Exploring the intensive and extensive margins of world trade : presented at Venice Summer Institute, Workshop on Dissecting Globalization, July 2004/ Gabriel J. Felbermayr; Wilhelm Kohler

World trade evolves at two margins. Where a bilateral trading relationship already exists it may increase through time (intensive margin). But trade may also increase if a trading bilateral relationship is newly established between countries that have not traded with each other in the past (extensive margin). We provide an empirical dissection of post-World-War-II growth in manufacturing world trade along these two margins. We propose a corner-solutions-versionʺ of the gravity model to explain movements on both margins. A Tobit estimation of this model resolves the so-called distance-puzzleʺ. It also finds more convincing evidence than recent literature that WTO-membership enhances trade.