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Does the Dollar Index Really Measure Outward Orientation?

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TURAN SUBASAT

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Abstract

This paper assesses an important attempt to measure 'trade orientation' by a World Bank economist, David Dollar. Recognising the difficulties in measuring trade openness, Dollar (1992) produced an index of outward orientation. He adjusted national price levels with factor endowments, and used the difference between actual and predicted price levels as a measure of real exchange rate distortion. Although the 'Dollar index' was produced almost ten years ago and has been subject to various criticisms, it still remains the most popular measure of trade openness. First, this paper argues that the critics have not been entirely successful in discrediting the index. It goes on to produce alternative theoretical and empirical evidence that suggests that the Dollar index has fundamental flaws, and thus has no relevance to the debate on trade orientation and should be abandoned.

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Article provided by Taylor and Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 17 (2003)
Issue (Month): 3 (July)
Pages: 309-326
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Handle: RePEc:taf:irapec:v:17:y:2003:i:3:p:309-326

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  2. Pritchett, Lant, 1996. "Measuring outward orientation in LDCs: Can it be done?," Journal of Development Economics, Elsevier, vol. 49(2), pages 307-335, May. [Downloadable!] (restricted)
  3. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 59-73. [Downloadable!] (restricted)
  4. Fajana, Olufemi, 1979. "Trade and growth: The Nigerian experience," World Development, Elsevier, vol. 7(1), pages 73-78, January. [Downloadable!] (restricted)
  5. Balassa, Bela, 1978. "Exports and economic growth : Further evidence," Journal of Development Economics, Elsevier, vol. 5(2), pages 181-189, June. [Downloadable!] (restricted)
  6. Heller, Peter S. & Porter, Richard C., 1978. "Exports and growth : An empirical re-investigation," Journal of Development Economics, Elsevier, vol. 5(2), pages 191-193, June. [Downloadable!] (restricted)
  7. Rod Falvey & Norman Gemmell,, . "Factor Endowments, Nontradables Prices and Measures of Openness" "," Discussion Papers 97/14, University of Nottingham, CREDIT.
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  8. Krueger, Anne O, 1980. "Trade Policy as an Input to Development," American Economic Review, American Economic Association, vol. 70(2), pages 288-92, May. [Downloadable!] (restricted)
  9. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-national Evidence," Electronic Working Papers 99-003, University of Maryland, Department of Economics. [Downloadable!]
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  10. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June. [Downloadable!] (restricted)
  11. Kavoussi, Rostam M., 1984. "Export expansion and economic growth : Further empirical evidence," Journal of Development Economics, Elsevier, vol. 14(1), pages 241-250. [Downloadable!] (restricted)
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  13. Ram, Rati, 1985. "Exports and Economic Growth: Some Additional Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 33(2), pages 415-25, January.
  14. Robert E. Baldwin, 2000. "Trade and Growth: Still Disagreement about the Relationships," OECD Economics Department Working Papers 264, OECD, Economics Department. [Downloadable!]
  15. Ram, Rati, 1987. "Exports and Economic Growth in Developing Countries: Evidence from Time-Series and Cross-Section Data," Economic Development and Cultural Change, University of Chicago Press, vol. 36(1), pages 51-72, October.
  16. Michaely, Michael, 1977. "Exports and growth : An empirical investigation," Journal of Development Economics, Elsevier, vol. 4(1), pages 49-53, February. [Downloadable!] (restricted)
  17. Bhagwati, Jagdish N, 1984. "Why Are Services Cheaper in the Poor Countries?," Economic Journal, Royal Economic Society, vol. 94(374), pages 279-86, June. [Downloadable!] (restricted)
  18. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September. [Downloadable!] (restricted)
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  19. Westphal, Larry E., 1978. "The republic of Korea's experience with export-led industrial development," World Development, Elsevier, vol. 6(3), pages 347-382, March. [Downloadable!] (restricted)
  20. David Dollar & Aart Kraay, 2004. "Trade, Growth, and Poverty," Economic Journal, Royal Economic Society, vol. 114(493), pages F22-F49, 02. [Downloadable!] (restricted)
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  21. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank. [Downloadable!]
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