Gains from Trade and Proportional Output Effects on Total Factor Productivity Growth in WTO Member Nations

Global trade has grown enormously over the decades with world exports nearing 26 trillion USD and there are now 166 member nations of the World Trade Organization (WTO), the world’s largest trade organization. While not without any costs, the broad uncontroversial consensus seems to be that trade has benefited the world and has done so by raising the wealth of all nations involved. The proposed mechanism of this action is in specialization and efficiency gains, measured in this paper as Total Factor Productivity (TFP). The WTO acts to lower trade barriers and encourage broad trade, but most countries go even further to develop deeper trade agreements. Clearly countries have found it beneficial for political or economic reasons to deepen trade even after having broad trade access as a WTO member. However, this raises a question: Why go deeper? Are there substantial efficiency gains to be made from further trade liberalization and deeper trade agreements? This paper finds real, although minimal, impacts on TFP growth as countries gain access to more economic output relative to the size of their economy through deeper Regional Trade Agreements.