Economic Review 2004.I used a bilateral "gravity" model of trade and showed that dummy variables for membership by either one or two countries in the GATT had only small effects on trade.In essence, TGR point out that a lot of countries were not formal members of the GATT but still participated in it as colonies, de facto, or provisional members.TGR argue that if one includes these other types of more informal membership, you get large positive effects.

This paper estimates the effect on international trade of multilateral trade agreements—the World Trade Organization (WTO), its predecessor the General Agreement on Tariffs and Trade (GATT), and the Generalized System of Preferences (GSP) extended from rich countries to developing countries. I use a standard “gravity” model of bilateral merchandise trade and a large panel data set covering over 50 years and 175 countries. An extensive search reveals little evidence that countries joining or belonging to the GATT/WTO have different trade patterns from outsiders, though the GSP seems to have a strong effect.

A wide variety of empirical exchange rate mo.dels have been estimated over the years. But, despite the considerable energies that have been devoted to this work, the economics profession has remarkably little to show for itself. There is little evidence that conclusively links the bilateral exchange rates of typical OECD countries to fundamental macroeconomic determinants of exchange rates, such as money, output, relative prices, or interest differentials. Coefficient estimates are notoriously unstable and frequently mis-signed (compared with theoretical predictions); exchange rate equations do not fit particularly well, and forecast no better than the simplest naive alternatives. Recently, a new class of exchange rate models was introduced by Paul Krugman (1988). These models provide a potential reason for the poor performance of traditional exchange rate models, because they are nonlinear. If the exchange rate actually depends in a nonlinear way on exogenous macroeconomic fundamentals, linear exchange rate models may work poorly, even though the exchange rate is closely linked to fundamentals. In this paper we provide a brief sketch of some of this work, as well as some preliminary evidence on the actual performance of these nonlinear models. In our empirical analysis, we use a nonparametric estimator that can handle a wide variety of nonlinear phenomena. We examine fixed exchange rate regimes, where nonlinearities should be quite easy to detect. However, we do not find strong empirical support for the hypothesis that the incorporation of nonlinear effects significantly improves models of exchange rate determination. In Section I, we briefly review the theoretical literature on nonlinear target zone exchange rate models, linking this work to the tests for intrinsic bubbles (we draw heavily on recent papers by Kenneth Froot and Maurice Obstfeld, 1989a,b). Our methodology and data are discussed in Section II; Section III contains new empirical tests for nonlinearities in exchange rate models.

National Money as a Barrier to International Trade: The Real Case for Currency Union by Andrew K. Rose and Eric van Wincoop. Published in volume 91, issue 2, pages 386-390 of American Economic Review, May 2001