1. 13-14 Oct 20061 What is the Impact of WTO Accession? Evidence from the World David D. Li and Changqi Wu The Global Institute Conference The 2 nd Annual China-Russia Conference The Role of the State in the Economy in the 21th Century

2. 13-14 Oct 20062 I. Motivations 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. 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.

3. 13-14 Oct 20063 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.

4. 13-14 Oct 20064 E xisting 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).

5. 13-14 Oct 20065 Existing Theories and Opinions (cont.) On economic growth (competing opinions) GDP growth will increase, due to efficiency improvement; 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)

6. 13-14 Oct 20066 No Systematic Studies This is surprising, given the existence of 1) widely different theories/wisdoms/ opinions on these issues; 2) extensive observations of the events of WTO (GATT) accession. 3) Controversy on openness and globalization.

7. 13-14 Oct 20067 II. Methodology and Dataset 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.

8. 13-14 Oct 20068 The Data Set 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 IMF International Financial Statistics World Bank: World Development Indicators UNCTAD (World Investment Report) WTO

9. 13-14 Oct 20069 III. Findings 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

10. 13-14 Oct 200610 3.1. Summary of Accession Economies Most of the economies were developing economies at the time of accession with low or medium level per capital income. We put all economies into 2 groups: GDP per capita below or at US$3,000 and over US$3,000 Many economies are small in terms of population 13 economies with population under 1 million at the time of accession Countries differ in their social economic institutions Common law legal system Continental law system Socialist system

11. 13-14 Oct 200611 3.2 Impact on Accession Economies On growth rate 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.

12. 13-14 Oct 200612 Impact on Accession Economies On capital stock 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 High income counties experience statistically significant increases in both export and import growth rate.

13. 13-14 Oct 200613 Impact on the Total Factor Productivity WTO Accession improves the TFP of high income countries, but not so much for low income countries.

14. 13-14 Oct 200614 Conclusions Among the developing countries, the relatively well- off 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.