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What Does Trade Openness Measure?

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  • Eiji Fujii

Abstract

An empirical measure of trade openness is defined as the ratio of total trade to GDP, and represents a convenient variable routinely used for cross-country studies on a variety of issues. However, the effects that the crude measure captures remain ambiguous, making it difficult to interpret the empirical results. Drawing on several strands of the literature, this study examines the informational content of the trade openness measure using intranational and international data. We find that, even for fully integrated economies within a country, trade openness is approximately half as variable as it is for segmented diverse countries around the world. The information it conveys is better characterized as the extent of the economic remoteness and idiosyncratic distribution of sectoral production. The cross-country variation of trade openness derives more from the variability in GDP than trade.

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  • Eiji Fujii, 2017. "What Does Trade Openness Measure?," CESifo Working Paper Series 6656, CESifo.
    • Handle: RePEc:ces:ceswps:_6656
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    Cited by:

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    More about this item

    Keywords

    trade openness; specialization; gravity model; market integration; price deviations; remoteness;
    All these keywords.

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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