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Existing Theories and Opinions (cont.)

On investment: (competing theories)
 FDI will decrease, since FDI and import are
substitutes (the tariff-hopping hypothesis);
 FDI will increase since FDI and exports are
complements; when export grows, FDI
goes with it.
 FDI will increase due to more market
access (liberalization).
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Existing Theories and Opinions (cont.)
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On economic growth (competing opinions)
 GDP growth will increase, due to efficiency
improvement;
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Backward countries benefit more
GDP growth may go Down in the short-run, due to
adjustment costs (J-curve theory);
GDP growth may Not change, since “integration
into the world economy” cannot “substitute for a
development strategy.” (Rodriguez and Rodrik,
June 2000)
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No Systematic Studies
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This is surprising, given the existence
of
1)
2)
3)
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widely different theories/wisdoms/
opinions on these issues;
extensive observations of the events of
WTO (GATT) accession.
Controversy on openness and
globalization.
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II. Methodology and Dataset
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This paper is an “event study” in nature.
It documents all the events of all GATT/WTO
accessions around the world from 1960 to
1998.
It studies the impact of GATT/WTO accession
on import, export, FDI, and GDP growth.
It studies the impact of GATT/WTO accession
on total factor productivity.
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The Data Set
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A panel data set of 118 countries that joined
the WTO (GATT) in the period of 1960-98.
It contains variables 5 years before and 10
years after the WTO (GATT) accession.
Data sources
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IMF International Financial Statistics
World Bank: World Development Indicators
UNCTAD (World Investment Report)
WTO
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III. Findings
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Summary of the accession economies.
Impact of GATT/WTO accession on
international trade, investment and
growth of accession economies.
Impact of GATT/WTO accession on TFP
of accession economies
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3.1. Summary of Accession Economies
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Most of the economies were developing economies at
the time of accession with low or medium level per
capital income.
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Many economies are small in terms of population
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We put all economies into 2 groups: GDP per capita below or
at US$3,000 and over US$3,000
13 economies with population under 1 million at the time of
accession
Countries differ in their social economic institutions
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Common law legal system
Continental law system
Socialist system
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3.2 Impact on Accession Economies
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On growth rate
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High income counties experience
statistically significant increase in growth
rate of GDP before and after accession.
Low income countries experiences
statistically significant increase in growth
rate of GDP before but not after accession.
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Impact on Accession Economies
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On capital stock
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High income countries enjoy a high and longer
period of increases in growth rate of their gross
capital stock.
British legal system countries experience more
increase in growth rate of gross capital stock
Domestic or FDI?
On import and export
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High income counties experience statistically
significant increases in both export and import
growth rate.
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Impact on the Total Factor Productivity
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WTO Accession improves the TFP of high
income countries, but not so much for
low income countries.
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Conclusions
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Among the developing countries, the relatively welloff countries benefit more from GATT/WTO accession.
Countries with different economic institutions also
benefit differently from WTO accession.
Import and export grew faster after the accession
particularly for high income developing countries.
The GDP growth of the accession economies came
from a faster total factor productivity increase rather
than the FDI inflow or domestic capital formation.
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